markets & strategies | A study by the Uk's ima shows that euro banks are still not loosening their grip on sale of propriety products
Aspirations for a single European mutual fund market continue to lie just beyond reach despite the latest update to the Ucits legislation, according to Standard & Poor's (S&P).
'European Union law makers have striven for close to 20 years to dismantle national regulatory frameworks that protect domestic fund providers and stifle competition. The latest legislative salvo, in the form of the Ucits 3 Directive, is due to be enacted by member states this year, but like Tantalus, doomed to remain immersed up to his neck in a lake whose level recedes whenever he tries to take a drink, the goal of a single, open, pan-regional mutual fund market continues to lie just beyond reach.'
In fact, a recent study carried out for the Investment Management Association (IMA) found European banks, which retain a stranglehold on fund distribution (around 80%), are not loosening their grip over the sale of proprietary products, to the detriment of third-party fund sales.
'The home advantage results from daunting logistical and regulatory obstacles to a more open market place, including tax regimes that treat domestic funds more favourably; different rules governing advertising, consumer information, and fund registration and administration, and cumbersome systems for processing cross-border sales,' noted S&P.
Friedrich Heinemann, who carried out the study for the IMA, puts the cost of not having a single European fund market at â‚¬5bn a year in lost economic benefits.
'Investors suffer lacklustre performance; foreign managers are denied an opportunity to offer more attractive alternatives; and corporations face higher financing costs as persistently weak investment returns limit the growth of available capital and its efficient allocation.'
The catalyst for more open architecture will be the European pensions minefield, as it increasingly becomes a greater issue for European citizens.
Potential winners in an open architecture environment could be the American players, with their competitively low fees compared with their European counterparts. The potential losers could be the bancassurers, whose products and services could be deemed biased by consumers.
Perhaps the most perplexing issue which American fund managers will face in their attempt to win over Europe, is the variation in investment tradition and culture. 'American fund managers considering expanding in Europe must feel like tourists who would love to go sightseeing but cannot manoeuvre their massive sport-utility vehicles through the narrow, cobbled streets.'
Despite the culture and regulatory hurdles which stall plans for increasing marketshare in Europe, some American firms have already made substantial inroads on the continent.
Multi-managers SEI and Frank Russell operate in Europe, despite the fragmented and Byzantine complexities. And other firms, such as Fidelity and Franklin Templeton, have obtained a significant presence since before an effort to unify the market began.
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