Asset management in europe

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Asset Management in Europe

An overview of the asset management industry

11th edition Facts and figures

September 2019

INTRODUCTION

1. Introduction

1. INTRODUCTION

The EFAMA Asset Management in Europe report aims at providing facts and figures to gain a better understanding of the role of the European asset management industry. It takes a different approach from that of the other EFAMA research reports, on two grounds. Firstly, this report does not focus exclusively on investment funds, but it also analyses the assets that are managed by asset managers under the form of discretionary mandates. Secondly, the report focuses on the countries where the investment fund assets are managed rather than on the countries in which the funds are domiciled.

The report is primarily based on data provided by EFAMA national member associations on the value of the assets managed in their countries at the end of 2017. Twenty national member associations provided data on the value of the assets managed in their countries at end 2017: Austria, Belgium, Bulgaria, Croatia, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Italy, Poland, Portugal, Romania, Slovenia, Switzerland, Spain, Turkey and the UK. According to our estimation, these countries account for 87% of the assets under management (AuM) in Europe. Additional internal and external data have been used to estimate the AuM in the other European countries.

2. Role of Third-Party Asset Managers

Investors may outsource the management of their portfolios to third-party regulated asset managers (hereafter "asset managers"), which manage assets to achieve a specific investment goal as set out by their clients. Investors' assets always remain the property of the investor and are held by third parties (called depositaries, custodians or trustees). In this way, they are kept safe and can be withdrawn or transferred to be managed by another manager, if necessary.

Asset managers fulfil a number of key roles in the financial system and the wider economy. Their most important role is to channel savings of European citizens towards investments, putting these savings to work productively in the economy.

2.1: Asset Management's Key Roles

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3. ASSETS UNDER MANAGEMENT IN EUROPE

3. Assets under Management in Europe

1. ROLE THIRD-PARTY ASSET MANAGERS

3.1. Evolution of European AuM

Assets managed in Europe amounted to EUR 23.1 trillion in 2018, an increase of 71% since end-2007. This strong asset growth stems from the strong performance of stocks and bonds, especially in the 2012-2017 period. Flows of new money into investment funds and discretionary mandates also contributed to that evolution. In relation to the European GDP, assets under management (AuM) rose from 102% at end-2007 to 134% at end-2018. The fall in AuM in 2018 was caused by the steep drop in world stock markets at the end of that year.i

Five countries are managing more than 76% of the total AuM in Europe. The United Kingdom is the largest asset management market, followed by France, Germany, Switzerland and Italy. This high concentration reflects the size of these countries, their experience in financial services as well as the pool of savings they have accumulated over the years.ii

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3. ASSETS UNDER MANAGEMENT IN EUROPE

1. ROLE THIRD-PARTY ASSET MANAGERS 3.2. AuM in Investment Funds and Discretionary Mandates

Assets managed by professional investors can be broken down in two main categories: investment funds (IF) and discretionary mandates (DM).

? Investment funds are regulated funds that pool together savings of investors with similar investment goals. Each fund has its own particular investment objective with corresponding risk levels and asset allocation. Investors can buy or redeem shares of these funds. Investment funds offer investors significant advantages in terms of risk diversification, risk-adjusted return and investor protection. Typically, investment funds are offered to retail clients.

? Discretionary mandates are explicit investment `mandates' delegated to an asset manager by a specific investor. The asset manager receives the sole authority to buy and sell assets and execute transactions on behalf of that investor. The investment strategy, in terms of risk profile and asset allocation, is agreed beforehand with the client. Discretionary mandates are tailor-made to the precise investment goals of each individual investor. Discretionary mandates are usually only geared towards institutional clients.

In Europe, investment fund assets represented EUR 12,934 billion or 54.5% of total AuM at end 2017, whereas the share of discretionary mandate assets in total AuM stood at 45.5% and amounted to EUR 10,816 billion. Since 2011, the share of investment funds in total AuM has consistently risen every year to reach in 2017 a higher level than before the global financial crisis. The higher share of equity in the portfolio allocation of investment funds compared to discretionary mandates together with the strong rise of the stock markets over the 2012-2017 period explain this evolution. Another reason is the observed increase in the share of investment funds in the portfolio allocation of large institutional clients, mainly insurers and pension funds.iii

Large differences in the split between investment funds and discretionary mandates can be observed between European countries. By way of illustration, discretionary mandates accounted for 13% of total AuM in Germany, compared to 56% on average in European and 61% in the UK. Several factors explain these differences: the role played by institutional investors in the different countries, the degree of use of investment funds by institutional investors compared to mandates, and the degree of specialisation of the local asset management industry in the management of investment funds and discretionary portfolios. The basic differences between investment funds and discretionary mandates are also limited in the sense that investment funds can be managed as discretionary mandates and vice versa depending on the country. For instance, institutional investors in Germany and the Netherlands mainly use alternative investment funds to manage their assets, whereas these types of investors tend to rely more on discretionary mandates in France and the UK.

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3. ASSETS UNDER MANAGEMENT IN EUROPE 1. ROLE THIRD-PARTY ASSET MANAGERS

At end 2017, 67% of European investment fund assets were managed in four countries with large financial centres: UK (London), France (Paris), Germany (Frankfurt) and Switzerland (Zurich and Gen?ve). The level of fund asset managed in each of these countries exceeded the EUR 1 trillion bar. Asset managers in the Netherlands, Italy, Spain and Denmark also managed considerable amounts of fund assets. The relatively high market share of the rest of Europe is attributable to other European countries where some investment fund assets are also managed.iv

Discretionary mandates AuM are even more concentrated, with two markets, the UK and France, managing 65% of total European discretionary mandates at end 2017. The significant market share of the UK (49%) can be related to the very high amount of pension fund assets managed by asset managers located in the UK. On the other hand, the 16% market share held by asset managers located in France reflects the size of the French insurance industry and the high level of delegation by French and foreign institutional investors to asset managers.v

IF and DM AuM by Geographical Breakdown at End 2017 (EUR billion and percentage of total AuM)

As mentioned in the introduction, the focus place in this report on where assets are managed in Europe is different from the perspective taken in most other EFAMA publications which in general present data on where investment fund assets are domiciled. Comparing investment funds assets managed in Europe with assets of investment fund domiciled in Europe show that around EUR 2.7 trillion of European domiciled funds are managed outside of Europe.vi

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4. CLIENTS OF THE EUROPEAN ASSET MANAGEMENT INDUSTRY 2. ROLE THIRD-PARTY ASSET MANAGERS

4. Clients of the European Asset Management Industry

Retail clients ? mainly households but also high net worth individuals (HNWI) ? and institutional clients are the two main groups of clients of the asset management industry. Institutional clients include pension funds, insurance companies, banks and other institutions such as foundations, charities or large corporations. Their share in the total European AuM reached 70% at the end of 2017, with pension funds and insurance companies accounting for 28% and 25%, respectively. These high shares can be explained by the fact that pension funds and insurance companies control large amounts of financial assets and often outsource the management of all, or part, of their assets to external asset managers.

Two remarks can be made on the evolution of the shares of the different types of clients in the total AuM managed in Europe. Firstly, the share of retail clients has increased in recent years, most likely because of the ultra-low interest rates offered on bank deposits and the return of investor confidence in capital markets instruments. However, the share of retail investors still remained lower than before the global financial crisis. Secondly, the shares of pension funds and insurance companies have evolved in opposite direction, with the share of pension funds rising and the share of insurance companies steadily declining. Pension funds have benefited to a far greater extent from the strong equity market performance because their holdings of equity in their asset allocation are greater than those of insurance companies, which are subject to Solvency II rules. The increasing share of pension funds is also driven by the strong growth of the UK pension fund sector, which has benefited from an automatic enrolment system into workplace pension schemes since 2012. The share of insurance companies has also declined because some companies decided to re-internalise the management of their plain vanilla government bonds, in order to reduce costs.

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