The European Fund and Asset Management Association (EFAMA) has released the 20th edition of its Market Insights series, “Beyond Fund Consolidation: A More Promising Strategy for Bigger Funds and Faster Cost Declines in Europe.” This latest publication challenges the assumption that consolidating UCITS funds across Europe would significantly lower costs. Instead, EFAMA urges policymakers to focus on strategies that foster fund asset growth, which would not only reduce costs but also strengthen the European capital markets.
Structural differences between UCITS and US Mutual Funds
EFAMA’s research highlights fundamental differences between European UCITS funds and US mutual funds, explaining why direct comparisons can be misleading:
- Fund Numbers & Distribution :
In 2023, Europe had 10,281 equity UCITS funds, more than twice the number of US equity mutual funds. However, this is largely due to differences in distribution models: while US mutual funds are primarily sold domestically, UCITS are marketed across the EU and globally, requiring a broader range of fund structures to meet local market needs.
- Fund Size Disparity :
The average UCITS fund size in Europe is €501 million, significantly smaller than the $3.5 billion average size of US mutual funds. - Barriers to Consolidation:
Several structural obstacles hinder large-scale consolidation of UCITS funds, including regulatory divergence, differing tax treatments, local distribution agreements, and language barriers. These complexities make merging or streamlining funds across jurisdictions difficult. - Limited Impact of Fund Merger:
Even if Europe reduced the number of equity UCITS funds to match US levels, the average fund size would only increase to €962 million, still far below the US average of €3.1 billion.
Given these realities, EFAMA’s report underscores that consolidation alone will not solve the cost efficiency challenge in the European fund industry.
A more effective strategy: growing fund assets
Rather than focusing on consolidation, EFAMA argues that expanding fund assets is the best approach to reducing costs and enhancing the European fund market’s competitiveness. The report highlights the need for:
- Increased Retail Investment – Encouraging greater participation from individual investors to help funds scale.
- Stronger Private and Occupational Pension Savings – The US market benefits from a mature pension system, where mutual funds play a central role in retirement savings. In contrast, Europe still relies heavily on state pensions, limiting fund asset growth.
Bernard Delbecque, Senior Director, Economics & Research at EFAMA, explains:
“Most comparisons with the number of US mutual funds are misleading because they do not compare like with like. Unlike US mutual funds, UCITS can be distributed domestically, across the EU, or internationally. Therefore, the fact that there are twice as many equity UCITS as US equity mutual funds is not surprising and should not be viewed as a sign of market inefficiency. US mutual funds are much larger than UCITS because of the larger pension savings market in the US. Europeans still rely too much on pay-as-you-go first pillar pensions. We need to encourage much more occupational and private pension savings if we want the size of UCITS to go up and the cost to come down.”
The role of the European Savings and Investments Union
EFAMA’s Director General, Tanguy van de Werve, reinforced this view, urging policymakers to prioritize investment growth over fund consolidation. He stated:
“If policymakers want to strengthen EU capital markets, boosting investment levels is a much more promising strategy than encouraging fund consolidation. We hope the upcoming European Savings and Investments Union will prioritize this by addressing the core issues, including pensions, tax incentives, and financial literacy.”
A shift in focus for European Fund Markets
While fund consolidation has often been proposed as a solution to reduce costs, EFAMA’s research demonstrates that structural barriers and market realities make it an ineffective approach. Instead, supporting investment growth, promoting financial literacy, and strengthening private pension savings will have a much greater impact on fund efficiency and cost reduction.
With the European Savings and Investments Union on the horizon, policymakers have a unique opportunity to reshape the European investment landscape. By shifting the focus toward expanding fund assets and strengthening investor participation, Europe can build a more resilient, cost-effective, and competitive fund market that benefits both investors and the broader economy.
