Assets in Europe’s sub-advised fund market are expected to surpass €800 billion in the next five years, according to one prediction.
Impactvesting, an asset management consulting firm, said potentially €300 billion of new sub-advisory assets will be won over the next five years, mobilised in part by regulatory changes such as the Markets in Financial Instruments Directive (MiFID II).
During 2016, sub-advised funds captured “a remarkable” 32% of total inflows into actively managed funds, the firm said.
Although this proportion was lower in the first half of 2017 as record net sales benefited funds across Europe, Impactvesting said sub-advised funds should capture between 15% and 25% of active fund gains during the next five years.
Jag Alexeyev, founder and managing director of Impactvesting, said: “Distributors are choosing to work more closely with a smaller number of investment managers as strategic partners, while expanding their proprietary offerings.
“However, an increasing number of proprietary funds are being delegated to external firms through sub-advisory arrangements”.
Impactvesting’s report,’ Europe Sub-Advisory Opportunities, 2017 Edition’, says MiFID II’s ban on inducements within independent advice and discretionary portfolio management, require higher standards for disclosure and product suitability, and this will necessitate more coordination between managers and distributors to align solutions with client needs.
The report says that product development efforts play a critical role in generating sub-advisory assets. New funds accounted for 61% of all sub-advised fund inflows during the five years from 2012 through 2016.
During 2016 and the first half of 2017, more than €24 billion of assets were raised through sub-advised funds.
New offerings reflect ongoing demand for alternative sources of higher income alongside multi-asset, risk-based, and outcome-oriented solutions.
Italy and the UK remain among the most dynamic markets for product development, especially for multi-asset and income strategies, followed by Switzerland and the Nordic countries.
“Active strategies remain the staple of sub-advisory demand, although delegated index solutions are becoming more common”, added Alexeyev.
The research also found that sustainable investments is one of the fastest growing themes in asset management and is becoming more visible in the sub-advised space.
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