Banker bashing is very much flavour of the month and Laurent Ramsey, chief executive of Pictet Funds, is not going to pass up the opportunity to join in.
Mr Ramsey is less concerned about “casino” investment banking activities or reckless lending practices. Instead his ire is directed at the ever-tighter squeeze banks, which have an iron grip over mutual fund distribution across much of Europe, are imposing on asset managers.
In its Swiss homeland, Pictet can rely on its parent private bank to distribute its funds, but elsewhere in Europe it is largely dependent on securing access via rival banks that have adopted open or guided architecture models.
And like food producers being squeezed by all-powerful supermarkets, Mr Ramsey fears the likes of Pictet are getting the thin end of the deal.
“My feeling is that a very large chunk of the fees is going to the distributors, especially compared to the US market,” he says.
“Unlike in the US, in Europe and Asia distribution is controlled by banks and it’s a concentrated distribution market, therefore distributors have control of the clients. They have scale and have big power in negotiations, and therefore the fee sharing is more to their advantage.
“For institutional mandates we get better fees in the US than in Europe, although funds are more expensive in Europe.”
Fund managers’ share of the pie is reduced further by pressure from distributors to provide commercial support for their operations, for instance by training their financial advisers, providing marketing support and coughing up resources for investment seminars.
And Mr Ramsey believes, from asset managers’ perspective, the situation is getting worse.
“The sharing of fees is moving more in the direction of the distributors. The more we are able to raise assets and establish relationships with distributors and the more assets they have with you, the more they ask for,” says Mr Ramsey, who believes post-crisis consolidation in the banking sector has tipped the balance still further.
The European Fund and Asset Management Association, on whose board Mr Ramsey sits as a corporate member, is currently conducting its own analysis of fee levels in Europe and how these are divided up.
The report is likely to appear by the summer and Mr Ramsey is hopeful it might help usher in greater transparency, potentially along the lines of the US, where fund prospectuses list 12-b1 fees, the annual fee that is used to pay for advertising and distribution costs, as well as broker compensation.
“Would that work in Europe? I don’t know, but Efama is looking at fees, what are the possibilities to make the industry better for the investor, and transparency might be one way to look at it.
“There is a lot of transparency at asset manager level. You can see on our website every fee. Funds are transparent; when you get to the distribution level there is more opacity because funds are often wrapped in a structured product or certificate.”
Mr Ramsey argues that asset managers could and should be doing more to protect their position. Pictet lost one distribution deal for its money market funds because of its focus on costs, he says, but he has no regrets.
“In some cases you have to stick to your guns. Money market funds, net of fees, should deliver positive returns to clients. When investment returns go to zero it becomes difficult.
“We slashed fees to rock bottom levels but in doing so we had some distributors who said ‘we are not really interested in your money market funds, we don’t get anything because there is nothing there to give’. We lost a relationship,” says Mr Ramsey, who argues that some rival houses have been prepared to see net returns to investors turn negative in order to be able to satisfy their distributors.
Mr Ramsey believes the industry should also launch fewer funds and be more proactive about closing those that have not reached critical mass and are not economically viable, to keep costs under control.
This is an acute problem in Europe, which boasts around 33,000 funds, four times as many as the US, which has a similar sized pot of assets.
The industry should “only launch [new funds] on strong conviction, not on a trial and error basis, and be more active about closing funds”, says Mr Ramsey. “In the last three years we have closed more than we have launched,” he adds, citing enhanced money market funds and some European equity and sector-based vehicles among those that have been axed.
In spite of his concerns, Mr Ramsey is optimistic about the future for asset managers reliant on the big banks for distribution.
A number of banks, such as Citigroup, Barclays, Credit Suisse and ABN Amro, have sold off their asset management operations, and Unicredit is endeavouring to follow suit by offloading its Pioneer arm. As a result, post-financial crisis, Mr Ramsey believes banks will increasingly look to sell third-party products via open or guided architecture models.
Mr Ramsey acknowledges the crisis proved problematic for independent managers with banks, particularly Italian ones, redirecting customers into deposit accounts. But he believes it was a short-term glitch.
“I think the crisis will accelerate the trend towards third-party distribution, even if in the short term it diminished it. A lot of the big distributors have sold their asset managers. They were a small contributor to their top-line revenues. Medium term it will be positive for the cross-border industry.”
To take full advantage of this, Mr Ramsey believes fund houses will need both high quality products and a recognised brand (“if an adviser has to spend an hour explaining why a brand is best, that’s an hour they are not selling”).
The product he is most bullish about at the moment is Pictet’s range of equity-based Global Mega-trend funds, based on nine themes such as agriculture, biotech and clean energy.
“It has delivered outstanding results. It is 90 per cent correlated to the MSCI World, ex financials, volatility and beta are below the market and the outperformance is staggering,” he says.
Get alerts on Fund management when a new story is published