“The rise in regulatory and governance requirements will persuade a wider group of institutional investors to look to benefit from economies of scale in portfolio management, administration, risk management, market research and technology investments,” said Tanguy van de Werve, director general of Efama, commenting on the findings published in the 15th edition of its asset management report on Thursday. Photo: Efama

“The rise in regulatory and governance requirements will persuade a wider group of institutional investors to look to benefit from economies of scale in portfolio management, administration, risk management, market research and technology investments,” said Tanguy van de Werve, director general of Efama, commenting on the findings published in the 15th edition of its asset management report on Thursday. Photo: Efama

European asset managers anticipate managing €29trn in 2023, rebounding from a 13.8% decline in AUM in 2022 due to market downturns, and are confronted with potential impact of generative artificial intelligence, increasing private asset allocation and evolving business models in the asset management industry, said Efama in its annual asset management report.

The European Fund and Asset Management Association (Efama), in its 15th annual ‘Asset management in Europe’ report, highlighted the growing challenges faced by European asset managers. Published on Thursday 14 December, this 80-page offers a comprehensive analysis of recent industry trends, the current state of the European asset management sector, its performance and future outlook. Key challenges include addressing the potential impact of generative artificial intelligence, adapting to increased private asset allocation and navigating evolving business models within the asset management industry.

AUM drop by 13.8%

Efama reported that in 2022, Europe experienced a significant decline in assets under management (AUM), witnessing a sharp drop of 13.8%. This decline, amounting to €27.8trn, was primarily attributed to adverse market conditions, particularly in the bond and stock markets. However, the report anticipates a more positive outlook for 2023, with expected AUM growth to €29trn, driven by expectations of a stronger capital markets environment.

The report underscores the geographical concentration of asset management activities, with nearly 85% of the sector’s operations occurring within six core countries: the United Kingdom, France, Switzerland, Germany, the Netherlands and Italy.

When it comes to the composition of AUM, the report said that as of the end of 2022, investment funds held a significant €15.7trn in assets, while discretionary mandates accounted for an equally substantial €12.1trn. These figures represent 56.5% and 43.5% of total AUM, respectively.

Efama underscored that euro area investment funds played a crucial role in financing the European economy, holding €2.626trn in debt securities and €1.011trn in listed shares issued within the euro area by the end of 2022.

Industry clients

The report also found notable shifts in client demographics, with retail clients increasing their share in total AUM from 26% in 2020 to 30% in 2022. Pension funds and insurance companies followed closely, constituting 24% and 22% of total AUM, respectively. AUM managed for domestic clients accounted for 68% at the close of 2022, compared to 72% in 2018.

Asset allocation

Asset allocation trends have also evolved, with the share of bonds within total AUM consistently declining from 40% in 2018 to 35% in 2022. In contrast, the share of equity increased from 28% in 2018 to 32% in 2022. Asset managers have diversified into less liquid assets, with alternative assets representing 26%, and cash and money market instruments accounting for 7% of total AUM.

Three key topics

The report also explored three evolving topics. It delved into the advantages and risks of generative artificial intelligence for asset managers and examined why investors were expected to increase their allocation to private assets in the future. It also discussed strategies for asset managers to challenge the business models of investee companies, offering insights into the evolving landscape of the asset management industry.

“Given their long-term investment horizon, institutional investors are ideally placed to finance the sustainability transition,” said Efama’s director general, Tanguy van de Werve in a . “By entrusting their assets with investment managers, they can benefit from our industry’s fast growing ESG expertise and engagement capabilities.”

“To remain competitive, asset managers need to adapt their business model to benefit from AI, turn key sustainability challenges into opportunities, and deliver private market products to retail investors,” added Bernard Delbecque, senior director at Efama. “In taking up these challenges, they will take an even greater role in serving the need of investors, funding European companies, and helping the transition to a greener economy.”

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