Fund launches slump to 10-year low as volatility bites

Fund launches slump to 10-year low as volatility bites

The number of funds launched in the UK is on course to slump to the lowest level in 10 years in the first quarter of 2016, new figures show, as concerns over both stockmarket volatility and an oversaturated marketplace take hold.

Data provided to Investment Adviser by Thomson Reuters Lipper shows that just four open-ended funds have been launched in the UK since the start of the year, well below the average of 45 first-quarter launches recorded over the past decade.

The current 10-year low of 26 was set in the first three months of 2012 as the eurozone crisis neared its apex. This year’s slump has similarly been pinned on market volatility.

Thesis investment manager Steven Richards said a “rabbit in the headlights” mentality had taken hold among investors.

“Potential investors, whether they are institutional or retail, are just frightened and sit tight.

“You are never going to raise a lot of money in these conditions, even though the fall in markets could be the best opportunity to get in at the bottom,” he said.

Rory McPherson, Psigma’s head of investment strategy, added: “Generally in these markets there’s an apathy from [investors],” he said.

“Companies have got clients on the phone asking why their pot of money is going down. People just don’t dedicate the time to looking at new products.”

But market jitters are not the only factor. Separate data provided to Investment Adviser last year showed that even the highly popular multi-asset sectors had witnessed a slump in launches.

Commentators have said the wider trend emphasises the industry is now taking a more refined approach in the face of critics who complained of too many products.

Chris Chancellor, of consultancy MackayWilliams, said fund firms were no longer taking a “shotgun approach” to product development.

“We are also building more complex products and need more seed capital. That’s a bit of a squeeze,” he said.

Increasing regulatory scrutiny could also be having an impact, Mr Chancellor added.

“Across Europe we have got a much bigger regulatory focus, which means it’s more effort to launch a fund.

“The developers are the people doing regulatory work like changing prospectuses, so their time is more precious.”

The consultant warned that a slowdown in launches might mean a reduction in fund flows, despite the enduring popularity of a small group of existing products.

Around 20 per cent of European assets go to vehicles that are less than five years old, MackayWilliams figures show.

But Gam investment director Charles Hepworth said the trend could provide a more attractive prospect for investors themselves.

“It could be a contrarian indicator – maybe it’s the bottom of the market,” he said.