Six sub-advisory mandates of over €1bn each awarded through Q2 2018 helped the Europe, Middle East and Africa region to record its best ever quarter, according to data published by instiHub, the data analytics firm.
Two sub-advisers received €6.2bn (€3.1bn each) whilst another picked up a further €1.6bn – all in multi-assets. Elsewhere, €1.3bn was awarded in European large cap equity and €1.1bn of UK flex cap equity.
instiHub says that what was “formerly a niche market is now well into a break-out phase” with total AUM up €9bn (+1.7%) to €550bn – also a new record.
In terms of asset allocation, equities share of AUM increased by €11bn (+4.5%) to about 47%, led by US equities (+9%), UK equities (+8%), thematic sectors (+ 8%) and global equities (+ 6%).
Fixed income (about 33% of AUM) shrank by €3bn or -1.7% overall with Euro fixed income (-7%) and EM debt (-5%) suffering the most. Meanwhile, multi asset funds share of the total (about 20%) remained relatively unchanged and grew in step with the whole market (+1.7%).
Andreas Pfunder, CEO of instiHub, said: “This Q2 bifurcation trend of positive asset growth for equities while fixed income turned negative for the first time in many quarters reflects the late phase in this long expansionary business cycle. We expect this to continue throughout the remainder of 2018.”
Currently, instiHub estimates that assets in the sector are held by a pool of some 142 sponsors across 15 EMEA buyer markets.
Competition is increasing among the estimated 540 sub-advisers, Pfunder adds. This is a result of sub-advisory being seen as a less capital intensive way to grow asset management businesses.
“Boutiques with good investment strategies will naturally seek growth in the sub-advisory space as one of the few channels still accessible after Mifid II implementation. Aggressive competition from large fund managers is nascent while grappling with the idea of potentially cannibalising higher margin but increasingly illusory distribution of their own funds. This is a sweet spot for smaller asset managers right now.”
The momentum in the sector in turn is attracting new sponsors, while existing players are looking to ramp up business.
According to Pfunder, the new entrants are focused on converting fund-based multi-manager products into mandate-driven ones. This focus is driven by strategic commercial, risk management and marketing objectives, however, the expectation is that wealth managers and private banks will move large discretionary assets into in-house sub-advised funds in the next phase of the industry’s development.
Because of these ongoing developments, instiHub also identifies incumbent third party fund managers at particular risk, as large asset pools are “likely to change hands as product conversions take place”.
“Third party funds are perceived as too expensive for distributors and manufacturers in pursuit of delivering value to investors. The success factors for sub-advisory are different to those required for fund distribution, hurting those managers lacking the necessary institutional capabilities,” Pfunder adds.
The trends spotted also mean that instiHub is forecasting continued growth in the EMEA sub-advisory industry, with a shift towards “meaningful” scale in the rate of conversions from fund-based to mandate-based products over the next 12 months. This will initiate a domino effect that is forecast to spread to Spain, Germany, Italy, France and Switzerland, which all have large fund-based multi-manager product ranges.
instiHub is Knowledge Partner to the upcoming InvestmentEurope Pan-European Sub-Advisory Summit, taking place in Milan 4-5 October.
Click the link below for further information or to register as a delegate.