EMEA sub-advised fund assets to rise to almost EUR3tn in next ten years, says instiHub's Pfunder

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Commercial outcome optimisation analytics provider instiHub has presented its latest forecast for the EMEA sub-advised fund industry, CEO and founder Andreas Pfunder, predicting that assets delegated to third party managers will rise to just under EUR3 trillion over the next ten years. 

Pfunder says: "Now at EUR986 billion, I expect to see assets breach the EUR1 trillion mark during the first half of 2021. With our base case assumption of 11.4 per cent CAGR, assets will rise by EUR1 trillion every five years, reaching the same size as today’s US sub-advised fund industry by 2025: EUR2 trillion.’

instiHub’s research suggests the next three years will see growth accelerate to above 20 per cent per year owing to the entry of large distributors, platforms and solutions providers seeding new sub-advisory models.

Pfunder says: "In parallel with BlackRock’s implementation of its Outsourced CIO service for Rabobank, adding €18 billion delegated to third party managers by December, Allfunds, one of the world’s largest fund trading platforms, announced the launch of its inhouse Investment Solutions business in June 2020. We expect the first mandates to be seeded shortly, adding several billion to the universe initially. Amundi announced the launch of its solutions service at the beginning of 2021. These new sponsors are adding a great deal of fuel."

Aware of several other bank distributors preparing new sub-advisory programs, instiHub estimates EUR120 billion in new, ‘structural alpha’ assets being added over the next three years.

Another key growth source will be distributors’ own funds, sub-advised at a low fee, for use inside of fund-of-funds. “The driver for sub-advisory growth has always been commercial, with the initial catalyst of MiFID II regulation,” says Pfunder. “The rationale is that through low-fee sub-advised funds, the distributor will make a healthy margin while offering a lower cost solution to the end investor. This is important as regulators are focused on the industry delivering value for money to investors.”

Combined analysis of instiHub’s two unique delegated fund industry data modules comprising granular and transparent ownership of EUR1.6 trillion of fund assets delegated to third party managers confirms the increasing use of sub-advised funds inside fund-of-funds. “To build strategic partnerships with large distributors, fund managers have to look at a distributor’s holistic profile holistically. Among distributors operating sub-advised as well as fund-of-fund platforms, we see up to 56 per cent of their sub-advised fund assets gathered from inclusion into the distributors’ fund-of-funds.”

The key trend in sub-advisory in 2020, according to instiHub’s proprietary data, was a 91 per cent (EUR10 billion) growth in SRI marketed funds with 16 net new mandates being awarded. Ecology (89 per cent AUM growth), Technology and Infrastructure focused equity thematics also stood out.

In the EUR587 billion fund-in-fund space, asset allocators showed cautious ‘risk-on’ behaviour with money market allocations being circled into equity funds. At the same time, early positioning for a more inflationary macro environment was discernible from instiHub’s monthly change data in December.

“It looks as if institutional asset owners are shifting their sole focus on equity since last summer to a more broad-based foundation. This opens new opportunities for fund managers with a lot of cash still sitting on the sidelines for short-term reinvestment,” says Pfunder.

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