Newcits fears must not mask the real issue, says EFAMA chief

Warnings of a 'traffic accident waiting to happen' will always grab the headlines, so the EFAMA chairman's recent comments on Newcits drew widespread coverage. But Jean-Baptiste de Franssu, EFAMA chairman and Invesco's CEO for continental Europe, says he does not want to be known as the man who campaigns against Newcits - he wants to be known as the promoter of the Ucits brand. 

His real fears are centred on distribution, he says, and the Newcits warning is just a symptom of this. With uncertainty over the AIFM directive triggering a move by hedge fund managers into the Ucits space, he says that once we have clarity around the AIFMD the Newcits pressure will disappear.'

While this pressure may be short-lived, however, de Franssu is worried the increasing complexity of Newcits funds will hamper the global advance of the Ucits brand.

In Asia, he says, some European providers are finding it increasingly difficult to register funds in Asia, because the regulator is saying "It might be fine for you, but we’re not comfortable with something we don’t understand".’

However the reports De Franssu is hearing from Asia are in contrast to the experience of Nils Bolmstrand, CEO of the Skandia Investment Group.

Bolmstrand, who also believes that Ucits is a brand to be 'cherished', told us recently that he was hearing that in key Asian markets, it was now Ucits or nothing.

'When you apply to register a fund for sale in Hong Kong the authorities have two piles of applications: one for Ucits funds, one for non-Ucits. They never really get round to the non-Ucits pile,' Bolmstrand said.

De Franssu says his main aim in highlighting the risks he sees around Newcits is to focus people back on the real challenge for the industry: reform of distribution.

Years of work in Europe has, he says, created a robust framework in Ucits III. ‘But we don’t know what would happen if we had another very significant crisis,' he points out - and he sees Newcits funds now testing the limits of the rules.

'Ucits III rules on instruments are not black and white: there’s a lot of interpretation. Financial innovation and creativity responds to this.'

In some ways, however, this is a side issue as in terms of flows and assets, as Newcits funds remain a very small percentage of the industry. 'Across Europe, we do not have circumstances where products are being sold in a similar way. That’s one of the big issues our industry has.’

Because the circumstances in which products are sold are not the same across Europe, it becomes more likely that investors will be sold products they do not understand, he believes.