Managers and private banks throughout the region anticipate growth in ESG and passivesA new report from Cerulli Associates provides clarity on product development and expected product demand from various distribution channels, identifying opportunities and challenges for asset managers. Access the report here.
May 9, 2023, LONDON—Cerulli Associates’ latest report, European Distribution Dynamics 2023: Navigating Uncertainty, examines several years of growth in the European sustainable investment industry, driven by increasing demand from European investors and strong product development efforts from providers. The product landscape has grown in size and specialization, with the assets of environmental, social, and governance (ESG) mutual funds and exchange-traded funds (ETFs) posting strong increases in recent years.
Many large managers operating in European markets consider ESG product development a primary strategic priority for 2023. However, asset managers across Europe show less-bullish growth expectations for ESG funds than in previous years. At the European level, just 8% anticipate fast growth (greater than 10%) for active ESG mutual funds over the next 12 to 24 months, whereas 26% expect moderate growth (6% to 10%) and 58% expect slow growth (1% to 5%).
In the passive sphere, 14% of respondents expect fast growth of ESG index fund assets over the next 12 to 24 months, 38% expect moderate growth, and 43% anticipate slow growth. In addition, 12% expect fast growth of ESG ETF assets, 47% anticipate moderate growth for such assets, and 34% predict only slow growth.
“Despite muted sentiment around the growth of the European ESG market in the coming years, nearly a third of the managers at the European level consider improving their position as a leader in ESG a strategic priority,” says Fabrizio Zumbo, director of Cerulli’s European retail and wholesale asset management research.
In fact, Cerulli research shows that demand for ESG products is well established and that sustainable thematic products are set to experience high demand from retail clients over the next 12 to 24 months. Managers that can combine strong and diversified ESG processes with a robust track record, compliance attributes, and appealing narratives will be well placed to attract flows to their ESG products.
Demand For ETF’s In Southern Europe
Cerulli’s research also shows that private banks in Southern Europe are increasingly open to investing in passive funds and alternatives. The majority (84%) of the private banks in Spain expect to increase the exposure to ETFs in the typical client portfolio slightly over the next 12 to 24 months, although just 8% expect to do so significantly. In addition, 76% expect demand for ETFs in Spain to increase over the same period, and 52% expect demand for index funds to increase.
In Italy, more than three-quarters (76%) of the private banks expect demand for ETFs to increase over the next two years and 52% expect demand for index funds to increase. Some 88% of private banks in Italy expect to increase the exposure to ETFs in the typical client portfolio slightly over the same period, although just 4% expect to increase it significantly. Three-fifths (60%) expect to increase exposure to index funds in their clients’ portfolios slightly and 12% expect to increase it significantly.
“A majority of the private banks in both Spain and Italy intend to increase the allocations to ETFs in their clients’ portfolios over the next 12 to 24 months,” adds Zumbo. “Private banks also anticipate greater demand for alternative investments in both markets over the same period, so we see opportunities for asset managers operating in these areas.”
In fact, in Spain, 72% of private banks expect the demand for real estate strategies to increase over the next 12 to 24 months and 64% expect demand for private equity products to increase. In Italy, 68% of private banks expect demand for private equity and real estate strategies to increase over the same period and 60% expect demand for infrastructure and private debt products to increase.
The Cerulli Report—European Distribution Dynamics 2023: Navigating Uncertainty features in-depth analysis of the European fund management industry and outlines the key trends in the region’s main fund markets. Cerulli’s team of international analysts has examined the state of mutual fund and exchange-traded fund (ETF) distribution across the main European asset management markets and assessed the implications for asset managers. The research covers seven key markets—the U.K., Germany, Italy, Switzerland, France, Spain, and Sweden—as well as cross-border activity.
Interviews And Surveys:
Cerulli’s analysis is based on proprietary research, including a series of surveys and 35 interviews with fund managers and distributors in the U.K., Germany, Italy, Switzerland, France, Spain, and Sweden.
A total of 145 managers, with more than €6.5 trillion (US$6.9 trillion) of European fund assets under management (AUM) between them, completed a survey exploring their distribution in key European markets, retail investors’ current and expected appetite for mainstream strategies, client demand for ESG and thematic funds, product development trends, and their growth expectations for various segments of the market, including index funds, ETFs, funds of funds, and subadvised funds.
A total of 25 private banks operating in Italy, with total assets ranging from €183 million to €282 billion, and 25 private banks operating in Spain, with total assets ranging from €40 million to €530 billion, completed a survey on their portfolio construction and allocation, their views on current and future client demand for ESG and thematic products, expected demand for mainstream and alternative products, and their expectations of growth in these segments over the next 12 to 24 months.
A total of 47 wealth managers and private banks operating in the U.K., with total assets ranging from £500 million (US$620 million) to £55 billion, completed a survey examining their portfolio construction and allocation, client demand for passive, ESG, and thematic products, client appetite for mainstream and alternative products, and their growth expectations for these segments over the next 12 to 24 months.
About Cerulli Associates
For over 30 years, Cerulli has provided global asset and wealth management firms with unmatched, actionable insights.
Headquartered in Boston with fully staffed offices in London and Singapore, Cerulli Associates is a global research and consulting firm that provides financial institutions with guidance in strategic positioning and new business development. Our analysts blend industry knowledge, original research, and data analysis to bring perspective to current market conditions and forecasts for future developments.