In their 2021 report, the Association Française de Gestion (AFG) of Collective Investment Institutions in France revealed domestic mutual funds posted net inflows of €152 billion in 2020 to an unprecedented € 4,355 trillion, up 3.5% on the year before. Since the global financial crisis of 2008, French domestic mutual funds have also seen a 4.7% increase on average each year. Therefore French Asset Managers have a comfortable leading position with a 28% market share of Continental Europe fund inflows.
With world-class Asset Managers, France offers an attractive range of investment propositions for investors, not just domestically, but also on a global stage. France is also at the forefront of ESG policies, having recently pioneered policies against greenwashing, alongside Germany, with the decision to introduce legal sanctions and fines against groups spreading false or misleading information about sustainability.
We spoke to Philippe Cordier, Head of business development at FE fundinfo, France, to find out more about the current situation and the challenges and opportunities within the French fund market.
Philippe, what are the main challenges currently facing the French Fund Management industry?
Like everywhere in Europe, the Fund Management space is quite competitive with 680 Asset Managers registered (+45 since 2020). Since the implementation of MiFID II, where most Asset Managers have decided to support the additional costs on their own P&L, margins are consequently under pressure, with mandated pricing also shrinking. The market has responded largely by introducing and developing ESG propositions, and dedicating efforts towards careful stockpicking in an effort to restore margins.
What are the main opportunities for the French Fund Management industry?
The industry has dramatically evolved over the past ten years. The bulge bracket group of banks has become bigger thanks to their aggressive fee policy and cloning passive strategies. This has opened the door for pure alpha generation boutiques to emerge. The issue of the implementation of Pension Funds remains outstanding, but is unlikely to happen any time soon, therefore the current system is poised to last. But with 50% of the French Funds being ESG oriented (Art 8 or 9), the ESG expertise of the French Asset Managers continues to attract very large inflows.
How is regulation affecting the French fund industry?
The regulatory workload and compliance burden for fund groups in the EU is increasing with SFDR and PRIIPs II due to come into effect in mid-2022, which will impact on French fund managers. Eventually outsourcing to specialist service providers should gain greater traction as well as the embracing of technology to support what might be considered non-core functions and increase operational efficiencies. Specialisation within fund groups and greater focus on distilling competitive advantages are likely to shape the industry further moving forward. Finally, mergers and acquisitions among smaller providers are likely to rise as groups seek greater economies of scale to combat increasing regulatory compliance costs and contracting margins.
The challenges for Fund Managers in France are therefore multi-layered?
France has proved to be a frontrunner as far as passive investments are concerned, with 70% of the total AUM in France invested in these vehicles on average over the past ten years. This puts constant pressure on active fund managers who have to differentiate and show superior performance to justify higher fees. But reducing costs for their clients is also not a feasible option. The French fund industry remains, unlike in Germany or Spain, not overly concentrated despite the presence of the “gang of four” (Amundi, BNP PAM, AXA IM and Natixis IM). This means that smaller players have shifted their focus on alpha generation or thematic funds, and newly created boutiques have proven to be very successful.
Where do you think the challenges for Fund Distributors in France lie?
The classic model of the fund distributor is evolving quickly, with platforms gaining momentum. The recent strategic transaction between Allfunds and BNP Paribas has to be mentioned as it is a game changer in France, given the strong support provided by the new shareholder. The penetration of robo-advisors, neobanks and low-cost fund marketplaces, which allow investments starting from a low base, are also gaining traction with a younger retail investor community, who are perhaps more trusting of tech-driven investment solutions.
What impact do you see Covid-19 has had on the financial service industry in France?
I could bluntly say none, given the huge inflows seen last year (see above). But the way of working has definitely changed, especially among equities where corporate roadshows simply vanished in 2020 and this year, making decision processes perhaps more difficult. Remote working and the closures of offices have sped up the trend of digitalisation and this is only likely to increase in the coming years.
With the fallout from Covid impacting on margins, the need to find greater cost efficiencies is becoming sharper, therefore playing to increased M&A activity, as we saw Generali taking out SRI player Sycomore.
Given all the challenges, how can FE fundinfo support the fund industry in France?
There is a major challenge underway on the regulatory front with the changes to PRIIPs and implementation of SFDR Level II requirements going into force in July 2022. French fund managers will have to, like their European peers, comply with this deadline. FE fundinfo’s market leading data and technology solutions can help our clients stay focussed on their core business, managing funds and externalise all non-core activities. We are also helping fund managers navigate the increasingly complex cross-border distribution world of funds through our Global Funds Registration (GFR) where we work also work with non-French domiciled funds to set up their funds in France and overcome the administrative burden associated with setting up foreign funds in the country.