Impactvesting Expects €200 Billion of Flows into Sub-Advised Funds in Europe
Growing Emphasis on Multi-Asset, Non-Traditional Income, and Alternative Strategies
NEW YORK, NY (PRUnderground) May 25th, 2016
At least €200 billion of net flows will benefit funds sub-advised by external managers in Europe during the next five years. This amount is 60% greater than in the previous half decade, according to Impactvesting LLC, a consultant to the asset management industry. The expanding sub-advisory market will provide opportunities for investment managers around the world, including large firms with strong brands as well as specialist boutiques.
Jag Alexeyev, founder of Impactvesting, said: “Sub-advised fund assets grew 17% per year since 2010, compared to 13% annually for the entire European fund industry. The pace should accelerate in coming years. Regulatory changes such as MiFID II and market forces are reshaping the economics of investment product distribution in Europe, supporting new demand for sub-advisory.”
As discussed by Impactvesting in their new report, Opportunities in European Sub-Advisory:
- An increasingly diverse group of financial institutions are using sub-advisors. These include domestic banks, cooperative credit institutions, financial advisor networks, pension providers, insurance companies, and emerging wealth managers. Investment managers need to adapt their distribution efforts to capture these frequently overlooked opportunities.
- Higher reliance on sub-advised solutions will coincide with continued strong demand for investment funds in Europe. An environment of low and negative interest rates encourages further migration of assets from bank deposits into higher yielding managed investments, including non-traditional and unconstrained income strategies, multi-asset yield substitutes, dividend equity, and alternatives with income potential.
- The importance of multi-asset capabilities is growing, with allocation funds steadily increasing their share of sub-advised assets from 13% in 2010 to 19% today. This reflects broader use of outcome-oriented solutions, risk-based programs, and dynamic allocation strategies for volatility reduction. While specialists that provide high quality building blocks to an allocation solution can still play a role, managers with multi-asset, absolute return, and unconstrained investment capabilities will experience greater demand.
“UCITS and other long-term funds in Europe will attract around €1.8 trillion of net flows in the next five years, with sub-advised funds accounting for 10% to 12% of the total,” commented Alexeyev. “But changes in demand and investment packaging raise the bar for traditional sub-advisors. Growing use of model portfolios and risk-graded outcome-oriented solutions, often with passive underlying funds, means that active managers must deliver higher value, better service, competitive pricing, stronger risk management, and distinctive outcomes.”
Manager replacement opportunities also will arise as cost pressures and competition encourage sponsors to review underperforming products. However, only 18% of sub-advised funds have below average risk-adjusted returns. With a limited universe of advisor substitution possibilities, intelligent targeting and long-term relationship building will be critical in winning business.
The findings from Impactvesting are based on new research that significantly expands the quality, accuracy, and comprehensiveness of sub-advisory data in Europe. 75% of the funds and more than 80% of assets covered in the report have not been identified as sub-advised products in other widely used global fund databases. The new data and insights enable asset managers to enhance strategic planning, market sizing, and sub-advisory distribution.
About Impactvesting LLC
Impactvesting is a consulting firm that helps asset managers access the fastest growing segments of the global investment industry. Specializing in global fund distribution, non-US sub-advisory, investment product innovation, and ESG strategies, Impactvesting combines data driven analysis with insights and perspectives for clients to expand their business. Jag Alexeyev, who advised more than 100 of the largest asset management firms globally during the past 23 years, founded Impactvesting to support clients in achieving sustainable outcomes and lasting success.