Germany and Greece have the lowest level of discretionary investment in Europe and instead invest greater amounts of money in collective funds.
Discretionary mandates, where fund mangers act for single clients whose assets are segregated from other clients, make up 22% and 25% of total assets under management in Germany and Greece respectively, while the figure is over 70% for the Netherlands, UK and Portugal.
Average investment levels in discretionary mandates and funds across the European investment management industry is fairly evenly split with 50.5% of total assets in discretionary mandates.
The relevance is that in the financial crisis, discretionary mandates performed better than funds in terms of maintaining assets under management because they benefited from more stable inflows from pension plans and insurance companies.
In monetary terms, discretionary mandates accounted for €5.388 trillion of total assets under management and funds accounted for €5.328 trillion. The figures are from the end of 2008 but were produced by the European Fund and Asset Management Association (Efama) last month in the trade body’s third annual industry review, Asset Management in Europe.
During 2008 discretionary mandate assets declined by 18% and investment fund assets declined by 23%. As well as pension fund inflows, the lower exposure of mandates to equities also helped discretionary managers. Equity exposure for discretionary mandates was 35% versus 40% for funds at the end of 2007.
The figures show that there are important differences in terms of the dominant product solutions offered in different European countries, says Efama. For instance, the vast dominance of discretionary mandates over investment funds in the Netherlands reflects the important role played by defined benefit pension schemes in the Dutch occupational pension system. Referencing the Social Protection Committee (2005), Efama says nearly 90% of the workforce in the Netherlands is covered by supplementary occupational pension schemes.
In Portugal the reason behind the high share taken by mandates is the fact that the insurance sector is particularly important and that the retail segment is particularly prone to invest in discretionary mandates. Efama notes that it is important to recognise the border between different product types is blurred. Discretionary mandates frequently invest money in investment funds, while certain investment funds display similar characteristics to discretionary mandates.
Vice versa, discretionary mandates may also be retail oriented and mimic the investment strategies and structures of investment funds. Thus, product types with similar properties may be categorised differently, although differing primarily in terms of the wrapper used for their distribution. For example, German investment fund assets include special funds reserved for institutional investors. If the investment fund assets managed for institutional investors are treated as discretionary mandates, the share of discretionary mandates in total assets would increase to 62% for Germany.
Conversely, the discretionary mandate figure for the UK includes a share of pooled vehicles that in many respects correspond closely to investment funds.
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