Jean-Baptiste de Franssu, CEO of Invesco Europe, has been spearheading a move to increase the stickiness of assets in Ucits products, which currently account for around 11.5% of financial assets in European households. He thinks that making Ucits appeal more to longer-term investors, such as pension funds, is an ideal goal.
His initiative first came to light in a report published by an industry think tank led by de Franssu in January last year called Building long-term savings in Europe: the case for Ucits in the post-credit crunch era.
In June, de Franssu was elected president of the European Fund and Asset Management Association (Efama), a funds industry body, for a two-year term. Later that year judges of the Funds Europe Awards 2009 awarded de Franssu with ‘European Personality of the Year’ in December, largely on the basis of his work for the funds industry through his think tank report, which was sponsored by Invesco, as well as activities with Efama.
“No-one has done more to raise the profile of the funds industry – at least for the right reasons – during the financial crisis,” a judge said.
De Franssu feels strongly about investor education, which is probably one of the hardest, most abstruse challenges for the funds industry to deal with. Therefore one of the think tank’s more ambitious recommendations was to create and fund an educational foundation to initiate investor education programmes.
De Franssu feels that if retail investors could differentiate financial products better, such as bank accounts, structured products and mutual funds, then funds would benefit – as would investors.
He says: “In certain southern European countries some of the big banks privileged their own balance sheets at the expense of their clients’ needs. In other words, banks got their clients to redeem mutual funds and invest in their own products which strengthened their balance sheets.”
De Franssu believes situations like this would be less likely to happen if the benefits of mutual funds, particularly those covered by the Ucits rules, were better known.
“I am not convinced that people realise funds are markedly different to other financial products and this inevitably takes us to the issue of financial literacy and distribution,” he says.
Although the educational foundation that the think tank had hoped to create had not come to fruition by the end of 2009, de Franssu says it is still at the discussion stage. Creating the foundation was never going to be an easy task, de Franssu tells Funds Europe, and the experience of the Investment Company Institute (ICI) in the US illustrates the difficulties.
The ICI is a national association of US investment companies covering products such as mutual funds and exchange-traded funds. The ICI formed its education foundation in 1989 and it partners with government agencies and other nonprofit organisations in order to develop investment education programmes to a variety of audiences.
De Franssu says: “Establishing such a foundation poses considerable challenges without government backing and endorsement, a point that the experience of the ICI in the US tends to support.”
An Efama report due for publication shortly gives the current thinking of industry leaders about promoting financial literacy.
De Franssu feels the European funds industry would be better off calling on national governments and Brussels to introduce more financial literacy programmes. This would entail a greater lobbying role for Efama, which has already had to engage more deeply in political affairs as a result of the financial crisis.
De Franssu hopes that recent and ongoing lobbying of Brussels over regulation – notably the Alternative Investment Managers Directive – will not detract from longer-term initiatives that he wants to support in the remainder of his Efama presidency.
“We knew we would have a lot of work to do but we also do not want to lose sight of the longer-term picture,” he says.
As well as reducing volatility in Ucits funds, the longer-term picture also includes the creation of a level regulatory playing field for financial products, which would help investment funds compete against other investments and savings vehicles, such as structured products offered by banks.
Maybe it is because banks make better lobbyists than investment managers that the latter have come to feel their products are less recognisable among, or supported by, the public and parts of the wholesale market. If the playing field is not level, and if funds are disadvantaged, then presumably the banks have done a better job of making sure their corner of the field is well kempt.
Yet in his vision for a single European market for financial services, Charlie McCreevy, the former European commissioner for internal market and services, is clearly keen to bring equality to various kinds of credible financial products, and he gave his support to Ucits in a forward to de Franssu’s think tank report.
De Franssu says: “The EC certainly heard us about the level playing field. There is a clear understanding that if one wants a single market for financial products, then standards must be applied and Ucits have higher standards than many other products. We can set the risk-management benchmark for all other products.”
Levelling the playing field is a work in progress, however, and it is probably at least as difficult to solve as the problem of education. Meanwhile, though, de Franssu hopes to build the Ucits brand in the eyes of longer-term investors to reduce volatility. McCreevey was sympathetic here too, saying fund managers have a key role to play in tackling Europe’s long-term savings challenge and that Ucits can be a “core component” of this response.
De Franssu says: “The growth of Ucits in Europe has been great, but there has been a lot of volatility in terms of flows. The volatility of Ucits is three times higher than for funds in the US.”
The reason for this almost certainly lies in the fact that 401k funds in the US are used by individuals to save for their retirement.
“There is a clear link between long-term investment and pensions. 401k investors are investing for their pensions meaning they will not be looking to change their portfolio every month. The long-term nature of the 401k- sourced flows gives more stability to industry flows in the US.”
De Franssu’s think tank has called for superior long-term savings products to be developed and suitably labelled.
Ucits assets may well be volatile and flows can disappear just as soon as they arrive - but at least the Efama president can’t do. The presidency lasts for two years and de Franssu has a year and a half to go. If he can pull off a credible educational project, or just level a square-metre of the lumpy playing field, more awards may come de Franssu’s way.
©2010 funds europe