SPAIN - Infiltrating the Spanish market is going to be much more challenging than foreign fund managers may think, according to Cerulli Associates.
The consultant’s annual Global Update finds that although imminent pension reform in Spain may provide some inroads it is unlikely to create the honey trail that some fund managers may like to imagine.
In fact, the report predicts that “as global fund managers increasingly turn toward UCITS-based European distribution strategies, they may find themselves increasingly turning away from Spain.”
By the end of the year Madrid is expected to allow corporate pension plans to outsource mandates to more than one fund manager.
Under current rules, a Spanish corporate pension system must place all assets with a single domestic asset management company, which has allowed five large Spanish banks to dominate the corporate pension plan arena, with Banca Bilbao Vizcaya Argentaria (BBVA) standing head and shoulders above the rest in terms of market share.
Despite foreign fund managers’ belief that such changes will open the market, Cerulli cites the composition of the pensions system as a major obstacle.
Spain’s corporate plans represent less than half of the overall retirement fund industry’s assets under management, with the remainder residing in third-pillar pension vehicles sold to individuals, restricting access to half of the market.
But the report says that it is debatable how much international exposure corporate pension plans will demand anyway, with current estimates of the combined foreign equity and bond allocation of Spanish pension plans ranging from 6-31%.
Also many large company pension plans are overseen by Commissions of Control with high employee representation, which tend to only approve conservative asset allocations.
Added to these barriers is the fact that the corporate market is top-heavy, restricting the number of possible clients, while Cerulli also notes that “some of the largest will not necessarily yield large mandates - some 90% of the Telefonica plan, for example, is indexed.”
The report also warns that foreign fund managers could face competition from unlikely sources.
It says: “One possible outcome of pension reform could be something foreign fund managers have not expected - BBVA’s development of more significant international asset management capabilities.
“As the market leader in pension fund management, the bank has a vested interest in protecting its market share by offering proprietary global asset management skills.
“The bank already has these, but the pension marketplace expansion could trigger further demand.”
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