1
Asset Management: New Trends in Products and Management Techniques in India
15:30/16:45 - Panel 4
2
Asset Management: New Trends in Products and Management Techniques in India
14:00/15:30 - Panel 4
Peter KURIAN Chairman Association of Mutual Funds in India (AMFI)
Alain LECLAIR Chairman French Asset Management Association (AFG)
3
The world growing role of French asset management Industry:
The European Leader
An attractive opportunity for cooperation with
India
Alain LECLAIR Chairman French Asset Management Association
Mumbai, May 16th 2007
4
1.
The world growing role of asset management in financial industry and economy
With total assets equivalent to the world GDP the asset management industry :
Plays a crucial role in the management of savings for individuals
and institutions
Contributes strongly to the structuring of the markets and the financing
of national economies
Its total size reaches € 38 trillions (USD 50 trillions) world wide including € 13 trillions (USD 17 trillions) for Europe Its European fund component reaches € 8 trillions (x 4 in ten years) equivalent to US$ 11 trillions for the USA (x 3 in ten years)
The world growing role of asset management in financial industry and economy
Global market for investment funds: Europe is catching up with the USA
(16 550 bn euros at end 2005 - Source : EFAMA / ICI)
5
Brazil 3% Hong-Kong 2% Canada 3%
Others 1% United States 45%
Australia 4%
Europe 40%
Japan 2%
6
The world growing role of asset management in financial industry and economy
Gross savings rate: an impressive reservoir of money to be managed in Europe
(Percent of disposable gross income) 25
20
xxxxxxx
15
10
5
0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Germany
France
Italy
UK
USA
Euro zone
7
The world growing role of asset management in financial industry and economy
European and Asian/Indian asset management would benefit from prospects for strong growth :
Large “reservoir“ of savings in contrast with the very low rate of the American households saving rate and the high level of their indebtedness Securitisation of European and Asian/Indian households portfolios still substantially in liquid placements Need to supplement the pay as you go retirement system (Social Security) with defined contribution schemes
Need to complement government financing (deficit problems) of infrastructure, energy, water, environment, education…developments Increased cooperation of European/French with Asian/Indian actors (asset managers, banks, insurance companies, intermediaries) in the field of managing and distributing savings products
8
2.
French asset Management : World leader of the investment fund and structured asset management France ranks 1st in the European investment funds management market France ranks 2nd in the world investment funds market after the USA
European fund money management industry
7,574 bn euro at end of December 2006 (Source : EFAMA / AFG)
France 21.7% Germany 17.7%
UK 18.7% Ireland* 2.1% *estimate based
o n IFIA data
Others 16.7% Luxembourg* 0.8%
* Estimate based o n CSSF data
Belgium 3.8%
Switzerland 6.8%
Spain 3.8%
Italy 7.8%
9
French asset Management : World leader of the investment fund and structured asset management Assets managed by the French industry have multiplied 5 folds in ten years :
Assets under management in the French market
(in bn euro)
2,438*
(+14%)
2500
French UCITS Mandates (excluding UCITS)
2,142
1,909 1,665
(+12%) (+15%)
(+12%)
2000
1,396
1500
1,447
(+4%)
1,482
(+2%) 1 ,076 977,2 862 1 ,242
1 ,438
1,242 1,017
(+22%)
(+12%)
1000
813
(+59%)
(+25%) 703,9 573 829,5 862,5
511
500
446
485 537,8 565,8 584,9 620,3 687,8 833 900
990
328
444
0
65
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source : AMF / AFG
* AFG Estimates for mandates
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French asset Management : a world leader of the investment fund and structured asset management
5 leading actors rank among the 25 biggest in the world
AXA IM BNP Paribas AM
Crédit Agricole Asset Management CAAM IXIS AM
Société Générale Asset Management SGAM
…part of the 500 registered investment management companies including an increasing number of entrepreneurial specialised entities (quantitative, absolute
return, structured, hedged, indexed, credit, private equity, real estate, private banking…)
3.
A leading role based on the right balance between
financial innovation and protection of the savers
The French innovation in finance is based on a long tradition in the fields of financial mathematics and engineering :
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Asset management and distribution technics
Dynamic management of money market and fixed income funds Structured and guaranteed funds (either in capital or in performance) Profiled funds (life-cycle funds) Unit-linked life insurance contracts Multimanagement, via the use of funds of funds Regulated hedge funds and funds of hedge funds Use of derivatives, futures and swaps in funds (including : CDO’s, credit derivative,
commodities, climate, CO2…)
Strong e-commerce development for funds distribution …
A leading role based on the right balance between
12
financial innovation and protection of the savers
The French innovation in finance is based on a long tradition in the fields of financial mathematics and engineering :
Investment purpose
Employee retirement saving plans (PERCO and PERP) Institutional and retail private equity funds Open ended real estate funds Sustainable and socially responsible investments fund (SRIs) Charia compliant funds
…
13
A leading role based on the right balance between
financial innovation and protection of the savers
Regulation for investor protection and industrial efficiency :
French actors have traditionally given a priority to the protection of investors in partnership with the
regulators : Autorité des Marchés Financiers AMF, European Commission, Committee of European Securities Regulators CESR, IOSCO
The fantastic success of the European UCITS directive : which has created a global brand exported
from South America to Asia (Hong Kong, Singapore, Taiwan…) with + 70% market penetration
The very deep co-operation with banks, insurance companies and other financial intermediaries,
which contributed to the commercial efficiency of the industry
The constitution of industrial processes and
the creation of very innovative saving products often distributed at large scale (up to millions of investors)
The integration of administrative and post-market activities, clearing and settlement, with high level of
data processing technologies
The creation of a vast “ecosystem” of highly specialised businesses : depositaries, custodians,
auditors, specialists of valuation, measurement and attribution of performance, etc
14
4.
Potential fields of co-operation between French and Indian financial industry in Asset management Similarities between Europe/France and Indian savings and financial fields :
Increase of savings in a broad scale in the population Need to re-orientate efficiently these savings, to satisfy the needs of the savers as well as to consolidate
the capital markets and to better contribute to the financing of the economy
Urgency to mobilize households savings to contribute directly to the funding of their future retirements Need to reinforce the regulation tools to analyse their cost efficiency
Improvement of the distribution channels of saving products thought the networks of banks, insurance
companies and other financial intermediaries and need to develop the education of the investors
Potential fields of co-operation between French and Indian financial industry in Asset management
15
Co-operation fields :
development of the mutual knowledge in the area of finance and savings. collaboration in research in mathematical finance for product innovation
joint venture to develop a FrancoEuropean-Indian Institute for regulatory research and training
co-operation for mass distribution technology and information reporting on savings products
joint access to the most sophisticated fund management technics thanks to UCITS technology development of joint-ventures between French and Indian asset managers and distributors with
the support of their financial authorities
…
***
As a conclusion, after presenting those ambitious goals, I would like, if I may, to quote Mahatma
Gandhi : “What is faith worth if it is not translated into action?”
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Asset Management: New Trends in Products and Management Techniques in India
15:30/16:45 - Panel 4
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GROWTH AND DEVELOPMENT OF THE INDIAN MUTUAL FUND INDUSTRY 1996 – 2007
A P KURIAN
Chairman ASSOCIATION OF MUTUAL FUNDS IN INDIA
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Evolution of the Indian MF Industry
Unit Trust Of India set up under an Act of Parliament in 1963. Launched its first scheme in 1964
In 1987 the MF Industry was opened to other Public Sector Banks & Financial Institutions. 7 such Funds commenced
In 1993 SEBI MF Regulations notified
In 1993 Private Sector players were permitted to enter the MF Industry In 2003 the UTI Act was repealed, it marked the end of Assured Returns Schemes, UTI Mutual Fund came into being
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Growth of Assets Under Management (AUM)
YEAR
Mar - 96 Mar - 97
No. of AMCs
29 35
No. of Schemes
168 196
AUM US $ (Mn)
21,635 19,564
Mar - 98
Mar - 99
31
34
252
277
17,451
16,111
Mar - 00 Mar - 01
Mar - 02
32 35
35
337 393
417
25,889 19,336
20,601
Mar - 03
Mar - 04 Mar - 05
33
31 29
382
403 428
16,719
32,170 34,286
Mar - 06
Apr - 07
29
32
592
745
52,127
85,396
20
Growth of Assets Under Management (AUM)
AUM US $ (Mn)
90000 80000 70000
AUM US $ (Mn )
60000 50000 40000 30000 20000 10000 0 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Apr-07
CAGR = 15.14%
Ratio of AUM to GDP 10.04%
Number of Asset Management Companies As on April 30, 2007 (US $ Mn)
Category No No. of Schemes AUM % to Total
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A Bank Sponsored
JV - Predominantly Indian – ( SBI MF ) Others ( UTI MF, Canbank MF & BOB MF)
4
1 3
101
25 76
13,723
4,469 9,254
16.07
5.23 10.84
B Institutions (LIC MF)
1
33
2,202
2.58
C Private Sector
Indian Foreign
JV - Predominantly Indian JV - Predominantly Foreign
27
10 2
5 10
611
191 46
177 197
69,471
20,807 5,972
27,345 15,347
81.35
24.37 6.99
32.02 17.97
TOTAL
32
745
85,396
100.00
TYPE OF FUNDS - ASSETS UNDER MANAGEMENT AS ON APRIL 30, 2007 (US $ Mn.)
TYPE No.of Funds AUM % To TOTAL
22
A
B C D
EQUITY FUNDS
DEBT FUNDS BALANCED FUNDS LIQUID/MONEY MKT. FUNDS
263
356 37 54
31,214
30,725 2,339 19,478
36.55
35.98 2.74 22.81
E
F
GILT FUNDS
ETFs
28
7
528
1,112
0 .62
1.30
TOTAL
F FUND OF FUNDS
745
33
85,396
537
100.00
N.A.
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STOCK EXCHANGES
The Bombay Stock Exchange was established in 1875 One of the oldest Stock Exchanges in Asia World’s 5th Largest Stock Exchange National Stock Exchange commenced operations in Wholesale Debt Market & Equity Shares in 1994 & Derivatives in June 2000 World’s 3rd Largest Stock Exchange Paperless Screen based trading with the advent of Depositaries Real time quotes. More transparency in trades Took the Stock Markets to small towns
Real time risk management systems and monitoring
24
FACTORS CONTRIBUTING TO THE GROWTH OF THE INDUSTRY
Comprehensive Regulatory Framework
Favourable Tax Policies
Introduction of New Products
Role of Distrributors
Investor Education Campaign
Performance Record
25
COMPREHENSIVE REGULATORY FRAMEWORK
First Regulation 1993, revised in 1996 Over the years established world class standards in Accounting, Valuation, NAV computation and disclosure Full disclosure of portfolio twice a year Publication of Half Yearly unaudited results & Audited Annual Accounts Standardised Offer Documents & Simplified Key Information Memoranda Certification Test for Agent Distributors Code of conduct for AMCs & Distributors Uniform Cut-off Time for applicability of NAVs Benchmark indices for comparing performance of Mutual funds Comprehensive Risk Management System
26
FAVOURABLE TAX POLICIES
Mutual Fund as an entity is non-tax paying Investors in Mutual Fund schemes enjoy certain tax benefits Debt schemes – The fund pays upfront Dividend Distribution Tax (DDT) of 14.025% for Individuals and 22.44 % for others before distribution to investors.In case of Money Market / Liquid Funds DDT is increased to 28.325 %. Dividend so received by investors is Tax Free Investment in Equity oriented Tax saver schemes upto Rs.1 Lac (US $ 2,300 approx.) with lock in period of 3 years is eligible for deduction from taxable income On Equity oriented Mutual Fund Schemes - Short Term Capital Gains Tax is 10 % and for Long Term it is Nil
27
ROLE OF DISTRIBUTORS
Distributors play an active role in the growth of the Industry Different classes of Distributors – Large Corporate Distribution Companies, Banks, Private & Partnership Companies, Post Offices & Individual Agent Distributors Distribution Companies and Banks are emerging as major channels – together accounting for 70-75 % of total business Distributors have to pass AMFI Certification Test and register with AMFI AMFI Certification program creates a cadre of trained Agent Distributors across the country (around 57,000) Distribution is becoming more and more professionalised Financial Planning is becoming popular Code of Conduct promotes discipline in distribution business
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Introduction of New Products
Industry started with traditional products equity, debt and balanced
Launched Liquid / Money Market funds, Sector specific, Index funds, Gilt funds Special Category funds, Children funds, Education Funds, Insurance linked funds, Exchange traded funds Gold ETFs introduced in 2007
..........and Real Estate Mutual Funds (REMFs) on the drawing board
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Investor Education Campaign
Every Fund House carries out education campaigns through investor meets, seminars etc.
Nation wide Advertisement Campaign through Print & Electronic media carried out by Fund Houses
AMFI right from the beginning initiated investor awareness programmes. Funds specially set aside.
AMFI, both directly and in association with various bodies conducts, participates in awareness programmes AMFI brought out a simple booklet on the concept and working of mutual funds
Various Trade bodies, Stock Exchanges regularly conduct Investor Awareness Programmes across the country
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Performance Record
By and large most funds have provided market related returns
Many have out performed benchmark indices
Investors started appreciating the performance record of Mutual Funds
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FACTORS INHIBITING GROWTH OF MUTUAL FUNDS
Lack of awareness and knowledge about Mutual Funds
Unwillingness to undertake even minimal risk Inadequate reach of Funds / Distributors Competition from assured return products from Government like Government Of India Bonds, Post Office Monthly Income Schemes, Senior Citizen Savings Schemes, National Savings Certificates etc.
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THANK YOU
ASSOCIATION OF MUTUAL FUNDS IN INDIA
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Asset Management: New Trends in Products and Management Techniques in India
15:30/16:45 - Panel 4
34
Mumbai, Wednesday, May 16, 2007
1ST FRENCH-INDIAN FINANCIAL FORUM
European Financial Markets: Opportunities for Growth and Value Creation