Money is pouring into European funds at near-record rates, prompting warnings that overdue consolidation in the fragmented industry may be further away than ever.
Net sales this year reached €263 billion by the end of September, according to Feri Fund Market Information (Feri FMI), which predicted total sales for the year would be more than €300 billion and could even hit €350 billion. This compares with just €134 billion net inflows last year and €219 billion in 2003 when equity markets surged after a prolonged downturn.
No figures are available before 2001, but Feri FMI estimates that equity sales alone in 2000 were more than €250 billion, although Morgan Stanley puts them at a more conservative €192 billion.
Bella Caridade-Ferreira of Feri FMI said that in September for the first time in 13 months, equity funds outsold bond funds, with inflows of €14.8 billion into equities, compared with €9.8 billion into bond funds.
This rise in equity inflows, combined with sustained inflows over the year, largely into bonds, suggested a renewed confidence.
"A couple of months ago, we were thinking inflows would be about €275 billion, but we could be looking at €350 billion if 2003 patterns continue," said Ms Caridade-Ferreira.
"This is perhaps evidence that the memories of the downturn are fading and investors are trusting markets again."
But rising assets could delay consolidation in Europe, which critics say desperately needs to trim its 24,000 mutual funds to achieve economies of scale.
Huw van Steenis, analyst at Morgan Stanley, said: "If you have just had a good year and made loads of money, you will not want to sell. Growth in assets is not a catalyst for consolidation." Mr van Steenis said banks' and insurers' confidence in their fund management arms was likely to carry on growing as the trend to save via mutual funds gathered pace. "People are less DIY now than in 2000. They are less likely to buy individual stocks and more likely to seek advice and invest through funds."
Amin Rajan, chief executive of Create, a consultancy, said many companies would have received a confidence boost by rising assets. "New money makes it possible for small and medium companies to stand alone. If there is a lot more new money, consolidation will get very slow."
Others believe rising assets may be a precursor to a merger spree. Stephan Wilcke, partner at Apax, a private equity firm, said: "We expect some people would sell asset management businesses where they are not a good strategic fit. With the stock market recovery and inflows, good prices could be obtained from private equity and trade buyers."
Charles Outhwaite, managing director at investment bank Lexicon Partners, said recent inflows were unlikely by themselves to lead to a wave of mergers.
"Corporate owners take a long time, often years, to decide to sell," he said. "But fund inflows could be the final trigger."
