Europe: Fund industry stumped over distribution question
Rachel Oliver reports from Cannes on the search for a way forward
The key question of the UCITS 2 debate - how a fund manager can be effectively equipped with a 'passport' to Europe - was raised at the recent Fund Forum conference in Cannes, but left unanswered.
Steven Matthias, general secretary of FEFSI (European Federation of In-vestment Funds) cited evident problems with the current universal single directive -namely that each country has its own tax regulations, investment patterns and products, which UCITS attempts to overcome with its so-called harmonised funds".
UCITS funds are used in the retail market but are also available to institutions, including pension funds, and can prove convenient to multinationals and their subsidiaries based elsewhere in Europe, who want to use the same funds.
Part of the current dispute centres around the fact that the very access of-fered by the UCITS 'passport to Eur-ope' is often denied by certain countries who claim it should not have been given in the first place.
Matthias supported the original di-rective saying: "I am convinced the UCITS directive has reached its aim," adding, "this directive inspired fund managers to create products".
He pointed out that fund distribution has come a long way since 1989, when virtually no funds were marketed cross-border. In the years following, discussions at the European Commission have failed to come to any solution which was unanimously agreed by all the representative states to widen the reach of UCITS, which included a qualified majority on the freedom to provide cross-border custody and a master feeder system.
A possible answer to the current problem is the new regulatory ap-proach, which FEFSI is attempting to realise, of a service provider directive as opposed to the current product directive, though how it could be put in force is yet to be revealed.
"The passport shall be given to the manager and not the product," Mat-thias stated at the conference, though the reaction he has seen to date from representatives, indicates the idea is at the very least in its embryonic stage. "They were not very enthusiastic."
Fidelity Investments is currently writing to its European peers in the UK, Germany, France, Italy, Luxembourg, Spain and Portugal, requesting they join it in lobbying their governments to accept such a directive.
Matthias points out that despite a series of otherwise positive signs from the commission over the past year that new regulations might come into force, nothing concrete has yet emerged from talks. "It is something typical of the work of the commission" he commented.
But whether it is possible to live with two very different directives and what regulatory body would govern over the initiative have yet to be discussed, and the conference left many questions unanswered, namely, how a manager can be regulated with the product potentially untouched. "There are a lot of complex issues to consider," Matthias admitted.
Patrick Zurstrassen, managing di-rector of Banque Indosuez Luxembourg, joined the others in support of a single directive, reasoning that currently only 20% of UCITS funds are available for sale in more than two European countries. However, he also admitted the presence of a split in agreement as to what should constitute such a directive. "We have different in-terpretations of what should be known as a common directive," he said.
Supporting the need for a shake-up in the funds arena was Fred van den Spiegel, chief financial officer at Fortis Investments, who predicted a "radical transformation of products" with the possibility that as more and more funds come on to the market, with similar investment patterns, they will ultimately "have to merge", though he did not give any indication when this might occur.
He sees the role of the Euro impacting on the further globalisation of European markets with investments moving from a national to a European level. Investing internationally would take on a whole new meaning and Europe, he said, will ultimately be-come a domestic market for its in-vestors. To cope with this expected in-flux of investment into the European market from investors who would otherwise 'stay at home', new funds would need to be developed to cater for the new demand and with that the management capacity to cope with it.
The "unbundling of management activities," said Spiegel would be the logical step - outsourcing of administrative functions with custodians ap-proaching independent service pro-viders for distribution would be the way forward. And Fastnet, the recent product of Banque Indosuez and Generale de Banque's merger was promoted by two of its key figures as exactly that.
Indosuez's Zurstrassen was speaking at the conference with Pierre Yves Goemans, manager of institutional asset management at Generale in Brussels, about the two banks' recent merger in the administration industry.
Goemens named Fastnet as one of the answers to "the administration nightmare" which he describes as a situation where, as Europe grows, and more flows come into the region, clients will be approaching different administration service providers and it will be difficult to reconcile them.
Global fund administration, he said, would be a possible, albeit ambitious, solution, where the service provider retains the knowledge of each country's special needs and regulations so one entity can potentially serve them all. "We have ambitions to be where the clients want to be," he said. IPE"