Submitted by: Submitted by rcicala
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Category: Business and Industry
Date Submitted: 03/06/2011 09:57 AM
The European Fund Industry:
Responses to the crisis
Roberto Cicala
Finance I
MEMBA 2010
September 2010
Contents
1. Introduction 3
2. Trends generated by the crisis 5
2.1 Loss of investors trust 5
2.2 Flight to safe asset classes 6
2.3 Deteriorating economics for asset managers 7
3. Conclusion 8
Introduction
The impact of the recent financial crisis on the asset management industry has been particularly violent: in one hand, the decline of the value itself of its products reducing profits; in the other one, the loss of trust of the customers who were massively switching their assets to other products.
The sub prime crisis that started in mid summer 2007 led to severe market turmoil and severe consequences for the asset management industry. A new peak was reached in September 2008 when Lehman Brothers declared bankruptcy. All the stock markets crashed and almost all the large banks were left with portfolios of worthless securities. Late 2008 saw the European fund industry being seriously shaken by a huge fraud scandal in the US, the “Madoff Affair” mining one of the pillars for investor protection in the UCITS[1] regulatory framework: the custodian role.
During the last two decades investment funds have been increasing at a rapid pace, sustaining high above returns. This development stopped suddenly with the beginning of the financial crisis.
The direct impact of the crisis for the European Fund industry can be summarizing by the following figures[2]:
• Total investment fund assets fell by 23% in 2008 (or € 1799bn)
• UCITS total net outflows of € 344bn or 6% of UCITS assets at the end of 2007
• Asset decline: only 19% due to outflows and 81% to market losses
• 40% of the total outflows in 2008 were recorded in October when the financial world was on the edge of collapse
From a sales viewpoint the year 2008 has been defined the “annus horribilis” for the fund industry: four consecutive quarters...