Differentiation, Diversification, and Partnerships Are the Keys to Success for European Asset Managers


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Differentiation, Diversification, and Partnerships Are the Keys to Success for European Asset Managers

 

Investors are willing to try new things as they search for yield and they are keen to work with innovative managers


June 2019, LONDON - Cerulli Associates' latest report, European Distribution Dynamics 2019: Innovation in an Evolving Market, shows that in 2018, European investment fund industry assets decreased year-on-year, the market’s first contraction since 2011. Despite the challenges asset managers experienced last year—caused predominantly by the downturn in most local equity markets and the political instability in Europe and worldwide—plenty of opportunities exist in the European markets. Managers that can offer investors diversification in terms of products, strategies, and risk will be well placed for success; those that can build close relationships with distributors will have the best access to investors.


Given the current stage of the market cycle, European retail investors need to diversify their assets and are increasingly open to new value propositions, including greater exposure to emerging markets, exchange-traded funds (ETFs), and smart beta products. Environmental, social, and governance (ESG) funds are also gaining relevance among investors. The managers Cerulli surveyed for the report expect to see fast growth of ESG fund assets in Sweden (79%), France (56%), and Germany (40%). They report that private bank and wealth manager channels are experiencing the highest level of demand for ESG products in the European wholesale/retail market in Europe.


In addition, ETF assets in Europe are growing rapidly. In 2012, they stood at €256 billion (US$293 billion); by 2018 this figure had increased to €635 billion, a 148% rise. The increasing adoption of ETFs and smart beta products by European private banks, asset managers, and wealth managers will drive further growth of ETF assets in the wholesale/retail channel, as will robust product development by ETF issuers. Cerulli’s survey found that 86% of asset manager respondents expect ETF assets in the U.K. to grow rapidly or moderately in the coming years.


Leading distributors throughout Europe are starting to look for long-term strategic partnerships with managers. This model has been popular with larger managers for some time, but smaller managers are also becoming more inclined to enter such partnerships. Doing so provides them with the opportunity to launch products in European markets that they would otherwise find it difficult or impossible to access. It also gives smaller managers a way to be remunerated for strategies without having to distribute the products themselves.


Differentiation is also becoming more important for asset managers. “Investors and distributors are increasing their scrutiny of the managers they work with and focusing on value for money,” says Fabrizio Zumbo, associate director in Cerulli’s European retail research team and lead author of the report. “Clients are demanding more technical information about specific strategies and products, as well as traditional criteria such as team size, past performance, and risk management approach.”


Many managers are seeking to differentiate themselves by specializing their value propositions, especially in the fixed-income space, where demand is expected to grow in 2019. Of the top 35 strategies that the cross-border managers Cerulli surveyed will be promoting in 2019 in the main European markets, 24 are in the fixed-income space.


Cerulli’s research also shows that subadvisory services are increasingly relevant in the European asset management industry. “The U.K. and Italy are the most dynamic markets in the region when it comes to subadvisory, having grown by 23% and 20% respectively over the past two years, but the model is getting more popular across the board,” says Zumbo. “The asset managers we asked about the growth potential of this segment are confident: 90% said they anticipate fast or moderate growth in the U.K., 85% expect fast or moderate growth in France, and 80% foresee such growth in Italy and Switzerland.”


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NOTES TO EDITORS:
These findings and more are from The Cerulli Report―European Distribution Dynamics 2019: Innovation in an Evolving Market.

 

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