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A new pan-European classification for funds was launched on Monday 23 June 2008 in Brussels by the European Fund and Asset Management Association (Efama). The classification aims to give investors a basis with which to compare funds across Europe and has been introduced in response the the growing importance of cross-border funds.

“We want investors to be able to compare funds throughout Europe without having a PhD,” said Peter de Proft, director general of Efama, commenting on the launch of the European Fund Categorization (EFC).

De Proft said that existing categorisations were too broad and that product development had outpaced the development of fund categorisation. Cora Gibbons from Allianz Global Investors, a member of the European Fund Categorisation Forum (EFCF) which has devised the new system, highlighted the additional problem that existing categorisations are often based on what the fund manager tells the category administrator rather than an analysis of underlying holdings.

“The EFC is based on actual holdings of funds,” she said. “That means investors will know exactly what they are investing in.”

So far the EFCF has categorised 1,591 international funds with assets under management of €503bn. This represents 31% of international funds by number of funds and 45.2% by assets. Funds are defined as 'international', based on Lipper Feri data, if they source at least 80% of their assets from more than one market.

Twenty fund managers have participated in the EFC project alongside data vendors Bloomberg, Feri Rating Research AG, Lipper and Morningstar and the trade associations Efama, Assogestioni (Italy), BVI (Germany) and DUFAS (Netherlands). The classification administrators are FundConnect and CCLux, which will run the scheme for free in the hope they can leverage the data they receive to create new products.

Initially, classifications will be based on December 2007 data. The EFCF then plans to update the classifications quarterly, ultimately moving to monthly updating.

In order for the EFC to become the pan-European standard that the EFCF hopes it will, more companies will have to sign up for the project. Persuading them to take on this administrative burden, and to part with information they don't normally divulge, may be a key hurdle to overcome.

“The value chain will take time,” said Bernard Delbecque, director of economics and research at Efama. “A number of stakeholders will need to play a role.”

The visibility of the benchmark through Bloomberg, Lipper and Morningstar would held to attract new fund groups, Delbecque added, and local associations would also have a role to play. Adoption would mainly be a question of “peer pressure and competition”, however. “You can't force anyone,” he said.

Ultimately, the EFCF hopes its classification will become a European industry standard. But this will be a step by step process and implementation at the local level will be flexible. "For the time being, there will be cohabitation of local standards and these pan-European standard,” De Proft said.

For more information on the new European Fund Categorization project, upload the attached brochure below or visit www.efama.org

EFCF_brochure 23 June 2008.pdf