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European fund of funds to grow by $250bn, multi asset absolute return managers to lead the pack - Cerulli

Friday, September 10, 2010
Opalesque Industry Update - According to The Cerulli Report: European Funds of Funds, the European FOF sector will expand by almost €250 billion by 2014. The winners in the race to capture assets will be multi-asset absolute-return managers and aggressive FOF asset allocators.

Consolidators with the resources, economies of scale, and asset class firepower to run FOFs well will also increase their marketshare. Others will be less fortunate. Too many of Europe's FOFs are poorly designed, struggle with compliance risk, and have failed to attract sufficient assets to be tenable in the long term.

European FOF assets have recovered from the lows of 2008, although Mediterranean markets still suffer from poor sentiment and fund outflows. European assets under management (AUM) will rise from €319.7 billion at the end of 2009 to an estimated €567.5 billion by the end of 2014, a compound annualized growth rate (CAGR) of 12.2%. Paul Burgin, the primary author of the report, says: "Whilst the European picture looks good overall, there are distinct variations in the outlook for each country. The European Union product and distribution landscape is still fragmented as most FOF providers only distribute in home territory."

France is Europe's largest FOF market, yet offers the weakest growth forecast at 8.4% per annum. "The outlook would be rosier if fund groups stopped including too many of their own funds in supposedly open-architecture FOF portfoliosm," said Shiv Taneja, managing director at Cerulli Associates.

"French asset managers may find more potential overseas than at home. Their cross-border ranges could tap the underdeveloped Asian FOF market to good effect," he added.

Regulation is driving change in Italy and the U.K., but in very different directions. Italy's strict interpretation of the Markets in Financial Instrument Directive (MiFID) makes it hard to sell FOFs with their double layers of fees. FOFs could eventually die out. International fund groups must focus their attention on segregated account structures that act as a bespoke alternative.... (press release) Corporate website: Source

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