IDEAL FUND

Introduction The asset management industry has seen tremendous growth over the past ten years. Assets in European investment funds have more than doubled since 1998 from €3.04 trillion to €6.14 trillion at the end of 2008.

The increase in share of household financial assets held in mutual funds across Europe during the past decade has been one of the factors of this growth, demonstrating the importance of the retail investor for the industry. However, the sustainability of this success is under question and industry shortcomings are increasingly being voiced by regulators, investors and even the industry players themselves. In the crisis year of 2008 the European market saw net redemptions of €300 billion in comparison to €98 billion of net outflow in the US market which is twice as large. The Asian market, despite being a fraction of the size of the European market, enjoyed positive net inflows of €75 billion over the same period 1 . Our premise for this paper is that this relative underperformance is, in whole or in part, indicative of certain challenges facing the European mutual fund market. Surveys among investors have shown that the asset management industry has become increasingly distant from the consumers of its products over the past few years. Even before the current crisis, a number of shortcomings had driven this gap between supply and demand expectations, and the financial crisis and recent fraud cases have only served to further damage investor confidence in the industry. In order to ensure the sustainability of the industry’s value proposition, we need well-educated investors who receive appropriate advice, with access to an industry with a sound governance framework and which provides them the right product at the right price and with the right level of transparency. Although the UCITS Directive already provides a sound regime for the regulation and transparency of funds, there is a need for labelling and defining the characteristics of long-term investment products, as well as creating a level playing field for all products designed to cater for the long-term investment needs of the investor.

Net assets of European Investment Funds (€ billions)

7,567 7,909

Ucits Non-ucits Source EFAMA

6,615

6,142

5,373

4,835

4,561 4,619

4,296

4,156

3,041

6,160

5,956

Figure 1

5,191

4,593

4,212

3,619

3,785

3,550

3,346

3,195

2,349

1,749

1,549

1,611

1,424

1,011

1,000

1,161

951

950

1,050

692

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Household investment fund ownership

7,567 7,909

30.0%

1998 2007

26.1%

6,615

6,142

25.0%

Source EFAMA Fact Books 2005 & 2008

5,373

21.1%

4,835

20.0%

4,561 4,619

19.0%

4,296

4,156

15.3%

15.0%

3,041

12.8%

11.9%

Figure 2

11.2%

10.0%

10.0%

10.0%

8.8%

8.9%

8.6%

5.4%

5.3%

5.0% Share in total financial assets

4.0%

3.8%

0.0%

1998

1999

2000

2001

2002

2003

2004 Austria

2005

2006

2007

2008

Sweden

France

Belgium Germany

Hungary

Denmark

UK

1 Source: Lipper FMI