The European asset management industry is on track to manage €33trn in assets by the end of 2024, according to the latest report from the European Fund and Asset Management Association. The sixteenth edition of its ‘Asset Management in Europe’ report, on Thursday 12 December 2024, provides a comprehensive overview of the trends and developments shaping the sector.
AUM growth
Assets under management in Europe experienced a notable increase of 8.3% in 2023, fuelled by rising stock and bond valuations. As stock markets maintained their upward trajectory throughout the year, Efama estimated that AUM in Europe reached a new high of €32.7trn by the end of September 2024. This marks a significant milestone for the industry, with growth prospects remaining robust for the remainder of the year.
The report also revealed that asset management activity across Europe remains highly concentrated in a select number of countries. Six countries--the United Kingdom, France, Switzerland, Germany, the Netherlands and Italy--are responsible for nearly 85% of the region’s total asset management activity. The UK remains the largest market, with France and Switzerland following closely behind.
The role of asset managers in financing the European economy continues to be pivotal. As of the end of 2023, asset managers held approximately €6.6trn in EU-issued debt securities and €3trn in EU-issued listed shares. This amounted to 28% of all debt securities and 27% of listed shares issued by EU-resident companies and other issuers. This underscores the significant contribution of asset managers in providing vital funding for European businesses and governments, the trade group said.
Retail clients
The report highlighted a growing shift towards retail investing, with the share of retail clients in total AUM increasing from 26% in 2019 to 30.8% at the end of 2023. This surge reflects the growing interest among European retail investors in capital market investments. Exchange-traded funds (ETFs) have become particularly popular among retail investors, offering a cost-effective and diversified approach to investment. ETFs, which are typically passive and index-tracking, have become a preferred vehicle for households seeking broad exposure to capital markets.
Asset allocation
Asset allocation trends within the European asset management sector also saw a shift in 2023, driven by rising stock and bond valuations. The proportion of equities and bonds in asset manager portfolios both grew, with bonds experiencing a particularly rapid increase in market share. This shift in favour of bonds reflects strong demand for bond funds, which emerged as the top-selling fund category of the year. Many asset managers also rebalanced their portfolios towards bonds in anticipation of potential rate cuts in 2024.
Passive investing
One of the most notable trends in 2023 was the continued growth of passive investing. The market share of passive asset management increased from 16.1% to 17% over the course of the year, a trend largely driven by the growing popularity of ETFs. Passive investing, characterised by lower costs and a focus on replicating market indices, remains the preferred strategy for many investors, particularly in the context of ongoing fee pressures within the industry.
Profit margins
Despite overall growth in AUM, the asset management industry faced challenges in maintaining profitability. Operating profit margins dropped to 11.1 basis points of average AUM in 2023, the lowest level since the 2008 financial crisis. Efama attributed this decline to a combination of sustained fee pressures and rising operational costs, particularly in technology. The increased investment in technology, while necessary for efficiency and innovation, has placed additional strain on profit margins.
Bernard Delbecque, Efama’s senior director, in a press , expressed concern over the declining profit margins within the industry. He stated, “The decline in operating profit margins, driven by sustained fee pressures and rising costs, is a source of concern, as Europe requires competitive asset managers to serve as a vital source of stable, long-term funding for its economy.” Delbecque emphasised the need for a robust European savings and investments union, which would adopt an ambitious approach to ensure asset managers can continue to play a central role in supporting Europe’s economic growth.