The Gregorian calendar has one considerable fault: each year, December comes around much more quickly than expected.
The upside, however, is that it provides financial market participants the opportunity to reflect, evaluate, and consider how they will position themselves for the upcoming year.
For UK and European fund managers there has been much to ponder in 2017, and 2018 will undoubtedly provide the same.
Brexit looms large, as does a cornucopia of acronyms: Mifid II, EMIR, Basel III, Solvency II, AIFMD, and Dodd Frank, as well as ongoing ESMA and FCA pronouncements.
All these are forcing fund managers to look closely at their business models.
Yet, as we move into 2018 the pan-European fund market is without doubt very buoyant. According to Thomson Reuters Lipper data, the industry passed €10trn of total AUM in 2017.
Net flows of some €600bn as of the end of Q3 represented the highest net flows total since 2004. Barring any unforeseen crises before Christmas, 2017 will be a bumper year indeed.
Despite the rising tide, product dynamics have changed. From 2004 to 2014 passive funds and ETFs contributed on average 7 per cent of the total annual sales of all funds in Europe. For 2015 this average jumped to 32 per cent.
For 2016 it was 24 per cent, and for 2017 (through Q3) it was around 14 per cent. With its holistic offering BlackRock has, with AUM over €700bn, twice the European asset base of its nearest rival (Amundi).
Is it any surprise then that we have seen active fund groups such as Franklin Templeton and Fidelity launch ETFs in 2017?
It is impossible to accurately predict how the markets will fare in 2018, but even with these healthy fund flows there must certainly be an impact on the number of funds available for sale to European and U.K. investors.
According to Accelerando Associates, the US$16-trn mutual funds market has some 9,500 mutual funds, with an average fund size of US$1.7bn.
Compare this with Europe where there are some 11,000 cross-border funds with an average fund size of only €260m.
This cannot be sustainable. Indeed, Lipper data show new fund launches in Europe (including the U.K.) for 2017 (through Q3) are down 49 per cent from 2012.
Unsurprisingly, fund concentration in Europe is considerable. The UK fund market, for example, contains nearly 40 per cent of its total assets in only 100 funds.
This pattern is similar throughout Europe and ostensibly doesn’t auger well for boutique funds unless they are able to garner the attention of increasingly influential fund buyers.
Fund houses too will face pressure to reduce their sales teams. Accelerando suggests that 80 per cent to 90 per cent of fund house revenues are generated from 10 per cent to 20 per cent of sales staff.
Therefore, there is the potential to see current sales teams decrease by an average of 35 per cent over the next three to five years.