Werner, in your role as Head of Austria and CEE for Pioneer you are at the forefront of market developments in Austria as well as in CEE. Undoubtedly, the hottest topic in your industry is AIFMD. How are preparations progressing, in your view?
You are right; AIFMD is a very important topic for us because this is, after UCITS IV, another important step of European legislation to further regulate our business. Interestingly enough, the various member states of the EU show quite a different speed in implementing AIFMD’s rules into the national context. Some countries did this within the set timeline whereas others in the region have not been able to pass the national laws yet. For a global asset manager like Pioneer this is a challenge. We organised a company-wide project for the implementation of AIFMD with the clear goal to have a common approach across all countries as much as possible. Facing different speeds of implementation means, to some degree, a delay of our efforts. Furthermore, we recognise that AIFMD is providing a common ground of rules but interpretations of these especially by local regulators can vary from country to country.
How well prepared is the industry in Austria for AIFMD?
The Austrian fund industry is organised in a national fund association (VÖIG) which has always been a very important platform for coordination amongst its members when new laws are introduced for this sector. Also, for implementing AIFMD in Austria, VÖIG plays a crucial role in talking with political decision-makers and the regulator. AIFMD is relevant for a large number of funds in Austria. Therefore, preparations started quite early and are proceeding well. I am convinced that all asset managers in Austria are going to meet the deadline in a well prepared way.
What is the situation in CEE? Are all countries proceeding at the same speed with regard to AIMFD?
As mentioned, CEE countries are proceeding at different speeds. Like in Austria, efforts there are also coordinated via the various national fund associations.
What do you regard as the key challenges in the fund industry globally? Are those challenges the same in Austria and CEE?
For many years this industry has seen significant growth. Now it has become a “normal” one. Today, it’s not only about revenues but very much about costs. We need to better exploit economies of scale and create more focus concerning the things we do. Where in the past it was very much about market share, now it is about profitability. As a consequence, the competitive landscape and also competitors will change. Business models will have to be put under investigation and distribution will move from a product to a solution approach.
UCITS V will allow depository banks to operate outside home countries. Do you assume that this will lead to consolidation between smaller banks and large global custodians?
UCITS IV already opened opportunities for cross border business (company passport, cross-border fund mergers, and master-feeder funds). UCITS V will complete the framework by opening additional opportunities for the depository banks. Regulations lay the foundation for consolidation, but there are additional factors to be considered, like the local tax regimes, services offered to clients, and the standardization of interfaces. Considering how the industry reacted to UCITS IV we do not expect a radical restructuring of the depository bank business. However, consolidation in the fund industry will progress, but with keeping a close eye on the client’s needs and the cost/benefit ratio.
To which extent will the shift in settlement cycles, as foreseen in T2S, impact Pioneer’s business model?
Looking beyond the initial effort the banks have with implementing the T2S-platform, we expect higher efficiency in the processing of security transactions, less operational risk and, finally, lower cost. Favourable for Pioneer would be further improvements in the processing of Unit-of-Funds transactions, which we think T2S will enable.
As a market user, what are your expectations towards depository banks, particularly in light of the additional regulatory requirements?
In our region, we see predominantly 1:1 relationships between fund companies and depository banks. Both entities mesh very well together, however, due to historical reasons the cooperation is often based on proprietary interfaces and tailor made solutions. We have to reduce the number of siloed processes. A forward-looking step would be to foster the utilisation of industry standards (e.g. SWIFT) in the interfaces between the fund company and the depository bank. This would allow us to flexibly and quickly seize business opportunities on both sides, which could emerge from the new regulations.
What are the pitfalls that asset managers have to be aware of when adapting to the changing environment? Is there anything that causes you headache?
The changes introduced by the AIFMD are significant. As usual the business has little time to adapt to the new law and companies might be tempted to superficially adapt their business models to meet the requirements. I think it is important to see the strategic impulse of AIFMD (and additional regulatory challenges at our doorstep) and implement necessary changes extensively and sustainably. The old days will not return.