UCITS IV: France targets cross-border chances

France was among the first batch of Member States to pass UCITS IV into its national law last summer, while a number of other European countries struggled to meet the implementation deadline (see map).

With the arrival of UCITS IV, French asset managers who had traditionally concentrated on their domestic market now have access to additional international distribution channels. The question now is whether they will take advantage of more efficient fund structures and reach out to cross-border investors who find France a difficult market to access.

The French asset management industry is one of the largest in the world with asset under management of E2,656bn as at October 2011, according to the L’Association Francaise de la Gestion financière (AFG). It ranks first in Europe with a market share of 19.9%, ahead of Germany (19.1%) and the UK (17.6%).

French asset managers have been reluctant to develop cross-border investment strategies, according to a study published last year on behalf of the AFG and adopted by the French finance ministry in its current push to make the financial sector more competitive.

The report said that while the high-quality of its personnel and available expertise in financial services are viewed in a positive light, these can be outweighed by lack of visibility among international investors.

Alongside this, competition is increasing from other European promoters who are targeting the French market for the distribution of their funds. This has a potential impact on the French “boutique” fund houses, which may fall under pressure to consolidate their operations as the number of larger participants in the marketplace increase. Moreover, low interest rates are an ongoing threat to French-based fund managers who may be heavily exposed to money market funds.

The implementation of UCITS IV means French asset managers now have the opportunity to increase the reach of their funds through more efficient Master-Feeder structures. This is in addition to the possibilities of pan-European cross border distribution.

Master-Feeders allow asset managers to extend their cross-border distribution channels through the creation of UCITS funds in one or several Member States (the Feeders) while simultaneously centralising the asset management at the level of a single UCITS fund (the Master).

The Feeders collect money from investors and invest at least 85% of their assets into the Master, who in turn acts as an investor in the market. Master-Feeder structures can be assimilated to “entity pooling” of assets and provides a way to test new markets or distribution channels.

The challenge for the French asset management industry will now be to exploit the new tools open to it and reach cross-border investors who, up until now, have found it difficult to place their capital within one of the world’s leading and most successful fund centres.

Philippe Legrand
Managing Director, France
Sales & Distribution

* Report by Reinhold & Partners on behalf of the L’Association Francaise de la Gestion financière (AFG)

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