european asset managers' hold over the fund market means nobody else can get access
In Europe, some 80% of assets are held in funds managed by the same company that sells them, creating limitations for future cross-border fund sales.
This is one of the conclusions of research conducted for the IMA at a time when there are a number of EU initiatives under way to create a more equal environment for cross-border sales.
Domestic asset managers, typically divisions of banks that retain a stranglehold on distribution in many countries, control about 80% of most European fund markets, according to the study, carried out by Friedrich Heinemann.
James Tew, director of fund research for Europe at Standard & Poor's, said: 'The home advantage results from daunting logistical and regulatory obstacles to a more open market. These include tax regimes that treat domestic funds more favourably, different rules governing advertising, consumer data and fund registration and administration, and cumbersome systems for processing cross-border sales.'
According to S&P, Heinemann's study estimates that the annual cost to the industry of not having a true single European fund market comes in at E5bn. It suggested that investors suffer lacklustre performance, foreign managers are denied an opportunity to offer more attractive options and firms face higher financing costs because persistently weak investment returns limit the growth of available capital and its efficient allocation.
There is some progress being made in bringing down the restrictive barriers, however, Tew added. European pension systems are growing unstable and citizens are being forced to provide directly for their own needs. This is leading to demands for access to better and more varied products and services.
'There has been an abdication of responsibility for savings by governments and a passing of that responsibility onto individuals,' he added. 'That is going to make it a larger market and will make it more relevant for third-party providers to get involved.'
The most obvious losers from a free, unified fund market are the bancassurance conglomerates that have dominated European fund provision, said S&P.
'As people take more responsibility for their savings and become more interested in the market,' Tew said, 'they may discover that the offering from bank managers is not the best available and is possibly biased.'
If the market were open to all, European fund managers would not be the only ones seeking to cash in. Foreign managers, especially from the US, have always coveted the region for its immense growth potential. Ownership of funds is low by US standards, as is investment in equities. What is attractive in Europe is the money fund managers can extract from their customers, Tew pointed out.
He added: 'Sales and management fees easily surpass those in the competitive US market.'
The expertise and economies of scale US managers enjoy should allow them to compete effectively against their European counterparts. But their enthusiasm for doing business in Europe is tempered by the obstacles to conducting cross-border business. Americans may not be the big winners in a single European market, but the US way probably will be, Tew said.
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