H2O? Woodford? Pah. Life Is Grand in Fundland
(Bloomberg Opinion) -- With the explosions that have rattled Natixis SA’s H2O Asset Management and Neil Woodford’s flagship fund dominating the headlines in recent weeks and months, it’s worth noting that the environment for the European fund management industry as a whole is actually not as bad as those idiosyncratic blow-ups might suggest.
The share prices of the region’s biggest asset managers have bounced back from the trashing they underwent last year. That’s partly because of lingering expectations that the sector is overdue for a bout of mergers and acquisitions. But it also reflects the likelihood that clients have been putting money to work, reversing the outflows that the industry suffered last year.
Amundi SA reckons that $100 billion was withdrawn from European mutual funds in the final three months of 2018. Figures just released by the European Fund and Asset Management Association and the Investment Company Institute show investment fund assets in the region grew by 6.8% in the first quarter compared to the fourth, rising to 15.77 trillion euros ($18 trillion).
Equity gains are clearly helping to tempt investors back into the markets. The Stoxx Europe 600 Index is up by more than 13% this year, putting it on track to deliver its best first-half gain since 1998, according to figures compiled by my Bloomberg News colleague Namitha Jagadeesh:
And in fixed income markets, expectations that the Federal Reserve will lead the way in prompting central banks to ease monetary policy anew have helped goose bond market returns around the world:
Challenges for the industry persist. The concerns about illiquid holdings, that have prompted investors to withdraw billions of euros and pounds from portfolios managed by H20 and Woodford, look set to spark a new bout of oversight and rules from the regulators. And those two episodes will only accelerate the shift into low-cost index tracking funds, to the ongoing detriment of active managers.
But for now, life is about as good as it’s going to get for European funds. The bad news? It’s likely to delay – yet again – the much-need and long-anticipated consolidation that the industry still sorely needs.
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Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."
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