Top fund executives meeting in Barcelona this week will debate how to attract assets from sovereign wealth investors and the merits of absolute return funds as they face up to a tough environment of lower inflows. The Fund Forum International 2008, taking place from July 1-3, comes during the asset management industry's toughest period since the bear market of 2000-2003, as the credit crisis that began last summer and choppy markets hit investor confidence. “It's not a great time for new business. People are sitting on their hands,” said Robert Lloyd George, chief executive of Lloyd George Management, which runs $12 billion in Asian and emerging market assets. “There is a lot of ... fear about where the UK economy is going.” Fund firms profit during bull markets because investors tend to put more money into funds while overall assets, on which they earn fees, rise with markets. During bear periods fund firms are often hit as markets fall and investors withdraw cash. Retail fund sales have been poor in recent months. Sales of UK tax-advantaged Individual Savings Accounts (ISAs) in the traditionally busy ISA season were the worst on record this year, although retail fund sales rebounded in April. Shares of listed fund firms have been battered. New Star Asset Management is down 77 percent over the past year while Aberdeen Asset Management has fallen 34 percent and Schroders is down 29 percent, compared with the FTSE All-Share index's 17 percent drop. Executives will now increasingly be looking to sovereign wealth funds, which tend to invest with a longer time horizon and which have recently come to the aid of a number of banks hit by writedowns on subprime loans, to take up some of the slack. These huge state-run investment vehicles, which hold assets of between $1.9 trillion and $2.9 trillion according to the U.S. Treasury and which have been swelled by oil reserves and trade surpluses, already invest with some UK asset managers but are set to deploy more cash. “They are clearly an emerging factor. I think they will continue to present opportunities to asset managers,” said Erich Gerth, chief executive of Janus Capital International. For instance, the China Investment Corp, set up last September, is building up operations that will see it deploy $200 billion of the country's foreign exchange reserves in order to generate investment returns and has recently been in talks with a range of overseas asset managers. “Sovereign wealth funds appear to be committed long-term equity investors,” said Robin Geffen, managing director of Neptune Investment Management. “We would welcome the chance to run money for them, as I imagine would most UK asset managers.” Fund executives will also be desperate to discover which types of funds will produce the best returns and win back investors as returns from traditional portfolios turn red. The average fund in the mainstream UK All Companies sector is down 9.8 percent over the past year and while May proved to be a better month with returns of 1.1 percent, performance is heading down again in June. Executives will be eyeing the success of the $2.6 trillion hedge fund industry which, while having seen outflows and poor performance in certain areas, has nevertheless managed to outperform traditional funds this year thanks to an ability to make money in all market conditions. They will debate whether giving hedge fund-like tools like shorting -- betting on a lower price for a security -- and leverage to traditional funds will boost returns and attract investors. They will also look at the prospects for emerging markets funds, which have so far held up better than UK-focused funds. However, not everyone is convinced new products are the answer. “In many markets people turn to product innovation alone. But it (product innovation) alone is not going to help you retain assets,” said Janus's Gerth.
