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Magazine Issues » July 2009

FUND FORUM REVIEW: the mood in Monaco

After a bad year, fund managers retreated to Fund Forum conference, Monaco, in June. Angele Spiteri Paris listened to presentations and spoke to delegates to gauge the mood...

monaco.jpgAlthough many firms have tightened their belts with restrictions on employee travel, over 800 delegates attended this year’s Fund Forum International Conference, the organisers say.

After temporarily hosting the event in Barcelona last year, the event returned to the Grimaldi centre in Monaco. In previous years attendance has topped over 1,500, but the event managed to draw an enthusiastic crowd and senior speakers.

Elizabeth Corley, CEO of Allianz Global Investors Europe, probably summed up the mood by saying: “It’s as though people are more genuine. There is more humility and contrition. Although we [asset managers] weren’t central to the crisis, we’re not
exempt from taking some responsibility for what happened.”

A number of fund management figures have acknowledged that in the last few years the needs of clients may have been somewhat sidelined.

“Investors lost a lot of money,” said Tom Brown, European head of investment management at KPMG. “And they’re questioning whether investment managers can be trusted.”

Like Corley, he noted that even if investment managers were not central to the crisis, they can still look to do something to remedy investor sentiment.

“Investors were mostly disappointed with the intermediaries and distributors and a lot of that disappointment is justified,” said Brown.

But even if disillusionment centres on distributors, this is still a problem given their importance in getting asset managers to market.

Distributors were brought up in several discussions with investment professionals and in presentations. Many managers conceded that a link between production and delivery to the client had been broken somewhere along the value chain.

Peter Preisler, head of Emea for T. Rowe Price, said: “We need to look at the distribution model and see if we can do something about it before politicians and regulators do it for us.”

Preisler, Corley and others spoke of a need for education of distributors, as well as for end clients. Although manufacturers of investment products are not necessarily responsible for how their products were passed on to investors, they have the responsibility for giving distributors as much knowledge as they can to try and ensure their products end up in the right hands.

Preisler said: “If we don’t promote education and transparency, we’ll be punished for it.” Asked whether distributors are likely to resist change he said: “Banks are not really in the best possible position to resist.”

According to Corley, there has been a lot of talk about change, but little momentum to actually drive it. She said: “Distributors are very frustrated with the asset management industry for not following through on the change discussed.”

Another issue at hand is how to communicate with distributors as a group, since there is no formal association or industry body for distributors. “We need more non-commercial discussion with distributors. After all, we have common interests,” Corley pointed out.

But dialogue and education are only two pieces of the puzzle. Corley stressed product design. This is another important role and duty that investment managers will have in the future – to design products prudently.

And Brown, of KPMG, said investment managers needed to be more client-centric, in addition to being aware of how they deal with intermediaries.

Fees were inevitably brought up in discussions about the future of the industry. Distributors are awarded the largest portion of fees, the conference heard, and the commission-based structure used in Europe may have to change.

Asset servicing
Business models may also need to be revisited in the asset servicing sector. Pascal Berichel, head of fund distribution services for Société Générale Securities Services, noted that a main reason for this would be the operational risk that asset servicers are forced to take on to their books. But he said there had not yet been a discussion with asset managers about when this would begin.

The asset servicing industry largely gets the smallest portion of fees, said one delegate, who felt this may need to change.
Richard Ernesti, global head of investor services client & sales management at Citi, said: “The last 15 years have seen a downward spiral in fees as markets got more efficient.” He added that asset managers need to “open the doors” on what they do and what they plan to do as that will affect the servicers’ cost.

Most asset servicers believe they will be seeing an increase in business over the next 18 months as asset managers outsource more of their middle and back office functions in an effort to focus on their core skills.

Francis Jackson, head of business development and relationship management in Emea at JP Morgan Investor Services, said: “[Asset managers] are making decisions to invest in things that make them money, so outsourcing certain functions to concentrate on manufacturing products and finding the right distribution channels for them is looking more attractive.”

Edouard Bokuetenge, head of distribution support at RBC Dexia Investor Services Bank, said: “There is an increasing separation between the manufacturing and distribution element in the fund world. This strategic evolution has been accelerated by the drive for greater cost efficiencies in an uncertain economic environment. In this respect, we think that asset managers will rely more and more on funds platforms to support their distribution.”

Some members of the funds industry are seeing signs of buoyancy. Preisler, of T. Rowe Price, said: “People are definitely more optimistic than they were four months ago.” But he believes there could be another correction on the cards.

Brown of KPMG, however, believes that optimism is being overdone. “The market will probably continue bouncing along the bottom for a while,” he said.

According to Berichel of SGSS: “There are reasonable signs of recovery and good levels of subscriptions, but it is too early to say whether this is sustainable.”

Meanwhile, Jackson of JP Morgan says the ‘green shoots’ witnessed by some in the industry will not lead to anything permanent just yet. “Even if this lift continues, strategically asset managers have worked out that outsourcing is the best path to follow,” he said.

©2009 funds europe