Luxembourgish may not be required

Luxembourg distribution and Ucits vehicles might not be the only route to
growth at home and wider pan-European distribution, explains Swedish manager Catella’s CEO Mats Andersson.

The question of how best to take advantage of the increase in cross-border fund flows is something that many asset managers are increasingly having to take a view on, as competition on factors such as price and service quality keep increasing across Europe.

One of those considering this question currently is Mats Andersson, CEO of Catella Fondförvaltning AB, the Swedish manager that has recently picked up awards for its approach to long/short Nordic equity, as part of its overall portfolio of funds offering exposure to Swedish and Nordic equity and fixed income alongside alternatives.

In 2010 the manager launched three funds out of Luxembourg for international investors: Catella Nordic Tiger, Catella Nordic Long Short Equity and Catella Nordic Corporate Bond Flex.

However, while interest has been increasing in these funds recently, other events have mean that going forward a Luxembourg presence is not automatically a given should Catella wish to increase its exposure to investors located outside the Nordic region.

As Andersson explains, the manager recently obtained regulatory authorisation to register a Swedish fund in Switzerland. The authorisation process took about a year, but it was driven by local customer demand, and having succeeded it means that Catella now is in a position to ponder whether pan-European distribution absolutely needs to go through Luxembourg.The question now is whether this can be done equally well directly from Sweden.

The question is more pertinent than ever because of the other changes wrought by Andersson since taking up his role some two years ago. In that time AUM has gone from SEK12bn to SEK26bn, with about SEK10bn of that representing new money alongside the roughly SEk3bn increase in value of capital already invested.

At the same time, the number of funds offered has been pared to 12 from 19, but the growth in the remaining portfolios has put it in a position to launch three additional funds – two equity and one fixed income – by the second quarter of 2014. “Along with the slimming of the funds range we have boosted sales efforts. That has helped inflows,” Andersson says.

Most sales go through third party distribution, with about 10-15% institutional, and most sales overall going to the Swedish market. However, the fixed income and alternative funds are seeing growing interest from outside the home market.

Meanwhile, it is that continued growth in the home market that has brought about the focus of the three new products: they are intended to be Special Fonder, that is, funds that fall under Swedish funds law and not Ucits.

Andersson is expecting final approval from the Swedish Financial Supervisory Authority (Finansinspektionen) in April, which would enable sales to start in May. There are solid reasons why the manager has not gone the Ucits route, he explains.

“There is lots of competition and it is hard to stick out. If you want to generate alpha and avoid being an index hugger you need to be able to deliver something different to investors.”

“Also, the Swedish regulation of special funds is very tight and has been used for many years. Catella’s flagship fund is a special fund too. It can be a challenge for some customers that it’s not Ucits, but we have a lot of customer relationships.”

This different approach means that the funds should be more interesting for those seeking diversification. Otherwise, the risk is that investors seek index-like products.

In terms of potential non-Swedish customers, Andersson feels that the family office and fund of funds are the most likely. Catella is working with partners in this area in markets such as Luxembourg and Switzerland, as well as parts of Germany.

However, the manager is not focused on a broad front regarding development of its business across Europe. In Sweden, Andersson still feels that despite the strong performance of the local stock market over the past year, local investors are still being slightly risk averse – evidenced by the flows to balanced funds.

Going forward he sees some changes that could yet influence investor choices in other ways. Examples include the industry debate around commission rules and the political debate around the PPM platform for long term savers – PPM is the Swedish Pensions Agency provided platform facilitating self-selection of funds, but the main opposition party has proposed reducing its scope ahead of elections later this year. Pricing pressures on fund of funds could lead to a tendency to invest more in index products, Andersson suggests.

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