The Association of the Luxembourg Fund Industry (ALFI) unveiled new report which looks at the impact of the financial crisis on European investor behaviour, and at the future direction of the asset management industry.
ALFI calls for asset managers to broaden their appeal to all savers in society
- €4 trillion in unmanaged assets in Europe
- Europeans missing out on long-term investments
- Asset managers need to look beyond the wealthiest 10%
"Beyond 10%” – a new report launched by ALFI sets out actions for the industry to enlarge the pool of retail investors in long-term investments
The report “Beyond 10%: the case for enlarging the pool of retail investors in Europe’s investment funds,” by research company MackayWilliams highlights the fact that there is a €4 trillion pool of household assets in Europe that are not managed professionally, which is either losing value or failing to grasp growth opportunities that are available through long-term investment vehicles. This is a missed opportunity for asset managers and savers alike.
“The clear conclusion of the report is that there is a huge amount of cash on deposit – an amount that is actually bigger than the household wealth in South America - which would benefit from being in investment vehicles, but to capture these unmanaged assets fund groups need to look beyond the wealthiest 10%,” commented Marc Saluzzi, Chairman of ALFI.
"Focusing on the wider needs of general investors and taking action to increase their allocation towards mutual funds has benefits for both the industry and investors - and will improve the perception of the industry."
Saluzzi continues: "Cash saving rates no longer provide investors any real return. European investors are also losing out, particularly in comparison to those in the US, for example, by not having been invested over the last few years."
The report examines the changing behaviour of European investors since the financial crisis, which has resulted in household assets in mutual fund assets shrinking from euros 1.7 trillion to euros 1.2 trillion between 2006 and 2011. This contrasts with the US, where mutual funds of households rose by 8% during the same period. In Europe cash now accounts for 42% of household wealth, in contrast to the US where the equivalent percentage of cash holdings is 18%.
The analysis shows that, despite news headlines about market turmoil and poor equity performance, over the past decade European household assets (excluding pensions and insurance) achieved a return of 34% whereas US households, with their greater weighting of long term investments, achieved a return of 47%.
The report underlines the need for the asset management and fund industry to develop a model which appeals to successive generations of savers. Key areas it addresses are:
- The high allocation to cash in European households which now accounts for over 40% of household assets
- The environmental and external headwinds which impact investor engagement with mutual funds, such as tax, regulation and market confidence, and the way that asset managers can influence these in order to encourage retail investors back to funds;
- The changing demands and expectations fund managers face, such as the income and wealth preservation products required by an aging population, the pressures on costs and demands for transparency, the move to banning commission across Europe,
- Different educational initiatives that can increase investor knowledge, and thereby help to build consumer confidence, from school-based initiatives in Australia through to workplace schemes in the USA.
- The challenges facing the industry and actions that the fund and asset management community can take to overcome those challenges.
“We are now experiencing a seismic shift in the financial tectonic plates which has left a landscape where individuals see financial markets as too risky for their savings,” concludes Mr Saluzzi.
“Fund managers have a unique opportunity to become the preferred link between individual investors needing return and those financial markets.”
The full report can be found here.