the average fund size now stands at $99m with 14% holding less than £5m in assets
Market falls over the past year have lead to 14% of the funds universe now consisting of portfolios with assets under £5m.
While the total number of portfolios in the UK universe has increased marginally from October 2001 to October 2002, the total value of the funds has decreased by almost £26bn over the period. This has led to a reduction in the average fund size in the total universe from £114m to £99m.
There were 1,962 funds available to investors in October 2001 compared to 1,982 a year later, an increase of only 20 funds. However, the discrete data suggests there has not been a uniform increase over this time. From December 2001 to January 2002, the number of funds decreased by 22.
Fund launches over the past year have sought to attract investors in a bear market and therefore have predominantly consisted of fixed interest, distribution and multi-manager portfolios.
Much of the value in the funds universe has been wiped off due to falls in global stock markets, rather than redemptions. However, the smaller the fund, the more difficult it is for investment houses to keep them open at a time when they are searching for cost cutting measures.
The funds under £5m are mainly made up of private client portfolios run by boutique managers such as City Financial and Capita Financial Managers. Even so, a fair number of those under £5m are specialist funds run by large investment houses and many of them are funds which were launched in late 1999 or early 2000. These include some of Britannic's sector funds, Schroders' style funds, a number of technology portfolios and multi-manager portfolios across a range of providers plus Japanese smaller companies and Latin American portfolios. (See page 5 for rationalisation story on Latin American funds).
Jonathan Fry, managing director at Premier, said it is easier for boutique fund managers to run small amounts of assets than the larger retail houses. He said: 'Costs of boutique fund management companies are much more identifiable. They do not have a marketing budget, they outsource their administration, in that sense it is easier to identify costs.'
For a mainstream investment house, a fund is not considered to be economically viable unless it is between £10m and £20m, especially if the assets are predominantly retail. For boutiques and smaller firms, the smaller amounts can be manageable because the funds are run more like private client portfolios, where the assets are far stickier, according to Nick Wells, product and communications director at ABN Amro Artemis.
The costs to launch a fund are low, averaging around £5,000, but a firm has a number of added costs before the fund can turn a profit for the company. Manager fees, research costs, administration, trustees, custodian expenses plus systems and marketing make the break-even point for a retail fund somewhere between £10m and £20m, Wells said.
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From 6 April 2019