EUROPE - Foreign managers should commit themselves to European defined contribution schemes regardless of likely initial losses, according to research and consulting firm Cerulli.
Members of European defined contribution schemes creates a domestic bias when choose fund manager because of a fear of the unknown, Cerulli argued, adding foreign managers staying in the market will be rewarded despite initial losses.
"Those that are in for the long run can potentially reap significant new business even if the first few years prove painful," the firm notes in its latest edition of Cerulli Edge Global.
The Swedish PPM system is given as "prime example" as, according to the research, over 60% of the 800 funds participating in this mandatory defined contribution scheme are managed by non-Swedish fund groups.
However, they only manage about 8% of the assets with the 50 largest funds all being managed by Sweden-based groups.
Cerulli believes it is important for fund managers to "be in from the start and to build a relationship with investors, despite the cost of doing so".
Researchers predict European pension assets will rise from $6.3trn (€4.6trn) in 2006 to just over $7trn in 2007.
One source of increase is European governments are looking for solutions to replace their "disintegrating government pension schemes" which in many cases is a defined contribution plan, Cerulli stated.
These pension reforms also bring a change in investment opportunities opening the way for investment fund units which is "an unprecedented opportunity" for fund managers, Cerulli is convinced.
"Besides generating significant new inflows, these corporate pension schemes allow fund mangers to bypass the traditional distributors and gain more direct access to the investor," said Cerulli.
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