Europe’s sub-advised fund assets declined 7.6 per cent in Q4 2018, and 4 per cent for all of 2018, but the structural growth drivers remain intact and have added EUR7.6 billion net assets from new market entrants, according to new date from instiHub.
The final quarter of 2018 saw assets of sub-advised funds sold in EMEA drop by EUR48 billion to EUR581 billion as capital markets across the globe repriced. This is the first time during 2018 that total assets of 1,700 funds for which 152 sponsors across 15 European markets delegate investment services to 550 third party managers dropped below EUR600 billion. The largest sub-advisory markets UK, Ireland, Italy and Switzerland performed better than average while the Nordics, France, The Netherlands, Germany and Austria fared worse.
Andreas Pfunder (pictured), CEO and founder of instiHub, adds: “Even during a trying 2018, the core sub-advisory markets have shown real growth momentum. Three new sponsors have entered in the UK, one each in Ireland, Italy and Sweden. Such dynamics create great opportunities for proactive asset managers.”
instiHub expects this trend to continue over the medium term. The drivers are sponsors’ commercial interests and buying power, and value creation for investors which is closely watched by regulators. The sub-advisory model is an ideal solution to achieve both, but requires scale and operational lead time.
Equity funds, accounting for 44 per cent of the total universe, decreased by 11 per cent in Q4, and by 7 per cent YoY. Global Large Cap Growth and Value funds bucked the trend and ended the year in positive territory, as did a number of thematic mega trend funds.
Fixed income assets, 33 per cent of the universe, held up strongest with a 1 per cent YoY decline, 5 per cent during Q4. The largest sector groups, Global and EM FI, performed best with full year asset appreciation of 4 per cent and 5 per cent, respectively. Among Global FI it is multi sector and flexible strategies that grew the most.
The 20 per cent of the universe belonging to Multi Asset funds, had a similar trajectory as fixed income for Q4 as well as the whole of 2018. Global Multi Asset funds, making up 75 per cent of this asset class, showed positive results for the full year.
The volume of appointment changes between sub-advisers in existing funds has increased dramatically. The number of deals in 2018 exceeded those of 2017 by 16 per cent. The money involved also grew, by 153 per cent. EUR80 billion or 14 per cent of the universe changed hands in 2018.
Pfunder adds: “These changes affect 185 or over one third of all sub-adviser groups having acquired or lost at least one net client during 2018. The average deal size now stands at EUR299 million, having grown by 85 per cent since the end of 2017.”
2018 saw average mandate holding periods increased from 4.1 to 4.6 years, or by six months. In four larger markets, mandate ages lengthened by nearly 12 months YoY, indicating almost no switch or launch activities. Italy and Ireland were the opposite, showing hardly any mandate age extension because of new fund launches and switches.
instiHub collates actual transacted investment fee data for sub-advisory mandates. Combined with holding periods and deal volumes, this enables revenue calculations and guidance for winning deals.
Pfunder says: “With every single transaction recorded when it occurs, we can indicate mandates, based on age, that may be up for review. Anecdotally, sub-advisory mandates generate more dependable, longer-term revenue streams compared to fund distribution or fund of funds that typically show greater churn. Take the average deal size of EUR299 million, applied to a global equity single manager mandate, priced at an actual 33 basis point median fee as instiHub’s unique pricing tool will show you. Held over the 4.8-year average holding period for the sector group, that’s worth EUR4.7 million in fees. You had better not lose it to a competitor, especially if future holding periods don’t extend much but fees are sure to decline.”
