The summer’s financial turmoil has intensified competition across Spain’s asset management industry as companies fight for a share of a diminishing wealth market cake with both local and international asset managers under pressure.
Specialisation has been a key factor when choosing an asset manager and this has helped foreign players, says Mauro Lorán, regional director Iberia and Latin America at Ignis Asset Management in Madrid.
“The growth for foreign managers has been much bigger because the people who are doing the product selection and constructing portfolios are looking at providers who are the best of breed. So if you want to invest in credit, you look at managers who are good at credit, if you want to invest in the Iberian market you look for managers who are good in the Iberian market. So they are selecting that, and normally, though not in all cases, the foreign managers are those more sophisticated active managers,” says Lorán. “People now are more cherry picking because the dispersion in return can be quite high,” he says.
It is relatively easy and quick for foreign asset managers to distribute their funds in Spain. They need to present their prospectus and the required documentation to the CNMV and usually within a month they can have their funds approved for distribution.
Advantages of specialisation
Specialisation works both ways, Piqueras says. The local industry has at least 65% to 70% of assets under management invested in money market funds, short term fixed income funds and guaranteed funds. The remaining 35% is devoted to value added products and equity. “I don’t see foreign managers coming here to compete with money markets or guaranteed funds because we have a lot of expertise there. But they are competing with us in more niche assets,” she says.
Still it can be difficult for foreign players to reach new clients. “There are not many banks that actually sell foreign funds in their branches, they do give us access through funds of funds or discretionary portfolios some times,” says Schroders’ Bergareche.
Third party funds are generally handled through the private banking and the asset management divisions of the big financial institutions and may compete with the institution’s own offering.
“If you are a good client of a big bank and you want to do something they will probably buy it for you, but they will not offer it to you,” says Ignis’ Lorán.
“The local banks provide asset allocation and they look to external providers in order to give the alpha generation in the different asset classes that they decide upon. And that’s the winning [card] for foreign managers in Spain,” he says. “It’s not directly, it’s through the asset allocators from a local firm.”
Foreign managers only provide products which the allocators package together for their client. “I’m not selling to the client. The client has my fund because it’s in the portfolio of funds that the asset allocator is selecting,” says Lorán.
Other factors come into play. Under new European Union regulations, the banks must strengthen their capital. They need liquidity, but as they cannot raise finance on the international markets, they have been competing hard for deposits. This has had a big impact on the fund industry.
In June, the government set a limit on the interest rates banks can offer on deposits, but the banks responded by pushing promissory notes that pay between 3% and 3.75% depending on the amount subscribed, in addition to offering high rates deposits. These products compete directly for clients’ savings.
The two sides have different strengths and need one another, says Bergareche. “I think we complement each other. Local (Spanish) asset management is concentrated on short term fixed income, guaranteed products, mainly fixed income money market funds, most of the assets they have and their products are concentrated there. We offer much more value added products.” These can include high yield emerging market debt and equities.
Local companies have expertise in the IBEX and Spanish equities. Some of them have some expertise in Europe and in Latin America because of the Spanish bank’s presence there. “They have some expertise in those areas, but maybe they don’t have more global expertise, in US, Japan and emerging markets. So I think we very much complement each other in terms of products,” Bergareche says.
But all agree that the crisis is sharpening competition across the industry, including for the banks although they have an advantage due to their long-standing relationship with their clients.
“Financial wealth is not growing. There is not much activity so what people are doing is fighting for the same business. And to fight for the same business means offering the best service solutions. Clients are more careful and there is much more competition,” Lorán says.