Danish taxes remain challenge to foreign managers
Ketil Petersen is country head, Nordic Region at Schroders based in Copenhagen, where the international manager faces a particular tax problem – as it affects all international managers seeking to make headway into the local fund market.
Proportionately, funds are a key method of saving and investing. Data from Investeringsfondsbranchen, the Danish Investment Fund Association, suggests some 770,000 Danes are invested in locally listed fund shares, with some DKK1.3trn (€174bn) in assets. And they will have been encouraged by the average return of 36% seen from Danish equity funds in 2013.
However, as Petersen notes, other data points to a very low penetration rate of international Ucits: the gross flows from Finland are five times what they are from Denmark, he says. Tax policy remains a key issue in this respect, particularly in terms of reporting to Danish tax authorities.
The European Commission has opened a case against Denmark, because it sees this as a barrier to free trade.
“Experts expect change within the next couple of years and a government commission may look at this as part of
AIFMD,” Petersen explains.
Regulations are a ‘known unknown’; the challenge is trying to understand how they may impact the industry. For example, in Denmark a committee has been set up to consider regulatory changes on RDR, but it contains a lot of consumer representatives, Petersen says.
As in many places across Europe, the industry locally is attempting to calculate the impact of changes associated with RDR. Schroders sees two channels to the Nordic region; institutional and wholesale. But when RDR comes to the region it will impact ways products are distributed.
Petersen looks to the example of Benelux; where he sees moves by banks to sub-advise while retaining control over clients.
“Our expectations is that there will be more guided architecture and sub-advisory mandates available,” he says.
Looking around the region, Petersen notes that Norway could become an interesting fund market. Local investors are often heavily invested in property because of tax incentives, which requires political intervention to reverse.
Elsewise, Norway has traditionally been a defined benefit market, but is shifting towards defined contribution.
“The old DB system and life sector is challenged by new solvency requirements, which mean this is not efficient in terms of long term savings. People are looking elsewhere now. It is like 1998 in Denmark, when Skandia was first to come up with a DC solution.”
Sweden and Finland remain bigger markets for international funds from his perspective, while Schroders in the Nordic region overall had its second best year ever last year in terms of the intermediary market.
Looking ahead, Petersen suggests that the managers is looking to do more multi asset solutions business in the region.
“Most of the industry is focused on the accumulation phase. But there is a need to look more at decumulation, a need to look more at risk, age, and length of retirement,” he says.
“Clients should be looking more at outcomes, for example, a growth focus with limited downside.”
The income theme is another that Schroders is keen to bring to the Nordic region. Offering a target return of 5% annually has sold well in Italy and Asia.
In terms of absolute return Schroders has its GAIA alternatives platform based in Luxembourg. Other international managers are seeking to access this platform and distribution.
Fixed income remains a challenge for many clients because of the current environment of low yields and low interest rates.
“Flexible income and macro driven strategies are going to be the new normal in the years to come,” explains Petersen.