The European fund industry needs stronger, more independent fund boards, some analysts say.

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To that end, Luxembourg fund association Alfi recently published a new code of conduct for the governance of Luxembourg-domiciled funds. The code includes a recommendation that boards “should act fairly and independently in the best interests of investors,” taking “particular care” when potential conflicts of interest arise.

Nevertheless, fund governance is just one of many factors that probably contribute to higher fees in Europe compared with the US. Fewer assets under management, different distribution structures and a lack of transparency all also help to explain why European funds tend to have higher expenses than their US counterparts, analysts say.

Daniel Enskat, head of global consulting at Strategic Insight, agrees fund governance “might play a role” in higher fund fees, but he says economies of scale and differences in distribution are ultimately much more significant.

Mr Enskat also questions how important fees are to investors more generally.

“Investors do not care about fees,” he says. “In a bull market they don’t care because their portfolios are going up, and in a down market they don’t care about it, either,” because a few basis points in fees pale beside several percentage points in investment losses.

by Marc Hogan
Ignites Europe
Full article can be found here.