Discover how retail investments and passive strategies are driving European asset managers’ growth and their key role in financing the economy.
European asset managers are poised to oversee a staggering €33 trillion by the year 2024, propelled by robust growth in retail investments and the burgeoning popularity of passive strategies. This forecast, as articulated by the European Fund and Asset Management Association (EFAMA), underscores the pivotal role that asset managers play in financing the European economy.
The sixteenth edition of EFAMA’s comprehensive report, titled ‘Asset Management in Europe,’ was unveiled on December 12, 2024, and it meticulously delineates the trends and developments that are currently shaping the sector.
In terms of assets under management (AUM), the European landscape witnessed a remarkable uptick of 8.3% in 2023, a phenomenon largely attributed to the ascendant valuations of stocks and bonds. As equity markets maintained their upward momentum throughout the year, EFAMA estimated that AUM in Europe reached an unprecedented €32.7 trillion by the close of September 2024. This achievement marks a significant milestone for the industry, with growth prospects remaining robust as the year progresses.
The report further elucidates that asset management activities across Europe are highly concentrated within a select cadre of nations. Specifically, six countries—the United Kingdom, France, Switzerland, Germany, the Netherlands, and Italy—account for nearly 85% of the region’s total asset management activity. The UK continues to reign as the largest market, with France and Switzerland trailing closely behind.
The contribution of asset managers to the financing of the European economy cannot be overstated. By the end of 2023, asset managers held approximately €6.6 trillion in EU-issued debt securities and €3 trillion in EU-issued listed shares. This equates to 28% of all debt securities and 27% of listed shares issued by EU-resident companies and other issuers, thereby underscoring the critical role that asset managers play in providing essential funding for European businesses and governments.
A noteworthy trend highlighted in the report is the increasing shift towards retail investing. The proportion of retail clients in total AUM surged from 26% in 2019 to 30.8% by the end of 2023. This burgeoning interest among European retail investors in capital market investments is particularly evident in the rising popularity of exchange-traded funds (ETFs), which offer a cost-effective and diversified investment approach. These passive, index-tracking vehicles have become the preferred choice for households seeking broad exposure to capital markets.
Moreover, asset allocation trends within the European asset management sector have also undergone a transformation in 2023, driven by the rising valuations of stocks and bonds. The proportion of equities and bonds within asset manager portfolios both expanded, with bonds experiencing a particularly swift increase in market share. This pivot towards bonds reflects a robust demand for bond funds, which emerged as the top-selling fund category of the year. Many asset managers have also rebalanced their portfolios towards bonds in anticipation of potential interest rate cuts in 2024.
One of the most salient trends of 2023 has been the sustained growth of passive investing. The market share of passive asset management increased from 16.1% to 17% over the course of the year, a trend predominantly fueled by the escalating popularity of ETFs. Passive investing, characterized by its lower costs and a focus on replicating market indices, remains the strategy of choice for many investors, particularly in light of ongoing fee pressures within the industry.
Despite the overall growth in AUM, the asset management industry has grappled with challenges in maintaining profitability. Operating profit margins plummeted to 11.1 basis points of average AUM in 2023, marking the lowest level since the financial crisis of 2008. EFAMA attributes this decline to a confluence of sustained fee pressures and escalating operational costs, particularly in the realm of technology. While increased investment in technology is essential for fostering efficiency and innovation, it has simultaneously exerted additional strain on profit margins.
The European asset management industry stands at a crossroads, with promising growth prospects tempered by the challenges of profitability and market dynamics. As we look towards the future, the interplay between retail investment trends, passive strategies, and the overarching economic landscape will undoubtedly shape the trajectory of this vital sector.
