1 The Advanced Program in Accounting and Auditing Regulation Recent Developments in European Fund Markets Dr. Uwe Eiteljoerge 6 June 2006

2 Structure of presentation: 1.Overview of the EU asset management business 2.Key trends in European fund markets: –Fund administration –Management –Distribution 3.EU policy framework 4.Factors to building a successful fund business

3 Birds-eye view of asset management: Collective (private) investments: –Retail investment funds (UCITS: undertakings for collective investment in transferable securities) –Other collective investments (real estate, hedge funds, institutional funds) Other private savings: –Life insurance –Structured funds/certificates –Individual portfolio management (discretionary mandates) Occupational pension schemes

4 UCITS 3 rd pillar: private savings 2 nd pillar: occupational pensions schemes 1 st pillar: social-securitysystems Non-UCITS EquityBondsMoney marketBalanced funds Long-term savings Collective asset management: Hedge funds Private Equity Real estate Unit-linked life insurance (State) (voluntary pooled savings) (Companies)

5 Broader/strategic considerations: Allocation of financial resources between savers and investors (cf. private equity); Provision of innovative tools for long-term savings of individuals; Competitive access to professional asset management services – for long-term savings; ‘Democratisation’ of financial markets; EU angle: inherently tradable products and services – many business lines well suited to organisation on pan-European basis.

6 Key features of AM business 1.Big business … set to get bigger 2.Inherently tradable products and services – although some are more heavily conditioned by local labour, contract or tax law; 3.Business of managing pooled assets is very fragmented in terms of products, institutions and regulations; 4.Convergence in how business is done, who is doing it and investor base.

7 Global assets under management

8 Net Assets of European Investment Funds

9 New player in fund markets: Hedge Funds UCITS: EFAMA, 2005; HF: various sources

10 UCITS: an integrated product market? Increasing level of cross-border sales; About 17% of UCITS are “true” cross-border funds; Most new sales in Europe in past 2 years accrue almost exclusively to cross-border funds.

11 Number of funds by Domicile and Country of Notification FERI FMI 2005 Domicile Country of fund notification ATBEDKFIFRDEIEITLUNLESSEUKShare Netherl. 0,7% Finland 0,9% Sweden 1,1% Denmark 1,3% Austria 2,6% Italy 2,7% Belgium 3,3% Germany 3,6% UK 4,6% Spain 5,7% Ireland 7,4% France 12,7% Luxemb. 53,3% All funds notified Share of non-dom. (%)77,459,520,270,428,180,637,768,17,286,840,372,647,7 Share in total (%):8,56,41,22,616,512,43,18,616,84,69,64,06,3

12 Fund management: a concentrated business

13 Marketing and distribution:

14 Separation of management & distribution: Slow trend towards open architecture (18-20% of new sales): Retail banks in-source funds from third parties.

15 Key trends in AM business Increasingly concentrated business and consolidation set to continue; Specialisation of actors along value-chain (split between management and distribution); High cost business and some costs (distribution, management) likely to increase; Competition from off-shore locations (esp. high net-wealth products, hedge funds). Business developing fast – new functions, niches, products evolve on a regular basis.

16 Investment funds: EU and US, 2005 EFAMA, ICI Number of funds (in Thousands) Average size (€ mn) AuM (€ 1000 bn)

17 Economies of scale along the value chain 2004, cost margin, bp McKinsey, 2005

18 Product innovation – fund proliferation No. of funds 2003 ׀ 2004 new funds launched 2004Mergers/ closures Net increases /decreases BE DE AT ES DK FI FR IT SE NL UK FERI FMI 2005

19 Key Policy Characteristics Regulatory regimes vary still across Member States, mainly with regard to the interpretation of UCITS rules and their implementation; Taxation continues to be a major concern for the industry; Both elements have a strong influence on the potential of the industry, at national and European level; Necessary to align these systems to realise this potential.

20 Objectives of European AM Policy: Drive efficiency and lower cost by … Facilitating (cross-border) competition and specialisation –Enable reorganisation of the different functions in the value chain to improve cost-effectiveness of industry; –Allow products and services to be sold to investors in other markets; –Allow managers to manage funds domiciled elsewhere; –Allow funds to transfer assets to custodians elsewhere. Without compromising investor protection.

21 Issues currently under discussion Make product passport work: –Notification procedure: –Clarification of eligible assets Help investors cope with more complex products and regulatory arbitrage between savings products: –Dislcosure documents (simplified prospectus); –Rules on sales process (MiFiD) Deliver new sources of efficiency/competition: –Management company passport –Cross-border mergers and asset pooling; –Depositary passport

22 The End ! Further information: Financial Integration Monitor (FIM) 2006 – EU INVESTMENT FUND INDUSTRY, es/fim/index_en.htm (as of early July 2006) es/fim/index_en.htm