RETHINKING DISTRIBUTION

5

Increased separation of alpha and beta and competition from other financial products The increased specialisation of investment funds, to better match investor’s constraints, and the competition from substitute products are two major drivers likely to reshape the investment fund industry in the coming years. On the one hand, the increased specialisation of investment funds has been driven by the growing need of investors to diversify their portfolio to comply with specific risk/returns constraints leading to further sophistication (such as LDI, etc.) of the industry. On the other hand, the competition from other financial products is caused by the development of savings products which can be packaged with the same content into different wrappers and be sold to the same investor, via the same distribution channels. As from 2006, the share of structured products and ETP relative to the European fund industry has steadily grown from 9% in 2006 to 13% in 2009 after a peak of 17% in 2008 (see figure10).

provide cheap beta, which results in pressure on fees of active managers not able to create alpha, or be able to provide alpha to demand a premium. However, core-satellite allocation strategies are bridging active and passive exposure to propose investment solutions to institutional investors. The strength of the core- satellite allocation is to provide institutional investors with an adequate level of transparency for performance attribution with the clear isolation between the alpha and the beta.

Figure 10

Evolution of mutual funds in Europe vs. substitute products (EUR bn)

The separation of alpha and beta

UCITS Assets Structured Products & ETP

7000

Over the past years, the AM industry has gradually split between products offering pure exposure to beta, like index funds or exchange-traded funds (ETFs), and products delivering alpha (see figure 11). This trend is leading asset managers to either

6159

5990

5956

6000

5315

5000

4543

4000

3000

2000

801

782

1000

764

704

558

0

2006

2007

2008

2009

2010

Source : PwC Analysis

24