Interview with Detlef Glow, Thomson Reuters Lipper

detlef-glowDetlef Glow is Head of EMEA Research at Lipper. He joined the firm in 2005 from FERI Wealth Management, where he was Director of Portfolio Management, managing segregated accounts for high-net-worth individuals (HNWI). Prior to FERI, he spent nine years with tecis Holding AG, most recently as Head of Fund Research for tecis Asset Management AG. In this role he was responsible for quantitative and qualitative fund research for the tecis fund of funds, the HNWI accounts, and the recommendation list of funds for the financial-advisor arm of tecis. Detlef has an MBA focusing on Financial Services from the University of Wales/Cardiff, as well as a BA in Business Administration Mr. Glow, you co-authored the European Fund Market Insight Report Q2 2016. What were the key findings?
Detlef Glow: The key findings of the report are, firstly, that the European fund industry is further into a consolidation mode; European fund promoters took 226 products off the market in Q2 2016. Secondly, even though multi-asset funds are at the moment out of investors’ favor, looking at the net new sales in multi-asset products for 2016 so far compared to 2015, mixed-asset products are the only product category showing a net increase in the number of funds during Q2 2016. With more funds withdrawn from the market than new products launched, is this a warning sign for the fund industry in Europe?
Glow: Not at all. There were 31,815 mutual funds registered for sale in Europe at the end of Q2 2016, which is a high number compared to the approximately 8,000 funds registered for sale in the U.S. The picture is even more distinct if one looks at the average assets under management. The funds in Europe holds 260 million euros of assets under management on average, while U.S. funds hold approximately 1.6 billion euros of assets under management on average. In this regard, I would assume there is still a lot of potential for more fund closures in the future. The question is, rather, if and when this potential will be released. One of the typical events that initiates closures is a market crash, since this kind of event leads to significantly lower assets under management. Asset managers monitor the profitability of their products even more closely in these periods, since they will try to bring their costs down in such an environment. The second typical event that leads to fund closures is a takeover; the fund promoter will review the product offerings to identify overlays and eliminate duplicate and unnecessary products to maximize the profits from a takeover. You say that after the “Brexit” vote you expected fund launches to rise over the course of the next two years. What are your assumptions?
Glow: Even though the picture with regard to the outcome of the Brexit negotiations is not clear, we should see some activity of fund promoters to anticipate all kinds of results. This means that U.K.-based fund promoters will either start new funds domiciled in the European Union or increase activity in their existing E.U.-domiciled product ranges. This can already be seen in the increasing activity of U.K. managers in Ireland and other E.U. domiciles. M&G, for example, has just announced its plans to launch a fund unit in Luxembourg to maintain its access to the E.U. markets. On the other hand, there is a need for E.U.-domiciled managers to launch products available to U.K. investors. If there is no obligation to be based in the U.K., one way is to launch master/feeder funds. Does this mean that fund managers will have even higher costs because of having to maintain more vehicles? Service providers will probably like that idea…
Glow: The general answer to this question is yes, since a higher number of funds will lead to higher costs for administration. But what is the choice? If the existing products are not eligible for sale in one market or the other, a fund promoter has to create products that can be sold in each market in order to maintain and increase its business proposition. Thank you for the interview.