New analysis from data provider instiHub reveals that Europe’s sub-advised fund assets have outgrown those of the broader fund market by 45 per cent over the 12 months to September 2018.
At the same time as the broad UCITS and AIF fund market (as reported by EFAMA) has grown by 6.5 per cent in the 12 months to September 2018 (from EUR13,921 to EUR14,822 billion), sub-advised fund assets grew by 9.4 per cent from EUR506 billion to EUR554 billion. The numbers exclude money market funds and those domiciled in South Africa (included in the instiHub data application) to enable a like-for-like comparison.
“Sub-advisory’s superior growth started during the quarter leading up to the implementation of MiFID II in January 2018. The trend has persisted during every quarter since,” says Andreas Pfunder (pictured), CEO of instiHub. “Combined with continuously rising, record deal volumes both by number and volume, and forward looking indications from many of the top sponsors, we can only conclude this is a structural, not a cyclical, trend.”
A key difference in the data sets is the asset composition. Stripped of money market funds, the broad market’s combined UCITS and AIF equity share is 32 per cent while that for the sub-advised space is 48 per cent-16 per cent higher. Fixed income assets are also higher in the sub-advised space, by 7 per cent, at 32 per cent. ‘Other’ assets are smaller among sub-advised funds, while the multi-asset share is about the same.
Over the past 12 months, sub-advised fund assets have grown particularly strongly in Spain (20 per cent growth), the UK (17 per cent), Ireland (15 per cent), Switzerland (10 per cent) and Italy (9 per cent). Exclusive fund launches, private banks and insurance firms increasing their product offering as well as new sponsors launching sub-advised fund program have all played a part in this growth.
“Those who believe the recent surge in sub-advisory growth is driven mainly by MiFID II implementation and is therefore short-lived are missing an important point,” says Pfunder. “The real driver is an unstoppable power shift towards the buy-side who, among other things, is concerned with increasing the valuation on the revenue they are undoubtedly keen to generate.”
“Add to that a very competitive environment in which value for clients and a differentiated product offering are key success factors: for buy-side sponsors and sell-side sub-advisers alike. Those who appreciate these factors can quickly see how sponsors with scale are going to widen the use of the sub-advisory platforms they are now setting up. This trend will persist for years to come and those sub-advisers who choose to be strategic partners in these formative years will win over time.”
instiHub forecasts that sub-advised fund assets will reach EUR1 trillion by 2023 after growth of more than 10 per cent per year until then – within multi-asset mandates and building blocks alike.
“I’d be surprised if by the second half of 2019 we won’t see a vast expansion of delegated, mandate-based manager of manager funds as a conversion from fund of funds takes place. Markets like Spain, Germany, Switzerland and Italy will be at the centre. The start was made in the UK, now the first signs are appearing in Italy and Spain will be next,” says Pfunder.
As the main reason he cites what he hears from most sponsors: that even the cheapest share class available to fund of funds is still too expensive. Once further cost transparency disclosure becomes mandatory in the first half of 2019, he is convinced remedial action will follow swiftly through conversion into a lower fee paying, sub-advised model.
