Chillin' out till it needs to be funded
Investors’ interests are being “jeopardised” by the European fund industry’s desire to continually push new products, according to a report from Lipper FMI.
Lipper found that new funds continued to see net inflows of more than €120bn £105bn, $170bn in 2008, even as pre-existing “backlist” funds haemorrhaged €520bn.
But the sheer proliferation of funds that inevitably results from this imbalance appears to be detrimental to investors. Europe’s fund count of 35,000 is continuing to balloon; over the past six years twice as many funds have launched than closed. In contrast the US, with a similar size asset base, has just 8,000 funds; a tally that is falling with closures and mergers running at twice the level of launches.
As a result Europe has one fund for every 1,000 investors, Lipper estimated, with the median fund size just €25m. This is costly for investors with the total expense ratio, typically 1.6 per cent for larger funds, approaching 3 per cent for the smallest vehicles.
“The key criticisms of launching too many new funds are, first, that it increases the chances for mutual funds to be sold on the basis of what is fashionable, rather than what is most appropriate for an investor, which may lead to misselling,” said Ed Moisson, head of consulting at Lipper FMI.