European voice for asset management
Until the European Asset Management Association emerged just over a year ago, the investment management industry was virtually voiceless in Europe. “Yes, there is Fefsi, but that represents investment funds, and therefore just a section of the savings industry,” says EAMA chair Donald Brydon, the ebullient Scot determined to rectify that particular omission. “No one was looking after the interests of the asset managers as a profession or a business.”
The association was born after years of desultory discussion, which had gone nowhere, about the need for something to be done. “There was an understandable anxiety on the part of some on the continent that this would be an Anglo-Saxon plot to infiltrate Europe and impose these values and methods. I do not believe that it was ever that, but that was the perception,” says Brydon.
When he was chairman of the London-based Fund Managers’ Association (FMA), he became involved in the setting up of a steering committee that included a number of European countries’ representatives, which moved the concept forwards. Perhaps helped by the fact that he is not an ‘Anglo-Saxon’ and that he is head of the asset management arm of the French group, AXA, in London, he found himself acting as midwife. “It was an idea whose time had come and my role came about through an accident of timing.”
But Brydon certainly seized the opportunity: “I went off to see a large number of asset managers, with the message that for the industry not to be represented in Brussels was very dangerous.” But he also brought the idea that makes the EAMA different from many other trade bodies, which employ paid officials. “It had to be a body that engages the asset managers themselves,” he says.
His persuasiveness resulted in a dozen or so of the bigger managers putting up the money to bankroll the association initially. “We also agreed we would have a membership structure, which meant the different national trade associations were members and individual firms could become members,” he says. “The governing council would include three directly elected members from the individual firms.”
He reckons bodies like the EAMA work best when the practitioners are involved. “Otherwise you are not getting direct practitioner input, it is filtered input,” he says. “Our approach brings not just a sense of ownership, but also obligation. It helps get people at the sharp end really involved.”
About 20 attended the first general meeting in Brussels in March last year, where the key issues were the need for a European action plan and to ensure that the industry’s voice was heard in Brussels. The aim was to establish asset management as a profession and an industry in its own right in Europe. The original membership was made up of the associations from France, Ireland, Italy, Spain and the UK – there is no German association that fits, he points out. “The original group of corporate members came from across Europe.” The FMA agreed that a staff member, Michael Haag, should be employed on a half-time basis by the EAMA.
The association got down to business quickly, joining the European debate about the pension directive in particular. As well as being involved in the Brussels discussions, it produced an influential collection of essays and views on the “prudent man” concept late last year. Participation in the action plan forums on Europe is among a host of initiatives that the association has become involved in, says Brydon.
At a recent meeting, the issues considered included the quality of information from debt issuers. “There is a real issue about corporate debt issuers having a much lower level of disclosure than equity issuers.” A conference is planned for 2001 looking at compliance across Europe. “This will look at business conduct rules in particular,” says Brydon. “We are doing another booklet, again like the ‘prudent man’ one, which will look at indexation from many different angles.”
The association hopes to make a contribution to the “definition of best execution across Europe”. “We have asked Brussels to see if it can put together a compendium of e-commerce rules,” Brydon says. In a project being jointly financed with the FMA, two London Business School professors through a specialist research company are looking at capital adequacy in the industry, and this is intended as a direct response to the Basle proposal. “We are in a position to do our own research and not just have a knee-jerk reaction.”
And issues certainly come thick and fast, such as the proposed merger between the London Stock Exchange and the Deutsche Börse, which the association broadly supported, he says, in that it wants to see low-cost, liquid trading markets. Representations have been made to the Japanese ministry of finance over the imposition of withholding tax on government bonds in certain circumstances.
The association is also involved in the working parties on market abuse, as well the question of collateral in securities lending across Europe, where definitions can vary. The European Commission is asking for its views on the use of derivatives. “And that’s not everything we’ve done, but it’s not bad for a first year,” Brydon says. “I really believe that the association has been a huge success.”
Another feature of the EAMA that sets it apart from some other European organisations is that the council will make decisions even if these are not unanimous. “We do try to accommodate everybody, but we will make progress and speak, even if not everyone is agreed.” Although many of the issues are detailed and technical, Brydon insists that unless the asset managers are represented separately, the banking view will predominate. “What’s all this activity for? At the end of the day, it is about creating a successful asset management industry in Europe. We won’t beat or even compete with US groups successfully if we are at the tail-end of other bodies.”
In Brydon’s view there is a much better asset management industry in Europe as a whole than is generally recognised. At the same time, he can appreciate the variety within Europe’s fragmented markets. So no matter how much regulation is imposed, the ways of dong business in each country will still be different. “But the industry will not be well served if we try to preserve differences by protectionist measures, as that means the managers will not be exposed to the sharpening process of the tough winds of competition. One day, when those barriers do come down, the domestic business will not be good enough, if they have been hiding behind that protection.”
Important issues include the freedom to delegate mandates and having legal structures that require excess resources and higher costs that might otherwise be needed. “There is a European view that says: ‘We agree with you, but not yet.’ I think that ‘not yet’ has to be pretty quick.”
The internet will mean competition in any event, he says. “Europe needs to sharpen up every sort of management skill in the industry, which in some parts still has the characteristics of a craft industry.” But the scene is changing very fast, with the major European players becoming very major indeed.
His view on the ‘Americanisation’ of the European industry starts from the standpoint that if adoption of a US practice makes people better at doing their business as asset managers, what is there to discuss? But if a US practice will change market behaviour, investment expectations, or something substantive, then there is need for debate. He thinks there is scope to think positively about US practices not liked here and to develop “a European approach”.
So what are the conditions for a truly European market in asset management? “For one thing,” he says, “complete passporting across Europe and freedom to delegate. For example, a German KAG investment management_bank cannot delegate authority to another fund manager in Europe – that is a restrictive practice. I believe that the business will migrate to the country with the smartest regulation.”
He adds:“Clarity of regulation that recognises the industry in its own right – I think that is the most important factor of all.”
There are still local barriers to providing investment services throughout Europe. But as far as the EAMA is concerned: “We are only working on these issues through Brussels – we’re not mounting any campaigns."