Distribution Trends Across the Globe

“Glocalization,” or the conceptual intersection between global and local markets, has been gaining increasing attention in recent years—and when discussing the trends shaping today’s asset management industry, the term is more relevant than ever.

“Global trends in regulation, products and distribution continue to evolve, and they really change the way that we address everything that occurs in local markets in which we do business,” Scott Brady, Vice President, Head of Product Development and Strategy at Columbia Threadneedle Investments, explained to NICSA members on #WebinarWednesday. “To add additional complexity to the mix, the inverse is true. Trends in regulation, products and distribution in the local market also change the way we view things globally.”

Brady moderated the November 29 discussion, wherein experts in fund distribution trends provided an overview of the global fund distribution landscape (NICSA members can replay an archived version of the webinar here).

An Evolving Asian Market
Angelos Gousios, Director of European Retail Research at Cerulli Associates Europe Ltd, said although the asset management industry is exhibiting strong growth worldwide, market share in the U.S. is gradually being eroded by Asia and Europe.

“We see that non-U.S. assets will be hitting the 50 percent market share mark over the next few years, so we believe that the U.S. will continue to lose market share and will soon account for less than half of the industry,” Gousios said.

Despite the development of regional passporting schemes, Gousios said UCITS continues to enjoy traction. And while it is still a predominately European vehicle, Gousios said it will enjoy progress outside of Europe and “continue to play an important role internationally.”

Gousios also pointed to growth in the Asian market, although it has slowed in recent years.

“In the six major Asia ex-Japan markets (China, Korea, Taiwan, India, Hong Kong and Singapore) we see that mutual fund assets collectively broke the barrier of two trillion U.S. dollars in 2016 and grew by 7.3 percent year over year,” he said. “To put this in perspective, in the previous couple of years it grew over 30 percent and over 45 percent respectively.”

In the future, Gousios predicts that China and India will be the main engines of growth. And while retail banks will remain the largest distribution source inside of Asia ex-Japan, disruptors are making their way into the market in the form of digital distribution. In addition, Gousios said fee transparency and enhanced disclosures are high on the agendas of many regulators in Asia.

“They seek to align transparency standards with developments in international markets, and disclosure requirements are going up and are likely to increase in the future,” he said.

A New Age of Distribution in Europe
Diana Mackay, CEO of MackayWilliams LLP, focused on changes in the European landscape, including new dynamics in distribution.

Mackay said that in terms of cumulative net sales, “this year has been the most extraordinary year we have ever seen,” with inflows that are approximately 35 percent higher than previously recorded years.

“It’s been a world of huge change for the industry as a whole, regardless of the stakeholder,” Mackay said. “The latest sales figures we’ve seen are very much the result of the Central Bank policy response to the financial crisis, and in fact we see in Europe that is almost the sole focus of investors’ decisions—watching what the central banks are saying and looking to anticipate what they might do next.”

One of the biggest issues surrounding all of these areas is regulation, Mackay said. “Regulation in Europe is really changing industry dynamics, and key to all of this is the shift in control of the value chain from the asset manager, the manufacturer, to the intermediary.”

This shift has been evolving for the last three or four years, causing enormous concerns for the active asset management community in Europe. “They see passives taking over,” Mackay said. “We read in the press—fairly regularly—reports that in a number of years passives will be larger than actively managed funds.”

Mackay evaluated those threats in terms of how real or imagined they actually are. Regarding the perception of a relentless rise of passive funds, ETFs and traditional index trackers still account for less than 19 percent of AUM in Europe. “Clearly, active management is still the majority of the business in Europe,” she said. However, in some European markets where regulations are already in place—such as the Netherlands, where a commission ban was imposed two years ago—fund selectors have put up to 40 percent of portfolio assets into passive funds.

“We certainly see passive funds taking a bigger market share, but we don’t see passive funds completely taking over and reducing the actively managed sector to a minority position,” Mackay said.

Mackay said pricing pressure is felt most in passive funds, whereas in the active arena, the distributor discussion has changed. “It’s no longer about ‘how much retrocession are you giving me,’ but ‘tell me what you are doing to justify the fee you want,’” Mackay said. “In a way, it’s all about the value proposition that you’re offering.”

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