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

2. 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. 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. 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. 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. 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. 7 Global assets under management

8. 8 Net Assets of European Investment Funds

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

10. 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. 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 notified37822831524116473215519136938077475205842621772279444496 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. 12 Fund management: a concentrated business

13. 13 Marketing and distribution:

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

15. 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. 16 Investment funds: EU and US, 2005 EFAMA, ICI Number of funds (in Thousands) Average size (€ mn) AuM (€ 1000 bn)

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

18. 18 Product innovation – fund proliferation No. of funds 2003 ׀ 2004 new funds launched 2004Mergers/ closures Net increases /decreases BE20452184290151139 DE2445254023413995 AT836879874443 ES2672271119015139 DK441463341222 FI338359442321 FR539754064063979 IT2010197716920233 SE568532743-36 NL345284667-61 UK1527146342106-64 FERI FMI 2005

19. 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. 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. 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. 22 The End ! Further information: Financial Integration Monitor (FIM) 2006 – EU INVESTMENT FUND INDUSTRY, http://ec.europa.eu/internal_market/financ es/fim/index_en.htm (as of early July 2006) http://ec.europa.eu/internal_market/financ es/fim/index_en.htm