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Tuesday, June 06, 2006

European CEOs Talk Retirement Income, Management Fees

Reported by Marie Glancy

What issues are uppermost in the minds of Europe's fund company CEOs? At the NICSA and Dublin Funds Industry Association pow-wow in Ireland last week, the European heads of PIMCO, INVESCO and Allianz were among those joining in an engaging roundtable discussion that looked at the coming retirement rush, how to pay portfolio managers, and serving the range of investors.

Moderated Mark Tennant, senior advisor at JP Morgan and chairman of Bluerock Consulting, the session seemed well received by attendees. Transformation, to use the broadest of terms, represented the overriding theme of each panelist's opening remarks: Tennant called this the most exciting time he's encountered over his 35 years in the industry; Elizabeth Corley, CEO of Allianz Global Investors Europe said the industry faces "unprecedented change"; and Charlie Porter, founder and president of Thames River Capital, referred to the "dramatic metamorphosis of the asset management industry."

Perhaps most interestingly to U.S. observers, Corley talked about what an aging demographic means to the industry. Europe's funds industry is 20 years behind the United States in terms of the transition from an accumulation to a distribution focus, she estimated. Over the next 15-20 years, this changeover will call for a move from transaction-centric to relationship-centric business, and from selling products to selling solutions -- a reality that has yet to be addressed, she suggested.

"How you describe it to the consumer, how you price it, how you handle longevity risk ... is completely different" in a primarily distribution-oriented market, she said.

Corley -- who, when she's not busy at Allianz, writes mystery novels -- also submitted that when it comes to asset management fees, consumers are increasingly aware of what they're paying for. Indeed, as more Europeans become more active as investors, the panelists are looking ahead to alterations in companies' operations and fee structures. The hedge fund-mutual fund divide, which is different and less pronounced in Europe, may even disappear, suggested Porter.

Tennant pointed out that if hedge funds, long-only funds and alternative investments do wind up merging, fund companies will have to solve the problem of hanging on to skilled portfolio managers without overcharging investors who have been shut out of high-performing closed hedge funds. Otherwise, "That's like saying you can have a Skoda for the price of a Bentley," he said.

This very difficulty was behind Nationwide's sale of Gartmore UK, he added: the U.S.-based parent company watched Gartmore "bombing" as hedge fund managers, though operating independently from the rest of the company, absorbed fees felt by all the firm's clients.

The focus of a piece on Reuters this week, how to balance the talent and remuneration of star money managers is clearly a hot topic across the Atlantic. Some NICSA/DFIA panelists believed U.S. companies have done well handling scale; Joe McDevitt, CEO of PIMCO Europe, said his firm largely considers itself "an overgrown boutique" and tries to preserve that culture in the midst of growth.

When an audience member asserted the market, ultimately, will settle the fee question, Tennant expressed doubts that individual investors are informed about the correlation between fund fees and performance.

Corley drew the issue out, raising another major concern: returns for the mass consumer, she charged, are "broadly unregarded by the people in this room." Average consumers need a real return product, she said, and should not be relegated to a world composed purely of ETFs and indexes.

For now, those who most need to accumulate wealth are receiving the least in terms of service and advice, but she warned, "This will change, either as we get our act together or as regulators dictate." 

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