Implementation of measures intended to render the French asset management industry more attractive to foreign investors has started.
In the aftermath of the Brexit vote, has le jour de gloire (glory day) come for the French asset management industry?
Not yet but Frog, the working group set up earlier this year by French market regulator AMF together with the local asset management association AFG, has unveiled a series of measures to boost the competitiveness of French funds.
Some have been implemented already such as the premarketing of funds authorised by AMF in early July, to ease the launch of new strategies in France and encourage innovation.
Contacting up to a maximum of 50 investors to assess their interest prior to the launch of a Ucits or AIF fund does not constitute an act of marketing according to the regulator’s definition. But if any subscription is registered from the investors approached, it will then be considered an act of marketing.
France will also get rid of the mandatory classification of its domiciled funds, which currently remains a stand-alone requirement in the European asset management landscape.
Frog’s chairman Didier Le Menestrel calls the remove a pragmatic measure as the local industry will thus not be an exception anymore.
In other changes, an amendment to the draft law ‘Sapin 2’ – focusing on transparency, anti-corruption and France’s economic modernisation – will introduce a gating mechanism to freeze fund assets and therefore stop withdrawals in the event of a major liquidity shock.
“There is currently no intermediary measure to suspend the trading of France-domiciled funds. UK asset managers have recently shown they could live with it by suspending the trading of UK property funds facing withdrawals and freezing client assets,” Le Menestrel observes.
However, French insurers have resisted the idea as they attract most inflows to the French AM industry; changes would force them to provide liquidity to clients if an asset manager stops a fund trading.
Responsibilities in the activation of the fund suspension process have not been determined yet. It remains unclear if AMF should issue recommendations or let asset managers decide by themselves.
Sapin 2 amendments are also expected to allow foreign investors to subscribe to shares in France domiciled funds without opening bank accounts in the country.
Another point raised within Frog’s debates include the structure of French funds, with momentum in favour of regenerating the French Sicav idea.
“The French Sicav fell into disuse because of too strict governance rules that, for instance, led to a lack of eligible administrators. However, once we remove these rules, what will we do when FCPs turn into Sicavs? Shall we keep the track record of the fund? That sounds like a good idea.
“Some measures will be implemented on fund governance in September. AMF is considering the option of an external independent eye to oversee the fund governance of Sicavs,” Le Menestrel says.
But what could really make Paris a new London or Luxembourg remains beyond Frog’s competences. Le Menestrel underlines that the missing piece of the puzzle is the lack of attractive tax policies in France.
“Soon after the Brexit vote, the UK government considered a possible cut of corporation tax to 15%. That was a non-subtle counter-attack. French president Francois Hollande only delivered speeches but nothing has been concretely done to ease taxes in France. We will lobby for the implementation of an attractive tax regime in France towards candidates to the French presidential election taking place in 2017.”
For Le Menestrel, time has come for France to grab market share in the European financial services industry in the aftermath of the Brexit vote.
“We can be operational in the very short term. But we shall call for a united front in the rest of Europe against UK based asset managers that would try to use derived ways to passport their funds in Europe. We have to do our best to make UK companies register their funds in Paris for passporting purposes,” Frog’s chairman concludes.
French AM jobs on the rise
French market authority AMF reported early August that some 15 931 professionals worked in the French asset management industry as at 31 December 2015, up 2.6% year-on-year.
Portfolio managers accounted for 27% of the total industry’s workforce.
This article was first published in the September issue of InvestmentEurope, that can be downloaded for free on www.investmenteurope.net.