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Opening the floodgates

Changes to Ucits regulation will see an influx of overseas competitors vying for UK market share, says Chris Salih

Ucits IV looks set to shake up the UK market as more fund runners from overseas could take advantage of the new rules and enter the market.

The directive, due on July 1, 2011, ushers in five key changes to the rules on funds under the Ucits model – replacing the existing simplified
prospectus with a key information document; removal of administrative barriers to the cross-border marketing of Ucits funds; harmonising of requirements on authorising mergers; creation of economies of scale for providing master/feeder Ucits structures; and improved supervision between the EU regulators.

This has been largely approved but increased competition may not be great news for all fund firms in the UK.

The changes will allow the creation of a UKdomiciled fund that holds between one or two assets, namely a cash asset and another fund. In the eyes of an investor, this means they are investing in a UK product where British tax rules apply, eliminating any concerns over home bias. However, the underlying asset will primarily be an offshore-domiciled strategy governed by an overseas regulator.

HSBC Global Asset Management managing director of UK wholesale Andy Clark warns that some boutiques and midmarket groups may have
to review their ranges as a number of big players enter the market – something they currently opt against due to high cost barriers.

He says: “It would allow the likes of the French asset manager Carmignac Gestion to set up an Oeic range cheaply and use the Sicav fund as a feeder, getting on to all the platforms easily.

“This is not that easy to do now as it is expensive to start from scratch.

Firms with scale have quality funds and will want UK market share.

“It is going to be harder to stand out on the back of increased competition, meaning some groups will re-evaluate their ranges.”

Aviva’s UK fund services chief executive John Clougherty says several providers have come to the UK and ended up leaving with their tails between their legs.

He says: “The UK is not short of quality asset management solutions in companies now and, while you can be successful in Switzerland or a domestic market, trying to break into the UK is incredibly difficult.

Martin Currie head of product development Toby Hogbin says while firms should not be afraid of competition, the idea of 800 funds in the IMA UK All-cap sector is not necessarily a great benefit to IFAs on the back of the new directive.

He says: “Performance will not be the only barometer, service will also come into it. Lots of mutual fund products are sold, not bought, and you
need to be able to deliver service and information for the intermediary market as well as making funds available.

“So while there are savings on infrastructure and compliance, those companies that enter without resourcing the proposition will struggle.”

Investment Management Association director for international relations Jarkko Syyrila, says: “These rules will open borders both ways, so UK firms can also view this as an opportunity to gain market share overseas.”

Hargreaves Lansdown investment manager Ben Yearsley says: “Any funds coming into the market would have to be strong to warrant an IFA’s
attention, given there is already around 2,000 funds to chose from. The service factor will also be a barrier they will have to address.”

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