NEWSLETTER: There may be trouble ahead...

Lipper’s annual fund management conference was replaced this year by a Lipper FMI breakfast briefing. The briefing, which took place last week on Thursday, analysed year-to-date figures for the European fund industry and hazarded a guess as to the future...

Lipper’s annual fund management conference was replaced this year by a Lipper FMI breakfast briefing. The briefing, which took place last week on Thursday, analysed year-to-date figures for the European fund industry and hazarded a guess as to the future...

Many of the figures uncovered were challenging to say the least, and, as was the case with the Efama figures released last week, the fact that these figures only run to 30 September 2008 and worse is almost certainly to come gave pause for thought. 

Overall, the Lipper FMI figures show that European assets under management (AUM) fell by 16.3% in the first nine months of 2008. This compares with drops of 11.7% and 24% experienced in the US and Asia respectively. However, when it comes to the all-important net sales figures, the carnage was worst in Europe.

Net sales in Europe were in the red by €167bn in the first nine months of 2008, while the US and Asia managed to scrape by with positive net sales €17bn and €38bn respectively. And, you remember, how we said worse is to come? Well, Lipper FMI predicts that by the close of 2008 net redemptions in Europe will total a hefty €400bn.

Worst hit so far is Italy where assets under management dropped by 22.3% and net redemptions were close to €70bn. The high net redemptions in Italy are part of an ongoing trend seen over the last three years when banks have sought to move clients out of funds and into bank deposit accounts. In its SWOT analysis for the country, Lipper FMI thus identifies "bank control of distribution and current focus on non-fund products” as a key weakness.

A similar scenario is in evidence in Spain, while in the UK, where banks do not dominate fund distribution, net sales scraped into the black, although AUM fell even more sharply than in Italy (by 24.3%). UK equity net sales were well into the red, however, and the next quarter, sure to be terrible, should see the overall total lapse into negative territory.

So much for the rather bleak past, what about the future? Well, Lipper FMI cautiously predicts compound annual growth (CAG) of 5.6% to 2012, which would take the European industry to €6.2 trillion. Interestingly, its CAG prediction for powerhouse Asia is lower at 5%, a growth rate that would take AUM in Asia to $1.7 trillion by 2013.

Meanwhile, an additional presentation by Ed Moisson, directory of fiduciary operations at Lipper FMI, examined European fees, showing the all-too-familiar picture that fees are rising (though not in all markets) when really they should be falling. “Are fund fees simply too high in absolute terms?” Moisson asked, pointing to key issues that now need to be addressed as a matter of urgency, such as fund consolidation in Europe and the cost of distribution.

Fiona Rintoul, Editorial Director
©2008 funds europe