26 10 / 2011
Knowing me, knowing you..
For a fund company expanding out of its home market, a crucial question is whether a distribution strategy that works well locally will also work in other countries. You might call it the Abba Dilemma: Knowing me, knowing you?
The Swedish popstersâ 1977 hit single went on to suggest there is nothing we can doÂ, but new research from Lipper hopes to shed some light on this issue.
The first step is to appreciate the importance of product development. At the end of 2001 the European mutual funds industry stood at 3 trillion euros ($4.2 trillion) in assets under management. By the end of the first quarter of 2011 this had grown to nearly 5.5 trillion. Of this latest total, 43 percent (2.4 trillion euros) of assets are now managed in funds that have been launched in the past nine years. In other words, 97 percent of industry growth since the end of 2001 has come from product development.
This is not just a quirk of the statistics over a longer time period. In 2010, for example, most local fund markets in Europe saw funds which were launched in previous years (referred to as Âbacklist funds) suffering redemptions while funds launches in 2010 enjoyed inflows.
You can see a chart showing these findings by clicking here
But this is not a uniform pattern. The most successful local market in 2010 (in terms of fund sales) was the UK. And in this market the vast majority of flows were into backlist funds, accounting for 81 percent of net sales.
This market stands out in Europe for the importance of Independent Financial Advisers (IFAs) as a distribution channel. Historical data reinforces just how important this has been. The weighting of flows into funds with a track record ranges from 40 percent (2007) or 50 percent (2004) to around 90 percent (2003 and Q1-2011), but the UK industry has achieved positive net sales in every year analysed  unlike most of the rest of Europe.
While the FSAÂs Retail Distribution Review (RDR) looks set to shake-up the way that intermediaries are paid, the way that platforms generate revenues (or the way they disclose this), and the formal qualifications intermediaries must have, the benefits that the current model has achieved in not simply pushing the latest product to hit the market should not be underestimated.
By contrast, those markets that suffered the greatest outflows from backlist funds are also those where banks and insurance groups have traditionally played a dominant role in mutual fund distribution: Spain, France, Italy, Germany.
An analysis of historical trends again underlines this view. In only the boom years of 2003 and 2005 did backlist funds manage a full year of positive net sales across Continental Europe.
You can see a chart showing these findings by clicking here
REDEMPTIONS
While the retreat by banking groups from promoting their mutual fund ranges in the wake of the financial crisis has been rightly highlighted elsewhere, it is possible to establish that the slow-down actually began in the second quarter of 2006. This happened as bond funds (previously the staple diet of Continental European retail investors) entered a cycle of redemptions that they only really came out of in 2009 Â and have fallen back into since the winter of 2010.
This does not inevitably put all of the blame for the appeal of new funds at the doorstep of large financial services groups (at the very least because this is aggregate data), but it is an issue that needs to be addressed. And such a process may already be underway as the European Commission looks more closely at distribution as part of broader initiatives (e.g. the original intention of the Packaged Retail Investment Products [PRIPS] initiative) and not just at products like Ucits funds.
The missing element from the picture painted so far is cross-border funds, those funds using the Ucits passport to sell into multiple countries and tending to be domiciled in Luxembourg or Ireland. Groups that have been successful with such funds have come out well through the financial crisis (in terms of sales), selling their products to professional fund buyers that will include funds of funds, private banks, banks open (or guided) architecture platforms, as well as institutional investors.
You can see a chart showing these findings by clicking here
The cross-border sales figures are far more similar to the UK than the largest Continental European industries, with backlist funds forming between 60 percent and 80 percent of sales activity each year except during the initial sell-off in 2007-08 of the financial crisis. It is worth highlighting that new product launches actually kept the cross-border industry in positive territory in 2007, underlining the importance of product development for these groups too.
Having highlighted the broad difference between the IFA-led UK market and many bank-dominated European markets, the rise and evolution of cross-border funds adds a further twist to this story. Bank-owned and independent asset managers generated about the same level of cross-border sales in 2010, and over 70 percent of these flowed into backlist funds for both types of business.
This research provides evidence of the relationship between fund distribution channels and sales patterns, and how this varies around Europe, as well as exceptions to this in the cross-border industry. And as the European industry becomes increasingly internationalised by such developments, a steady shift away from new funds may result.
($1 = 0.713 Euros)
13 10 / 2011
ConocoPhillips buys Marathon share in LNG plant
The deal, which closed Sept. 26, gives ConocoPhillips full
ownership of the LNG plant in Kenai, Alaska, said
ConocoPhillips spokeswoman Natalie Lowman.The 42-year-old Kenai plant, which has been exporting
mostly to Tokyo Gas and Tokyo Electric , is
still scheduled for mothballing later this year, Lowman said.”It’s doing a final cargo in the next month,” she said.
“Then, at that point, we’re doing what we said we were going to
do.”The shutdown will preserve the plant, but it may not be a
permanent closure, Lowman said. “We believe the plant does have
options.”One potential plan is to convert the plant into an import
facility to process LNG for local markets, Lowman said. “Or we
could resume operations to export LNG some time next year.”Originally, ConocoPhillips and Marathon had planned to shut
down the facility last spring. But energy supply problems
resulting from the earthquake and tsunami in Japan in March
extended the short-term need for LNG exports from the Kenai
facility.
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13 10 / 2011
UPDATE 2-CNPC, Shell refinery JV in deal with local govt
* Shell likely to lead in the Shell-Qatar side* Imported condensate eyed as feedstock for petchemBEIJING, Oct 13 (Reuters) - A proposed oil refining and
petrochemical joint venture between China’s CNPC, Royal Dutch
Shell Plc and Qatar signed an initial agreement with
local authorities in east China’s Zhejiang province, where the
mega project will built, the Chinese company said on Thursday.The project, to include a 400,000-barrel-per-day oil
refining and 1.2 million tonnes-per-year ethylene plant, was
approved by the National Development and Reform Commission, the
country’s macro planner, in June, industry officials said.Pending final government approval, which also includes
environmental clearance, the greenfield refinery would give
Shell and Qatar their first solid foothold in the world’s second
biggest oil consumer, which is in the midst of a refinery
building boom.The Taizhou venture, in coastal Zhejiang province, will use
imported condensate and other raw materials to produce ethylene
and other petrochemicals, CNPC said in a company newspaper.”The agreement further clarifies work scope and targets for
each side, reflecting sincere intentions to cooperate,” it said.Qatar is the world’s largest liquefied natural gas
(LNG)producer and pumps increasing amounts of condensates as a
by-product of its gas production.In January, Qatar Oil Minister Abdullah al-Attiyah and Wang
Yong, head of the state-owned Assets Supervision and
Administration Commission (SASAC), which is both a regulator and
shareholder in most of China’s big state-owned companies,
pledged to strengthen cooperation in the oil and gas sector and
discussed the Taizhou project.Industry experts told Reuters that the project, likely to
cost close to $10 billion, would be led by Shell on the foreign
partners’ side. Such an alliance follows a giant supply
agreement between Qatar and China.”The project looks promising to win Chinese government’s
final blessing, as China may see Qatar as quite a stabilising
factor among the Middle East resource nations,” said an industry
veteran.CNPC, parent of PetroChina , Asia’s top oil and gas
firm, will take 51 percent stake in the project and Shell and
Qatar to have 24.5 percent each, according to Chinese media
reports.China guards its fuel market tightly against foreign
participation. So far only a few foreign firms, including Exxon
Mobil , Saudi Aramco and Total , via joint
ventures with Chinese partners, have direct marketing access to
the roughly 9 million bpd fuel market, the world’s second
largest after the United States.
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12 10 / 2011
TEXT: S&P Assigns Ratings To Series 2011-3 WST Trust Prime RMBS
— Series 2011-3 WST Trust is a securitization of prime
residential mortgages originated by Westpac Banking Corp.
(Westpac; AA/Stable/A-1+).— We assigned our ratings to two of the three classes of
notes issued by BNY Trust Company of Australia Ltd. as trustee
for Series 2011-3 WST Trust.— The ratings reflect our opinion of the transaction’s
credit support, collateral pool, servicer, and other features
based on our current criteria and assumptions.MELBOURNE (Standard & Poor’s) Oct. 13, 2011—Standard &
Poor’s Ratings Services today assigned its ratings to the class
A and class B prime residential mortgage-backed securities
(RMBS) issued by BNY Trust Company of Australia Ltd. as trustee
for Series 2011-3 WST Trust (see list).The ratings are based on:— Our view of the credit risk of the underlying collateral
portfolio;— Our view that the credit support for each class of
notes, which comprises note subordination, is sufficient to
withstand the stresses we apply;— Our expectation that the various mechanisms to support
liquidity within the transaction, including principal draws and
a liquidity facility equal to 1.4% of the invested amount of all
notes, are sufficient under our stress assumptions to ensure
timely payment of interest;— The management of interest rate risk. Interest-rate risk
between any fixed-rate mortgage loans and the floating-rate
obligations on the notes are appropriately hedged via interest
rate swaps to be provided by Westpac.RATINGS ASSIGNEDSeries 2011-3 WST TrustClass Rating Amount (mils. A$)A AAA (sf) 1,472.0B AAA (sf) 54.4C N.R. 73.6N.R. - Not ratedStandard & Poor’s 17g-7 Disclosure ReportSEC Rule 17g-7
requires an NRSRO, for any report accompanying a credit rating
relating to an asset-backed security as defined in the Rule, to
include a description of the representations, warranties and
enforcement mechanisms available to investors and a description
of how they differ from the representations, warranties and
enforcement mechanisms in issuances of similar securities.The Standard and Poor’s 17g-7 Disclosure Report in this
credit rating report is available hereRELATED CRITERIA AND RESEARCH— Australian RMBS Rating Methodology And Assumptions,
Sept. 1, 2011— Principles Of Credit Ratings, Feb. 16, 2011The issuer has not informed Standard & Poor’s (Australia)
Pty Ltd. whether the issuer is publicly disclosing all relevant
information about the structured finance instruments the subject
of this rating report or whether relevant information remains
non-public.
12 10 / 2011
Indonesia cuts max guaranteed rph, dollar deposit rates
“The main reason for these cuts is because inflation is
relatively low and banking liquidity remains sufficient,
therefore bank deposit rates are expected to decline,” said
Djaelani.Indonesian deposits that offer interest rates above those
levels will not be guaranteed by the government.
12 10 / 2011
EU approves Irish support for Quinn Insurance
Ireland’s High Court last week cleared the takeover of
Quinn’s Irish general insurance activities by a joint venture of
U.S. insurer Liberty Mutual and state-run Anglo
Irish Bank , with Liberty owning a 51 percent stake in
the venture.Quinn’s non-viable UK operations will be wound downThe Irish state’s Insurance Compensation Fund will pay 738
million euros to Liberty, some 320 million of it immediately.”The administrators of Quinn Insurance have worked out a
plan that provides for a viable future for the healthy parts,
ensured an adequate burden sharing by the shareholders and
limited the distortions of competition,” the EU’s Competition
Commissioner Joaquin Almunia said in a statement.
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