RETHINKING DISTRIBUTION

What dowe expect in the long term?

We have taken this key driver into account on the horizontal axis on which we have indicated whether the competition from emerging market players will take place in emerging markets only, or also in Europe. In the past, the UCITS brand has been key to the success of European players within a number of Asian and emerging markets. As mentioned in the previous section a significant portion of sales of European fund stems from Asia and more than 5,000 UCITS products are being sold in this region. Moreover, the newly promulgated AIFMDirective, intended to overcome the barriers and inefficiencies created by the current patchwork of national regulation, has also the opportunity to repeat the current success of the UCITS brand and become a trusted and attractive international brand leading to the expansion of the Non-UCITSmarket. On the other hand, there is rising interest within the Asianmarket to develop an Asian fund passport to overcome national regulatory barriers, effectively challenging the dominance of the UCITS brand. This concept is demonstrated through the vertical axis of the figure above. Currently,Western asset managers can expand freely in Europe and in a number of emerging markets without facing intense competition from emerging market product providers. The European players competemainly among themselves and with other international asset managers on more or less a level playing field. Although local players are gradually emerging, so far competition from them remains marginal. Moreover, the recognition of UCITS worldwide has opened the door for this product to several foreign countries, to the point where no other national framework is currently able to compete. Where dowe stand?

Europeanassetmanagerswill have to competewithemerging market players in both emerging markets and in Europe We believe emerging market players will strengthen their position in the local markets and leading players, already well established on their market, will attempt to increase their client base by targeting new regions. Moreover, the growing needs of European institutional investors searching for higher returns is likely to attract foreign competitors. Hence we expect that ten years fromnow, European asset managers will have to compete with emerging market players in both emerging markets and in Europe (providing emerging market expertise to European investors). UCITS brand can be expected to retain its international dominance The development of a distribution passport is a long term investment, anddespite theadvantages of European integration, the UCITS product was more than 20 years in development before it could reach its current level of recognition – and it still has further to go. Discussions around the Asian passport and regulation encouraging national protectionism can be perceived as a potential threat for UCITS but this new label is far from being established. Emerging countries are lagging behind and we do not expect another international standard to compete with UCITS in a foreseeable future. Hence we believe that the future European asset management industry will still have a comparative advantage through the dominanceof theUCITSbrandacross theworld. However, European assetmanagerswill have to adapt to an increased competition from emerging market players who can also use the UCITS brand to compete in their local as well as international markets.

36