Mutual funds can regain market share: Swisscanto

Date: Wednesday, March 18, 2009
Author: Lisa Jucca, Reuters

A drive toward safety and simplification can help mutual funds claw back market share from structured products and hedge funds, which are suffering massive redemptions in the crisis, fund firm Swisscanto said.

The funds industry is facing its biggest challenge to date as worried investors withdrew money en masse from funds to park it in cash accounts or low-margin money market products as they wait for the financial crisis to abate.

But withdrawals are not indiscriminate, with complex and unregulated market products suffering more than others, said Alex Schoeb, Chief Investment Management officer at Switzerland-based asset manager Swisscanto.

"The mutual funds industry has a big chance to catch up in market share. Up to 2007 structured products had a huge growth, at the expenses of mutual funds," Schoeb told Reuters in an interview ahead of the Reuters Funds Summit.

"Now there is an opportunity to regain a part of that share."

Schoeb, whose firm won a Lipper award for overall large asset manager for 2008, said the hedge fund industry, which can count more than 10,000 unregulated products, was the biggest loser in the crisis and could shed three quarters of its value.

"The peak for hedge funds was $1.9 trillion of assets. It came down about half a trillion and it is expected it will come down another $0.5 trillion to $1 trillion," Schoeb, who is underweight on hedge funds, said.

Swisscanto, an asset manager backed by the Swiss cantonal banks, had not suffered the heavy outflows seen by many in the industry as it benefited from money investors brought in from bank giant UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz)(UBS.N: Quote, Profile, Research, Stock Buzz) and from its stable image.

Switzerland's number one bank UBS came close to collapsing in October after writing down billions of dollars on risky U.S. investments and had to be rescued by the state. Its financial woes prompted worried investors to withdraw money from the bank, most of all in its home turf of Switzerland.

INFLOWS INTO MONEY MARKETS

Schoeb said the trend into money market products that dominated the end of 2008 continued at the start of this year.

While private investors were still cautious on almost any kind of investment, institutional investors were starting to show an appetite on investment-grade bond, the only asset class that Schoeb said could extract some yield while investment managers are still underweight on almost all asset classes.

"We still have seen inflows in money market products. I would say we are seeing a continuation of the trends of 2008 at a slower pace. We saw outflows in hedge funds stopping. But two months is too short to show a clear picture," Schoeb said.

Schoeb said Swisscanto was, like many other asset managers, reviewing its product mix and merging or closing down products.

"The number of products launched by the industry is still high. It could be due to lag of regulatory approval of products that may have been in the pipeline for a long time," he said.

Swisscanto has not launched any new products in the last six months.

"But the number of products in general will decrease. All the houses are working out which products are not profitable."

Schoeb said product innovation was at its minimum, with physical gold funds such as the ones launched by Julius Baer (BAER.VX: Quote, Profile, Research, Stock Buzz) and Zuercher Kantonalbank in the autumn as about the only significant new products lunched.

Fees were already moving to the downside as investors were willing to invest less money and in low-margin products and the industry should brace for more consolidation.

"The industry will have to learn to live with lower volumes, that is for sure," he said.