Nordic markets go 'open'
The Nordic market for investment funds has experienced a huge growth during the past few years. According to the Swedish Mutual Fund Association, the size of the investment fund market in the region – including Sweden, Norway, Denmark and Finland – amounted to e168bn at the end of last year, compared to e80bn in 1997.
The market has opened up to the global trends in fund management moving from fixed income to equities, from domestic to foreign exposure and from short-term to long-term holdings.
“In terms of distribution, retail banks are loosing ground and insurance are gaining power. There is a shift to ‘open architecture distribution’ where the distributors are selling ‘non-proprietary product’ with an increasing use of third party distribution and fund supermarkets,” said Kajsa Lindstahl, chairman and CEO at Swedish firm Banco AB and president of the European Federation of Investment Funds and Companies (FEFSI), during the Nordic Fund Management Forum, held in Stockholm last month. “These trends are present in all the Nordic countries and there are especially visible in Sweden, the most mature market within the region.”
She added: “Investors are better much informed, supported by new technologies and more transparency on fees and performance. They are also more focused on performance where brand names are becoming less important.” Lindstahl explained that due to information overflow and the increasing number of products in the market, investors are seeking advise more than ever before.
Delegates at the conference discussed the latest developments in fund management in each of the Nordic countries. Hans Hedström, managing director of HQ.SE/ fonder, said: “In Sweden almost 60% of savings are invested in mutual funds. Two thirds of the Swedes between age 18 and 74 hold mutual funds, so we are talking about a very important market.”
The four big Swedish banks hold more than 80% of the market – Robur (32%), SEB (19.6%), NB/Trevise (19.1%) and SHB/SPP 10.9%, but the country is now welcoming the new ‘open architecture’ in fund management.
“Tax-efficient savings products are gaining market share and insurance companies have strengthened their positions,” Hedström added. “Someone said that the most beautiful word you can tell to a Swede, much more beautiful than love, is ‘tax -free’, and I think it’s true and all those products with fiscal advantages are attracting more and more investors.”
The multi-manager approach to investment has proven to be successful and the new Premium Pension System (PPM) has made people realise that when it comes to investment there are more options than those offered by the big banks.
Both Robur and SEB have opened their distribution network for external fund managers. “However, only foreign fund managers with products that do not compete with their own internal range have been invited,” Hedström noted.
Bengt Bergholz, head of external funds and senior vice president at SEB said: “We thought that by selling not only our own product but also the best from the best provider would credibility to our own range. In Sweden, there are more than 100 companies selling funds and half of them are non-Swedish houses.” He added: “If we don’t give our customers the products they want they’ll go and find them somewhere else.” SEB is now selling their external funds to Swedish investors but it will now start offering them to Finnish and Norwegian clients.
In Norway, the institutional market is becoming more significant within the fund management industry. “Around 42% of Norwegian domiciled mutual funds were held by institutional investors and companies at the end of last year,” said Robert Wood, head of product and business development at Storebrand Investments.
“Recent changes in pension fund regulation have contributed to the outsourcing of asset management and there has been a large growth in the number of institutional funds in the market and. The supply of these is expected to increase dramatically with the implementation of unit classes,” he said.
Also, a more favorable treatment of funds in the new defined contribution pension schemes will help the market to grow further.
Wood explained how the Norwegian market is still dominated by the large domestic groups. “Foreign fund managers have a reported market share of 4.5%, although the actual figure is significantly higher.”
In Finland, there has also been a strong growth in volume in recent times. Susana Miekk-oja, director of mutual fund business at Sampo-Leonia said: “Finland is a strongly growing market, with a small but highly educated population. There is a young investment culture, and investors are becoming highly sophisticated.”
The market for investment funds in Finland amounted to e13.4bn at the end of last year. This represents a 319% increase in the size of the market of 1997, when the amount of assets under management was only e3.2bn.
Under the new mutual funds act, which came into force in 1999, the special mutual funds entered the Finish market. Those include index funds, hedge funds and funds of funds. “Although the total amount of capital invested in special mutual funds is not yet very significant, their popularity will increase with time,” said Jarkko Syyrilä from the Finnish Financial Supervision Authority. “At present there are 200 operating UCITS funds and 50 special funds in Finland, so it can be estimated that special funds will, in the future, have a much more significant share of the capital of whole fund market,” he said.
At the end of February the total NAV of the Finnish mutual fund was e14.2bn, compared to the e754m of the special fund market.
The Danish fund industry has also grown significantly in the last three years, moving from e11.9bn in 1997 to e13.4bn in December 2000. According to Ole Dyhr, head of investment research at SkandiaLink, Denmark is now becoming the land of opportunities in the Nordic region. “The Danish market for pension funds is now open for foreign managers and the competition among Danish fund managers will increase.” According to Dyhr the unit-link products are ‘eating’ the corporate pension sector and foreign managers will mainly distribute their products by using these structures.