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    Check out the ALFI Spring Conference Report april 7, 2015    
          in this edition      
         
 
   

Over 800 delegates

The ALFI Spring Conference – Asset Management Moves Centre Stage – was held on 24 & 25 March 2015, and was attended by around 850 delegates from more than 25 countries.

Check out the conference video by clicking on the picture below!

Check out the photo gallery on Flickr!

 

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Setting the scene...

In her introductory speech to the conference, Denise Voss, Conducting Officer at Franklin Templeton Investments, who delivered a message on behalf of Marc Saluzzi, ALFI Chairman, said: “This conference is taking place in a positive context. Last year, the European fund management industry broke the EUR 11tn mark for the first time and more than EUR 600bn of new money flew into European regulated funds. Once again Luxembourg funds led the charge with EUR 250bn of net sales. In the UCITS space, we contributed almost 50% of the total European inflows in 2014 and our fund centre broke a new record in terms of AUM at EUR 3.3tn. It is great to see all our efforts repaid.”

 

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Want to understand investing? ALFI’s "understanding investing" website will help

Ms Voss noted that ALFI did not just act for the industry, but for its end clients too. As chair of the ALFI Investor Forum, she introduced a new website – www.understandinginvesting.org – which is designed to “help our children take responsibility for their own financial security”.

The website www.understandinginvesting.org starts with the basics and looks at how to start investing and what a financial adviser is. It helps people analyse what sort of investor they are, and outlines different styles of investment. It also explains the structure of funds and how they are regulated.

A series of easy-to-understand podcasts explain investment clearly. ALFI’s first investment podcasts, launched in 2014, cover questions such as How does a UCITS fund work? How can UCITS funds protect investors? and Should I save or invest? A further seven podcasts will be made available shortly, enabling people to plan investments for their particular stage in life and - whether you are a student, young professional, mature adult or retiree - assess the cost of investing and look at what drives the performance of an investment. Click on the image below to view the podcasts!

Download the press release in English, French or German.

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With influence comes responsibility

The fund management industry is increasingly recognising its role at the heart of the economic system and is assuming greater responsibility.

The growth of the responsible investing (RI) sector is testament to this. It has grown by 25% compound over the last 2-3 years, with 35% of RI assets managed in Luxembourg. “The underperformance of RI funds is a myth,” said Jane Wilkinson, partner at KPMG Luxembourg, which produced the third edition of the European Responsible Investing Fund Survey commissioned by ALFI.

Retail take-up of RI funds is slow, the survey noted. Interest should increase though as a younger generation of investors is attracted to the transparency of RI and its contribution to sustainable development.

The fund industry is also seen as key to reviving the European economy. Initiatives such as the “Juncker Plan” will rely heavily on fund management to channel debt and equity to SMEs, which are the backbone of the economy. Fund management clients are showing interest as yield compression encourages institutional investors to diversify their risks.

Some conference participants worried about the risks of asset managers investing directly in SMEs. Participants warned that the illiquidity of some of these investments may not be fully understood by the investing public, so caution should be exercised when selling them to retail investors.

Download the survey by clicking here.

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Myths about the Luxembourg fund centre

The success of the Luxembourg fund centre has been erroneously ascribed by some to weak oversight or tax advantages. Thomas Seale, CEO of European Fund Administration and ALFI Board member, said it was necessary to continuously explain what Luxembourg stands for.

Mr Seale stated that funds come to Luxembourg for innovative structure and world-class know-how as well for financial stability and the country’s competitiveness. Also, Luxembourg funds directly pay over 750 million euros in tax (subscription tax) and Luxembourg Fund Industry indirectly pays an additional 500 million euro in tax. Mr Seale reminded that the investors in Luxembourg funds pay taxes in their own country and they cannot hide behind “banking secrecy”. Last but not least, Luxembourg funds respect exactly the same requirements as those based in Frankfurt, London, Dublin or Paris. Luxembourg funds are regulated by the CSSF, a professional, well-resourced and rigorous authority. Moreover, the Luxembourg financial centre consistenly gets strong reviews by the IMF and other international organisations.

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Regulation – the time for talking is over

With many regulatory consultations at an end, the industry is firmly in an implementation phase. But implementation brings its own challenges. As Peter De Proft, Director General of EFAMA, said: “Implementation is not a break, it is the most intensive time for the industry.”

Claude Kremer, former ALFI president, agreed. “Regulators should be sympathetic on the sequencing of implementation.”

Under UCITS V, for example, ManCos will have to change many of their agreements to facilitate information sharing and due diligence. This requires dedicated oversight teams, more robust tools, a risk-based approach and depositary oversight.

Meanwhile, to keep abreast of MiFiD II, investment firms and their advisers have to follow 3,500 pages of advice from ESMA.

Steven Maijoor, chairman of ESMA, said the hard work on implementation was inevitable: “We need a consistent financial market, and for that we need convergence across the EU.”

Now that regulations dealing with risk have been largely formulated, the focus of policymakers has moved on to tax. “Tax is the focal point of global policy agenda,” said Michèle Eisenhuth, Partner at Arendt & Medernach, citing OECD initiatives such as BEPS and CRS.

These are still works in progress. BEPS, for instance, is still at the final consultation stage and will not be agreed until the G20 meeting in November. A representative from OECD said BEPS would “close the route to treaty shopping”. The OECD is keen to avoid double taxation, but says it is “hard to avoid when the system supports double non-taxation”.

Not all rule-making is a burden for the industry though. The advent of RQFII UCITS, allowing exposure to mainland Chinese equities is positive, and the creation of ELTIF should stimulate the growth of this new European product.

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China opens up new opportunities

Luxembourg is the leading Eurozone jurisdiction for RMB deposits and loans with the three largest Chinese banks basing their continental European operations there. More than 40 RMB bonds are listed in Luxembourg and RMB-denominated investment funds in the Grand Duchy manage RMB 260bn. “This will increase when future funds are set up under the Shanghai-Hong Stock Connect programme,” said Nicolas Mackel, CEO of Luxembourg for Finance.  

The initial impact of Stock Connect has been slow because the timeline for its launch was short, but already nine Luxembourg UCITS have been set up and many others have been approved. The range of possible assets will increase later this year as Stock Connect is expanded to mid- and small-cap stocks.

China is clearly a fast-evolving market and players need to be dynamic. As one Hong Kong-based fund manager said: “If you launch a product in the Chinese market, it has built-in obsolescence. Already Stock Connect has made QFII funds less relevant.”

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Fund costs in the spotlight

Are cross-border funds more expensive than local funds? A white paper by Deloitte and Fundsquare found costs of 1.3%-1.4% are related to the complexity of cross border distribution.

Asset servicing fees are the biggest contributor, with tax computation alone adding 0.5% to costs. The costs of hedging can be up to 0.5% too because of the sheer number of share classes in sub-funds. Governance, professional and legal fees, compliance and monitoring, shareholder servicing and local agent fees all contribute to increased costs.

Overall, the costs of getting cross-border funds to market are around 2%-2.2%. This is the price for a product that gives access to many different markets, the report concluded, while recommending that firms search for synergies to reduce these costs over the coming years.

 

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