The findings suggest that UCITS IV has already started to generate a high level of interest and activity among the asset management industry and our survey reveals important insights.
Methodology
This report’s findings are based on a 13-question survey that was sent to EFAMA members during the summer and autumn of 2009. The survey had a total of 77 respondents.
Profile of participants
The survey population was made up of 26 asset managers with UCITS funds established in three or more jurisdictions in the EU. There were a considerable number of participants (50) who had UCITS funds in only one or two EU member states. Many respondents (21) also had UCITS products based in more than one EU country. The profile of the respondents varied across all the functions including tax, product development, compliance, operations and others.
A significant percentage of the respondents claimed that they were from the Product Development function.
Respondents came from all the major EU jurisdictions. Nearly 40% of the respondents (29 in total) had at least €10 billion of assets under management.
Cross-border distribution
The survey broke down cross-border distribution into those that distributed UCITS within the EU and those that distributed outside the EU. It also questioned how many countries in these geographical areas the respondents’ group distributed into.
Of the 74 that answered the question of “Inside Europe”, only 13 (17%) said that they did not distribute on a cross border basis within the EU. In contrast 25 (35%) claimed to distribute to 10 or more countries with over three quarters distributing to two or more countries.
Of those that answered the question on distributing “Outside Europe” (54), 18 respondents, or one third, claimed not to distribute outside Europe. In contrast 24 (44%) stated that they distribute to two or more non EU jurisdictions. The findings indicate that the UCITS product is extensively distributed on a cross-border basis and offers the possibility of getting the product to market in a more efficient manner.
Timeframe: impact analysis and planning
Survey participants were asked the level of research and analysis they had undertaken on UCITS IV. Results show that their level of understanding and research was good with 26 (34%) stating that they had an in depth knowledge of the subject. Only three responded that they had no awareness of the subject.
Preparations for UCITS seem to have begun. Indeed, nearly 23 (29%) had already started working on developing their strategy under UCITS IV and 60 (77%) said that they will have started the process by the end of 2010.
Only 11 (13%) said that they intended to wait until 2011 for such an analysis to be undertaken. Interestingly, only six (7%) said they did not expect to have defined strategic options for UCITS IV either because they did not intend to review it strategically or that they did not see it as strategically important.
Both the Key Investor Information (KII) and the Cross Border Notification provisions are considered high priorities for companies that distribute UCITS with 27 and 19 respondents respectively indicating this as their number one priority.The Management Company Passport (MCP), Master-Feeder Structure and Cross Border Mergers are all more or less equal with regard to the restructuring opportunities. Regulatory supervision does not seem to be on organisations’ radar at this point.
With 17 (24%) participants out of a total of 70 indicating that they have a management company in three or more jurisdictions it would seem that there are ample opportunities for consolidation. This is further confirmed when considering that 46 (64%) stated that they have more than two management companies across Europe.
The MCP potentially introduces a new degree of flexibility for asset managers with respect to where to locate their management companies. While individual factors are of key importance, most asset managers will ultimately assess and balance a range of factors before deciding on their optimal management company centre(s). The majority of respondents (54%) see the existing fund centers of Luxembourg and Ireland as the location where most market players will locate their management companies. One-third believe that there will be movement towards the home country of the promoter. Only nine (12%) believe that the status quo will be maintained.
The future of the management company
The overall strategy adopted by asset managers towards the management company will depend on a number of factors, including: the tax impact; the regulatory framework; reputational and distribution issues; target markets and preferred/existing locations; and organisational structure of the asset manager concerned. Some asset managers will centralise and consolidate whilst others may not. It also remains to be seen whether asset managers will decide to merge their local and foreign management companies, liquidate some management companies, maintain a local branch in their preferred UCITS domicile, retain the status quo or adopt a different approach.
Differing local accounting rules and policies, financial reporting and regulation, not to mention the various rules on investment valuation across the EU, will present a number of challenges for companies using the MCP facility. Nevertheless, its creation will undoubtedly create new options for asset managers, and may have a significant impact in reshaping at least some parts of their UCITS business.
In terms of costs and efficiency, some investors tend to regard the feeder fund as an expensive option. This point is not lost on asset managers, with cost savings being specifically noted as a driver for the master-feeder structure. At the same time since investor preference will be an equally important consideration, it will be necessary to consider fully the operational aspects of a master-feeder structure, such as how will it impact fund administrators and custodian banks which support the day-to-day activities of the funds. Once again tax is seen as being either a very significant (16) or significant (21) driver when considering a master-feeder structure. Whichever options asset managers decide to adopt, it is clear that the master-feeder set-up offers interesting opportunities. However, it is equally clear that there are detailed issues to be resolved.
