Reshaping Spain's investment landscape: key insights

Performance Magazine (PM): Will the positive trend in Spain’s collective investment vehicles, currently at record high, continue in the future?

Ángel (A): The Spanish asset management industry is going through a very good period with more than four years of positive monthly subscriptions, currently reaching €715 billion in investment funds and investment companies (SICAVs), including Spanish and international collective investment schemes (CIS).

And this trend will likely continue because Spain’s economic growth forecasts are very positive.

Two factors that support this forecast are that bank deposits make up 35% of the financial assets of Spanish households—but will offer lower returns than financial markets in the future—and the increasing importance of financial education.

PM: In recent years the Spanish market has been particularly attractive for non-local entities distributing funds in Spain. In your opinion, will the Spanish market’s attractiveness for international players continue to grow?

A: International fund managers play a major role in the investment choices in Spanish households, especially in private banking and Fund of Funds with international assets. This has grown rapidly due to the rise of discretionary portfolio management and advisory services. Three out of four CIS are channeled through these two services, compared to the 25% via direct distribution. Regulatory requirements have driven these significant changes in business models.

The weight of international CIS has risen from 12% of total in 2008, to 42% in 2024, although it is true that this is mainly not through distribution to retail clients.

PM: Are the conservative investor profile and retail-focused client base structural characteristics of the Spanish market or could they change in the near future? Should new products be developed to attract institutional clients?

A: Spanish investors have a conservative investment profile, but they’ve become less so during the prolonged period of zero interest rates. So, their profile is like the average European investor, except in Denmark, Netherlands and Sweden, whose households are holding less than 20% of their financial wealth in deposits.

The Spanish CIS sector has the highest retail involvement in Europe (62% vs. the European average of 25%, according to the European Central Bank). This is a strength, as recent proposals suggest channeling retail savings into financial markets. Spanish asset managers understand retail clients’ needs and can manage their wealth through CIS.

However, regulation should be adapted to facilitate the development of institutional funds, which in countries like Germany and the UK account for more than 70% of the sector.
 

PM: Investment and pension fund assets make up a small percentage of Spain’s GDP compared to neighboring countries, indicating growth potential. What needs to be done to make this growth materialize?

A: Without investment there is no growth, and without savings there is no investment, so countries encourage savings to enable this virtuous circle. In the case of Spain, the fiscal environment for savers is positive, but it needs to be further stimulated—especially to give a decisive boost to pension funds.

Pension funds still have a long way to go. They represent 9% of the country’s GDP compared to the 40% of the Organisation for Economic Co-operation and Development (OECD) countries. The OECD recently provided a roadmap to be completed in the coming months, addressing population longevity and reducing the pressure on future public finances. Additionally, our association published a document with fifteen measures to boost pensions funds.

PM: Regulation is key in our sector, with recent debate on the Retail Investment Strategy. Limits on incentives may change, and new requirements such as “value for money” are expected. What will be the real impact of this regulation?

A: The European Commission's Retail Investment Strategy (RIS) proposal has yet to meet the objectives of increasing citizens' participation in the financial markets, as the European Parliament and Council have stated.

The recent change in two of the three European co-legislators should lead to thorough review of the Commission‘s proposal, and significant changes in the final text. The text should aim for clarity, simplicity, and include fiscal and financial incentives—provided by national governments, not Brussels.

We don’t have an issue with the supply of financial products, but rather with the low demand from European citizens. This is partly due to uninspiring fiscal and financial incentives for long-term savings.

Seventy per cent of US households invest in financial markets, compared to only half of European households. RIS explains this gap by pointing to more expensive products and biased advisors in Europe, but the main reason is different. In the US, basic social services like pensions and health are managed by the private sector and invested in the markets. In contrast, many European countries use taxes for these services, which are managed by governments and not invested in financial markets.

PM: What key area should regulators focus on to boost the collective investment industry at both local and European level? What is your view on the Draghi Report proposal for a unified European market supervisor?

A: National regulators are responsible for improving savings taxation and promoting financial education, which are crucial for development. While a general European policy is important, it should include periodic analysis and recommendations for national governments.

Reports from Dragi, Letta, Noyer, and ESMA all stress the need to improve retail investors' access to financial markets, with recommendations like auto-enrollment, pension tracking systems, and pension dashboards.

For European supervisors, unification makes sense in some areas—clearing houses or post-trade markets—while convergence is better in others due to varying financial markets developments and financial education levels across countries.

PM: Europe's significant investment needs require the right investment vehicles, with the collective investment industry playing a key role. What should the next steps be, and what is necessary for ELTIFs to succeed in Europe and Spain?

A: The asset management industry has been innovative for decades, and legislation should support this innovation rather than restrict it.

Unfortunately, some European initiatives like the European long-term investment funds (ELTIFs) and the pan-European personal pension product (PEPP) needed amendments or urgent reviews within five years. ELTIFs have the potential for growth by channeling retail and institutional investments to support the transition to a more sustainable and digital European production model, and their tax treatment should be neutral.

PM: As an expert in pensions and pension funds, do you think a European passport for pension funds will become a reality soon? What impact do you believe it would have on the industry?

A: Pension funds are more than simple financial tools; they are part of two (of the three) pillars of each country’s pension system: occupational pensions funds and individual pension funds.

Different countries have prioritized some pillars more than others at different rates, making it hard to create a single European model (like Institutions for Occupational Retirement Provision (IORPs), IORP II, or PEPP frameworks).

It’s time to be practical. The European Commission should emphasize in its annual reviews that EU countries need to address the future unsustainability of public accounts. This way, they can gradually make the appropriate adjustments over reasonable transition periods.

PM: A recent trend is the growing presence of private markets (illiquid or semi-liquid products) in investors' portfolios. These strategies are becoming more accessible, reaching beyond institutional clients to retail investors. How do you evaluate this trend, especially in terms of distribution to retail clients?

A: Restricted liquidity products, essential for the development of European projects, should be promoted to all types of investors, both institutional and retail. These products can offer higher returns than traditional assets.

For retail investors, clear pre-investment information and transparency are essential to ensure proper distribution.

As long as they provide transparent information and follow diversification criteria and standards that match investors' risk profiles and time horizons, supervisory practices should ensure that criteria do not hinder the distribution of these products.

PM: When comparing US and European markets, there are important differences in the size of management companies and vehicles, as well as market fragmentation. How do you think this situation will evolve in the future?

A: Europe faces a major challenge in a geopolitical environment as the US and China become increasingly dominant. Europe needs to make significant changes to maintain its current influence.

Fortunately, recent reports and the new European Commission’s strategic priorities recognize this and emphasize the urgent need to make very important structural changes, particularly in energy, financial and industrial autonomy, telecommunications and technology sectors.