European Funds Lose Assets Twice in Three Years

(February 29, 2012) — Flows to European funds were in the red for only the second time in a decade last year, as investors hoarded cash and retreated to the safe haven of fixed-income research this week has shown.

After a bullish start to the year, seeing €96.1 billion in new money, the European funds industry lost a total €59.8 billion, according to Data Monitor Lipper. The only other time funds saw net negative outflows in the past ten years was a €391.4 billion exit in 2008.

Ed Moisson, Head of United Kingdom and Cross-border Research at Lipper, said: “The stock market falls that began in July not only ended the healthy sales activity that had started the year, but triggered a tidal wave of redemptions that rolled through the industry. While these outflows ebbed slightly in the final quarter of the year, there were few who did not feel the cold chill of investors withdrawing from mutual funds by the year-end.”

Despite a thirst for fixed income, Lipper found that the top selling fund across Europe in 2010 – emerging market bonds – fell to ninth place in terms of total net sales last year. Replacing the asset class at the top of the table were sterling-denominated money market funds, with estimated net sales of €23.8 billion. Notably investors steered clear of Euro-denominated money-market funds and tellingly, money market funds denominated in United States dollars saw huge inflows over the year. They took in estimated net sales of over €7 billion and climbed in the rankings from 197^th position to fifth.

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Holding second place in sales were local-currency denominated bonds, which brought in €16.4 billion.

Showing the fear-factor in European equities, the third most popular funds were invested in German equities. These funds took in over €12.4 billion last year and rose from being ranked in position 28 in 2010. Emerging market equities, which had been in third position in terms on net sales in 2010, fell to 25^th place.

Moisson also said that a number of managers had postponed plans to launch new funds amid the turmoil in the last half of the year, which had meant that the number of funds available contracted for only the second time in the past decade.

He said: “The last time this happened (in 2009) the net reduction was 801, while this year’s figure was a mere 43. In recent years there have been about the same number of fund launches in both halves of the year, but in the latest year there was an unsurprising tail-off partly the result of some planned launches being shelved.

“Just as 2009 did not herald a new dawn of product rationalisation across the industry (there was a net increase of 871 funds in 2010), so it seems very unlikely that 2011 will either. Instead market conditions will largely dictate where product development priorities lie,” Moisson said.

CIO Survey: While Alts Gain Traction, Have Flows to Passive Run Its Course?

While many respondents continue to expect their allocations to long-only equities to moderate, a large proportion of respondents suggest active domestic equity strategies will continue to find it difficult to pick up market share, a newly released survey by Keefe, Bruyette & Woods (KBW) shows.

(February 28, 2012) — While assets seem poised to continue to flow to alternatives, have the flows to passive run their course?

That is a question posed by Keefe, Bruyette & Woods (KBW) research.

According to the firm — which questioned approximately 42 decisionmakers at corporate and government pension plans, endowments, foundations, and investment managers in order to garner insight into institutional investors’ asset allocation and manager selection process — respondents generally expected to increase their allocations to passive and alternative strategies. In particular, respondents seemed interested in various hedge fund strategies and specialized strategies, such as real estate, energy, and infrastructure.

However, only a minority of respondents expected to increase their passive allocations, the survey found.

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Meanwhile, the study found that among CIOs, fees on alternatives are important but take a back seat to performance. “A large minority or respondents indicated that the level of fees, while important, take a back seat to performance. This suggests that while fee pressure exists, it may be at the margin and better performing managers will be in a better position to maintain pricing,” the survey said.

The study singled out BlackRock, noting that among publicly traded traditional managers, the firm appears particularly well positioned. The study stated: “The trends identified in our report should be generally favorable for the alternative managers we follow, including Apollo Global Management (APO), Blackstone Group (BX), Fortress Investment Group (FIG), KKR & Co. (KKR), and Och-Ziff Capital Management Group (OZM).”

Furthermore, the study by KBW noted that while long-only strategies remain popular, a large proportion of respondents expect to increase global equity allocations at a faster pace, suggesting that active domestic equity strategies will continue to find it difficult to pick up market share. According to the study, this should benefit specific asset managers with large international equity businesses, such as Franklin Resources (BEN), BlackRock (BLK), Affiliated Managers Group (AMG), and T. Rowe Price (TROW).