Ladies and gentlemen, dear members, dear colleagues,
Thank you all for being here at the EFAMA Annual General Meeting in Amsterdam.
I would also like to thank the Dutch Fund & Asset Management Association for organizing and hosting such a remarkable event.
I offer my sincerest thanks to the members of EFAMA for electing me as President. It is an honor and a responsibility that I gratefully accept.
Firstly, and importantly, I would like to express my gratitude to Claude Kremer, Massimo Tossato, Peter De Proft and the EFAMA team. My two years as Vice President of EFAMA working alongside President Claude Kremer has been a privilege.
Together with Alexander and Peter, and as a strong believer in Europe, I would like to assure you of my commitment to work closely with EFAMA’s Board, Management Committee, national associations, corporate members, associate members, and of course EFAMA’s staff.
The fund management industry and the global economy are currently facing difficult circumstances and further challenges surely lie ahead. I believe that our mindset has to evolve to cope with the crisis and this new environment, the “new normal” situation in which we live.
We are in a transition period where we have to address together as European cirizens, a set of obstacles.
We are experiencing a debt and deleveraging crisis, a competitivness crisis, a governance and political crisis and a crisis of confidence
Our fellow citizens are worried about their jobs, their living standards, their pensions. They are looking to the asset management sector for solutions. These are our end customers, the retail investors, and the institutional clients who entrust us with their savings.
Standing still is not an option and this transition period could last for a long time. It was Proudhon, the French philosopher who said that “only transition is eternal”.
And during this transition period, I believe there are three major threats to our industry.
The first is overregulation
We face an unprecedented wave of regulation, And, the distortions created by so many directives and regulations will have an enormous impact on both our industry and the people we are trying to serve – the investors
We are repeatedly witnessing regulation trying to resolve problems in our industry that don’t exist
The UCITS directive is 25 years in the making. After the first two UCITS directives which took nearly 16 years to put in place, the industry now must confront and deal with 3 different directives in less than 3. Having just digested UCITS IV we are facing the unknown implementation of UCITS V – and now we are told UCITS VI is en route.
If the regulation and supervision of the financial sector are to restore financial stability and confidence in the markets, we must ensure calibration of new regulatory and supervisory frameworks to enable the financial sector to support the real economy.
I implore European regulators to properly explain the rules of the game!
The second major threat is coming from the lack of level playing fields
Regulation must be put in place to create a level playing field for financial products and consequently reduce investor confusion.
Today our main competitors are Banks and the Insurance industry. These are offering products and services often in competition with Asset management products. In this context, the rules of the game need to be harmonized to ensure fair competition
With the KIID, our industry already serves as a model of comparable, easy to understand information, but difficulties with PRIPS are a reminder of the long and arduous road to success.
The third major threat is coming from the erosion of our margins
Despite average AUMs reaching pre-crisis levels, overall industry profit pools remain 20 percent below the 2007 highs.
The complexity of the current regulatory program means we are facing a long and costly process of compliance with these new rules. The current focus on how to digest past, prepare current and anticipate future regulation confuses matters further.
However, there is light at the end of the tunnel:
As investors, we are part of the solution not part of the problem!
Companies are calling for sustainable, long term financing solutions and the asset management industry is ideally placed to offer this.
The financing gap must be addressed?
We are in a position to find alternative ways of financing this gap left by the bank model!
European citizens are suffering from mis-allocation of their savings to non risky and short term products?
We can provide access to capital markets for all investors, whatever their size!
Policy-makers are worried about the growing need for long-term investment in Europe?
We can offer long term, robust, transparent, liquid diversified AND cost-efficient products!
Our business is client centric. We care about our clients and we show it by offering dedicated solutions and services!
I know I preach to the converted here, but our industry is facing exceptional challenges.
So, I put before you the 4 key issues that I want as the foundation of my 2-year Presidency – and I appeal to you to support EFAMA in tackling these head on
We need to:
1/ have a strong united voice across the industry,
2/ offer viable solutions to the issue of long term investment
3/ help finance the economy
4/ permanently look after the interests of our clients and safeguard the end investor
These are, in my opinion, the outstanding themes that need to be addressed to ensure the future of the asset management industry
Let me briefly deal with each one
1/ Firstly, we need a united voice, message and relevancy
EFAMA is this voice! We derive our strength from our
- 27 national member associations
- 60 international corporate members
- 22 associate members
Collectively we represent €14 trillion in assets under management, more than the GDP of the European Union.
Our assets have increased by 25% over 5 years and 70% over 10 years.
54 000 investment funds (arguably too many) run by 3100 asset management companies employing about 80 000 have been registered in Europe..
Our industry is profitable and requires little capital. These two elements are fundamental in helping to develop a sustainable future.
EFAMA is acknowledged as the voice of the industry by European authorities and all relevant stakeholders, including investor associations.
We are proud of this recognition but must remember that our profile and actions are always in the public eye, and thus our credibility is at stake.
– We will ensure that EFAMA has a strong and credible voice at EU level, representing the voices of all our members. This will be done through internal and external initiatives.
- To develop awareness and support of our members, we must produce a technical analysis of each main key regulatory topic.
Synthetic messages have to be addressed from EFAMA to our members and to our negotiating partners
- A strong association needs resources. We will try to increase the number of corporate and associate members.
2/ To offer viable solutions to the issue of long term investment
Our mission is to allocate and channel savings into investments.
Long-term investment is the formation of lasting capital, covering tangible assets, such as energy, transport and communication infrastructures, and intangible assets, such as education and research and development. It enables companies and governments to produce more, responding to new economic, social and environmental challenges.
It will boost our industry, our capacity to innovate, and will improve our competitiveness.
Our prime responsibility is to invest in the best long-term interest of our beneficiaries.
We live in an increasingly interdependent world facing social, governance and environmental challenges that can undermine the performance of our investments.
“Non-financial information” can generate added value and positive growth.
We can make a meaningful contribution by promoting investment in companies that integrate better governance criteria into their core business.
By doing so, we will protect and enhance long-term investment returns. Acting like this, we will defend the interests of our clients !
Solutions: LT Investment fund and OCERP
In allocating their savings to low risk and short-term products, investors do not benefit from the risk premium offered by longer-term assets.
This lack of optimization in allocation penalizes the growth potential of the economy.
Having defined a sustainable framework, we are in position to develop innovative long term solutions. I would like to mention two of them:
LT Investment fund
A long-term investment fund is a long awaited solution for retail and institutional distribution.
I want to propose an answer, a solution to guarantee a robust and transparent framework and a passport for a broad European distribution
The creation of long-term productive savings fund will offer a new channel of financing to the economy: non-listed companies (stocks and bonds), debt securities business (corporate loans), infrastructure financing… the list goes on.
Of course, the regulatory framework would adjust criteria like liquidity and valuation in order to better meet the specific long-term purpose of the product.
It will ease the reallocation of savings towards productive investments through the eligibility of products subject to a wide underwriting environment like life insurance, employee savings plans, OCERP…
Europe has to deal with an ageing population and a financing gap in long-term investments.
This environment provides the basis for the design of a Europe-wide personal pension product.
I would like to reaffirm my strong support for OCERP. OCERP will play a supportive role in channeling retirement savings towards long-term investments.
3/ The next theme is to help finance the economy
Banks have traditionally been the most important financial intermediaries.
The evoluting role of banks opens up new needs and opportunities for other institutions and market based intermediation to finance investment.
- Investors are currently experiencing a high level of uncertainty, risk aversion and lack of confidence.
- Governments are looking to private financing as an alternative
- Corporates are faced with a disparate investment landscape. Large firms benefit from large financing resources compared to SMEs that suffer from a chronic lack of liquidity.
Asset management can complement the role of banks by channeling financing in a more balanced way.
To enhance the financing of the European economy, three factors need to be addressed: risk management, market infrastructure reforms and innovation.
Regulators have introduced new legislation to make financial markets more efficient and effective, focusing on systemic risk reduction, improved market infrastructure, enhanced transparency and sound customer protection.
We observe, however, that these reforms have by definition a significant number of cost implications, for example, for transactions and hedging, they will affect not only market makers in their capacity to adequately fulfill their role, but also end-investors in their decisions.
Market infrastructure reforms will have an impact on investor’s decisions
In order to channel financing as effectively as possible, capital markets need to be deep and to function well.
EMIR reduces counterparty credit risk; however, central clearing and collateral requirements will significantly step up the cost thus impacting returns on investments.
MiFID II, currently being negotiated, introduces pre-and post-trade transparency requirements: these should be calibrated very carefully in order not to hamper market makers in their capacity to provide liquidity, especially for non-equity products.
In order to stimulate initiatives, it is crucial that regulatory measures do not make investments uneconomical and burdensome.
This would deter investors from providing funding.
In an open-world economy, penalizing the asset management companies of the European Union could undermine the area’s ability to attract and retain savings and considerably weaken its position.
The fund industry needs more carrots than sticks.
Over the past decade SME securitization has become an element of the financing of SMEs in Europe. In some European markets such as Spain, Germany, the UK and Italy it has grown significantly.
The near-collapse of the European structured finance market profoundly affected its status. To facilitate the return of investors, we need to fight conflicts of interest, encourage market transparency, promote standardization and reduce the complexity of products.
4/ Looking after the interests of our clients
It is in our best interest to safeguard our clients
Without investor trust, we cannot hope to attract their savings and increase assets under management.
Without investor trust, we cannot hope to convince regulators and politicians to support our industry.
We can best achieve this through investor protection and education
We all know the risks associated with ignoring the interests of investor. Reputation is one of our key assets: we must preserve it !
What deserves attention is the opportunity created by focusing on the investor, which will pave the way for sustainable growth.
Protecting client’s interests must be at the core of regulation of asset management companies.
By focusing on the investor, we can create alliances within the financial industry, with bankers, insurers, within our countries or internationally, with political authorities.
Education can inform investors to potential problems, provide explanations of products and processes, what questions to ask, and helpful tools to assess investments and financial services professionals.
Investor education was, is and will be key to protecting the reputation of our industry.
Acting with our clients at the fore or all we do will be the bedrock on which we will develop our solutions.
A new world order is on its way
- We are in a transition period subjected to different types of crises
- We are in a transition period in which specific threats are emerging
In the face of this exceptional challenge, our industry has got the talent and capacity to succeed.
As investors, we are part of the solution not the problem!
To have a strong voice to be reckoned with, to offer long term investment solutions, to finance the economy and to protect our clients will ensure the future of the asset management industry.
These are our four pillars:
- EFAMA, with the support of all the industry, needs to stand as a strong and credible voice at EU level
- A long-term investment framework enables companies and governments to respond to new economic, social and environmental challenges
- The transformation of the financial industry is opening up new needs and opportunities for institutions and market based intermediation to finance investments
- Without investor trust, we cannot hope to attract their savings and increase assets under management
This will boost our industry’s capacity to innovate and our competitiveness.
To be elected as President of EFAMA in these circumstances is a real and exciting challenge. My Presidency will continue to be dedicated to the success of our industry as my predecessors have achieved.
I am honored by the trust you have placed in me so now let us work together to meet these challenges head on, and embrace the opportunities presented to us.
Thank you .