IMA Report on European Fund Pooling

Stephen Harris

27 July 2005

The problems fund managers face by offering their customers local funds whilst running them as if they were unified has been addressed by a newly-released IMA report Pooling - how can fund managers respond efficiently to different investor needs? This is the second IMA report into barriers to European cross-border business and provides recommendations as to how pooling can be achieved in the European single market. According to the report, management costs can be reduced through: · Negotiating lower custody fees; · Brokerage - larger transactions will lead to lower unit costs; · Netting transactions; · Lower administration costs. These are normally transaction based and will therefore be lower in basis point terms if the pool of assets is larger. Other, qualitative, benefits include better operational control through a consistent investment approach and more flexible product design. The problem comes with the different tax and regulatory regimes which operate in the European Union, which make it difficult to pool cross-border. The paper suggests that: · The Committee of European Securities Regulators (CESR) should host a discussion among member states’ regulators to familiarise them with pooling techniques, to explain the practices involved and to share best practice; · The European Commission should go ahead with the work on pooling announced in its Green Paper on enhancing the EU framework for investment funds and should amend the investment and borrowing powers, and custodial provisions of the UCITS Directive in order to permit cross-border pooling among all member states; · A framework for tax neutrality of pooling techniques should be developed within the Organisation for Economic Co-operation and Development.