Brussels, 10/03/2008 (Agence Europe) - We hope a practical solution, acceptable to all, can be found when it comes to the re-wiring of the European rules on collective securities investment funds (UCITS), says Peter De Proft, Director General of the European Fund and Asset Management Association (EFAMA). Backed by the Council and the European Parliament (see EUROPE 9564 and 9421), targeted amendment of Directive 85/611/EC will extend the Common Market in investment funds and improve their cross-border sales and asset pooling. The reforms are currently under discussion by the various European Commission departments and are expected to be unveiled at the end of April 2008.
One of the main focuses of EU rules is the 'passport' for asset management companies. Under the current rules, fund managers have to set up a management company in each member state where they want to set up a fund, and this is costly to the industry. Member states like Germany, France, the Netherlands and the United Kingdom back the idea of a European passport to enable managers of funds established in one country to manage funds domiciled elsewhere in the EU. Ireland and Luxembourg, however, which currently host around 90% of cross-border funds, are concerned about this due to prudential control issues with regard to national regulators in host countries.
De Proft admitted that the issue was controversial, but preferred to focus on other, 'highly positive', issues in the future legislation like speeding up asset grouping procedures. How would the investment fund industry change if full passports became the rule in the EU? EFAMA's Director General did not think there would be any fundamental change because centres of excellence would continue to exist. Medium-sized funds, however, would be greater hit by the new rules. De Proft hoped that other competing financial products, like life insurance and structured funds, would be subject to the same information publication requirements as investment funds. He said that EFAMA was calling for the same level of openness, giving the example of total expense ratio as the type of information such products might be expected to disclose. The issue is under discussion at the European Parliament and the European Commission is aware of developments but no new rules are expected until 2009.
In 2007, funds managed by European fund managers grew by nearly €400 billion to €7,925 billion, despite a fall in the third and fourth quarters. UCITS and non-harmonised fund (speculative funds and real estate funds, for example) rose by 4.2% and 5.3% respectively in 2007. The biggest rise in UCITS was seen in Luxembourg, Ireland and the United Kingdom, with a fall registered in Spain and particularly Italy. Sales of UCITS assets fell by a third on 2006, however, from a net value of €452 billion to €170 billion, due to fallout from the US subprime mortgage crisis. De Proft preferred to describe the situation as 'turbulence' rather than a 'crisis' for investment funds. He said that there would be a crisis if a lot of funds were forced to close, but only four funds had folded in 2007 and two Finnish funds in 2008. Cross-border funds are all the rage in Asia, which provided more than a third of investment in 2007, mainly from Singapore, Taiwan and Hong Kong. (M.B.)