Fund groups should target life insurers

Talk to the best-known cross-border sellers of investment funds, and the picture they paint is not currently an optimistic one. Stefano Russo, head of European distribution at Morgan Stanley Investment Management, holed up in the beautiful Palazzo Serbelloni on Milan’s Corso Venezia, is untypically downbeat.

Sure, there are assets coming in. But the handful of deeply negotiated guided architecture agreements with some of Europe’s finest banks are yet to reap dividends. He is aware that more resources need to be devoted, through special “skill source” programmes, where Morgan Stanley US staff can work closely with banks’ advisers. But in a market where banks’ end clients are reluctant to buy equity funds, any amount of brand building or sales training seems redundant.

It is the same story down the road at Piazza Missori, where Credit Suisse Asset Management’s Italian distribution chief Matteo Bosco bemoans investors’ appetite for structured products, and little else. These men are normally up and down from their chairs with sheer enthusiasm, to retrieve a graph or shout for a statistic, but not at the moment.

Their forlorn manner is reflected by year-end fund statistics from Feri Fund Market Information, painting 2004 as an annus horribilisfor European fund groups, with sales nose-diving 39 per cent. Overall net sales flows were E133bn. This is even 6 per cent down on 2002, when the severity of a bear market led to universal refuge in dull, but predictable, money market funds.

But it was actually investor confidence which led to investors’ pulling out, says Feri FMI. A mass exit from cash funds in 2004 meant investors were searching for more lucrative assets. But the fund industry failed to capitalise on the mood, and the money went into non-fund products.

Structured products can be created by European banks in a matter of days, and are immediately able to capitalise on latest investment themes and trends. They are heavily sold by both retail bank networks and the largest private banks such as UBS and Credit Suisse.

One bright spot for fund manufacturers, looking for new channels of distribution, is that insurers are managing to attract money, particularly in Germany. “Insurance companies are the ones who will be opening up,” says Mr Russo. “They are in the category of late-comers. Some of them are surprisingly looking at even more sophisticated products such as alternatives. We expect these sort of companies to come in sooner or later.”

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