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June 17 (Reuters) - (The following statement was released by the rating agency)
New Turkish asset management laws due to take effect 1 July should help boost assets under management while also encouraging greater competition, Fitch Ratings says.
The new requirements are part of a longer-term initiative from the Capital Markets Board of Turkey (CMB) to bring the Turkish asset management industry closer into line with European institutional standards. The law requires the use of an independent, third-party fund administrator and custodian. It also promotes open architecture and third-party distribution, through the launch of Electronic Fund Trading Platform of Turkey, set up by Takasbank.
Together these requirements should help strengthen investor confidence in the sector and provide easier access to funds, helping inflows. Savings rates in Turkey are low by international standards and retail investors’ appetite for more advanced products such as managed funds and private pensions is, in Fitch’s opinion, still modest.
The new law follows previous CMB initiatives, including measures to cut management fees and reform pensions, which contributed to a 30% growth of pension assets in 2013. Asset managers have a year to comply with the new regulations. This allows time to review operating models as well as to establish new business relationships and marketing strategies.
At the same time, revenue models are changing, including the introduction of performance fees. These should increase alignment of interest between asset manages and their clients, but may also put pressure on certain asset manager’s operating margins at a time when the funding of strategic, IT and regulatory projects is critical.
The law will also create a new umbrella structure for mutual funds, which we believe will make it easier for managers to launch new funds. It is already encouraging more competition in an industry that was structurally captive until recently. The number of asset management companies has increased to 27 from 21 as a result. But the top five managers still represent over 70% of the market.
Although the industry is evolving towards international standards, it still has a long way to go in terms of developing a more diversified and differentiated product offering. For example, fixed income represents over 80% of total assets under management, compared to 42% in Europe. The Turkish market also remains a domestic market, dominated by local players.