The European Fund and Asset Management Association (Efama) on 12 December 2024 published the latest edition of its “. Thanks to rising stock and bond valuations, assets under management in Europe grew by 8.3% in 2023. The Brussels-based industry association estimates that AUM in Europe at the end of September 2024.

26% of market share

Based on the domiciliation of investment funds in Europe, Luxembourg has 26% of market share, said Efama senior economist Thomas Tilley during a webinar presenting the report. Net assets in the grand duchy--as of the end of 2023--stood at €5,285bn. In second place was Ireland (€4,083bn, or 20% of market share). The third, fourth and fifth ranked countries were Germany (€2,653bn, 13%), France (€2,277bn, 11%) and the United Kingdom (€1,909bn, 9%), said Efama.

Retail clients becoming more important

Looking at the clients of the European asset management industry, “Europe is still an institutional market,” said Tilley. “This is where we’re really different from the US. About 69% of assets managed by European asset managers are managed on behalf of institutional clients. Only 31% are managed on behalf of retail clients.”

“But despite the fact that institutional clients are still the main client, retail clients have actually grown in importance,” he noted. “In percentage points, they grew by 1.3 percentage points [compared to 2022], and they have seen their share of AUM increase in recent years.”

In 2019, the annual change in AUM managed on behalf of institutional clients was bigger than for retail clients (20.5% vs 17.9%); in 2020--the year the covid pandemic started--these figures were about the same (5.1% vs 5.8%). “From 2021, growth has been consistently higher amongst retail clients. In 2023, we actually had more than double the growth numbers in the retail market than in the institutional market,” said Tilley. The annual change in AUM managed on behalf of institutional clients in 2023 stood at 4.2%; for retail clients, this figure was 10.8%.

So what happened? “One trigger in 2020 was the lockdown measures,” he explained. This gave people a lot more time; they were either not working (or working from home) and so had time to consider their investments. “There was also a lot of disposable income they couldn’t spend on travel or restaurants, so they started investing.” Another trigger was the “spike in inflation” in 2022, which led to a decrease in purchasing power and more interest in investing. “In 2023, this continued.”

Exchange-traded funds on the rise

An additional trend that has boosted the retail market share “is the emergence of user-friendly platforms and information channels that make it really easy for investors to directly invest in markets,” said Tilley. Young people in particular are entering the capital markets, he noted, adding that “38.5% of new equity investors were under the age of 35 in 2023.”

And the main way that young people are discovering the markets is through exchange-traded funds (ETFs). These are funds that automatically track a stock index or type of financial asset like gold. “We’ve seen in our statistics that ETFs have outsold other long-term Ucits funds in both ’22 and ’23, and we also see the same trend in 2024.”

A key trend in European asset managers’ allocation choices that fits in with the growth in ETFs is the steady increase in the share of passive asset management, said Hailin Yang, data analyst at Efama. “This shift accelerated notably in 2023 as the passive share jumped from 16.1% to 17%,” she noted. “ETFs have become increasingly popular in recent years, particularly among households looking for cost-effective and diversified investment options.”

And where does Luxembourg fit in all this? In July 2024, finance minister (CSV) presented the that includes the exemption of actively managed ETFs from the subscription tax (passive ETFs were already exempt). These measures, said Roth, aim to make the grand duchy and its financial centre more attractive. As of 1 January 2025, all ETFs in Luxembourg are exempt from the subscription tax.