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Investors hindered by fund launches

The proliferation of fund launches in the European market could be detrimental to investors over the long-term, according to a report from Lipper FMI.

The groups research points out that the number of funds in the marketplace has grown by 70% over the last 10 years and assets have risen, while percentage management fees have not fallen correspondingly.

In both 2007 and 2008, new funds attracted 120 billion (105 billion) of assets while more established funds saw their redemptions climb from 200 billion to 500 billion. This gives providers an incentive to keep rolling out new offerings, even in an environment of fund closures and mergers, according to Lipper.

It says fund launches have been a significant feature of the European industry for the last decade, with over 2,500 new products coming out each year.

Even with the recent increase in fund closures, the impetus to launch new funds remains strong and a fundamental part of the business model for many organisations – one partly encouraged by the historical focus of European regulators, the report says.

However, Lipper is critical of providers moving away from what it calls client value towards simply pushing products. An industry littered with a disproportionate number of small and uneconomical funds will not benefit investors, the group argues, adding that the size of the average fund in Europe is 25m.

In Europe, management fees generally include annual distribution fees, both of which are not linked to fund assets when costs are passed on to investors. This limits the extent to which any fund rationalisation will benefit investors through reduced TERs [total expense ratios], the report says.

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