A slump in equity values and a major outflow from
investment funds resulted in Europe’s investment management
industry suffering a significant decline in assets in 2008.
However, if not for the industry’s policy of asset diversification
the situation could have been far worse. Jeremy Woolfe
The €2.7 trillion ($3.6 trillion) drop in the European investment
management industry’s total assets in 2008, as reported by
Brussels-based industry body the European Fund and Asset Management
Association (EFAMA), was a serious downfall but not the drenching
cloudburst that had been expected.
This is especially true, the EFAMA summed up, when allowing for the
harsh financial weather caused by the collapse in stock prices
which, indicatively, saw the benchmark MSCI World (Equity) Index
falling by a massive 41 percent in US dollar terms in 2008.
In its latest asset management report, EFAMA says €10.7 trillion
was estimated to be under management at the end of 2008, down 21.3
percent compared with €13.6 trillion at the end of 2007, a total up
slightly from €13.4 trillion in 2006.
Overall, the figures makes Europe, after the US, the second-largest
market for asset management in the word – embracing more than a
third of the €40 trillion global assets under management at the end
of 2007. Europe’s investments are equal to 102 percent of European
The decline in 2008, said EFAMA, was estimated on the basis of the
observed drop in assets in the undertakings for collective
investment in transferable securities (UCITS) market, which
represents about 75 percent of Europe’s investment fund market
worth €6.9 trillion at the end of 2007 and an estimated €5.4
trillion at the end of 2008.
Market losses were responsible for 77 percent of the 21.7 percent
decline in UCITS assets while outflows added the remaining 23
EFAMA explained that there are three main factors behind the
outflows: the massive losses recorded in stock market across the
globe that led many investors to pull out savings from equity
funds; the liquidity crisis and the fear of credit and
counter-party losses following the bankruptcy of US investment bank
Lehman Brothers that accelerated outflows from bond funds; and the
competition from structured products and the war for deposits that
escalated when European governments decided to provide guarantees
to all bank deposits.
Commenting on the reductions in total asset values, Bernard
Delbecque, the federation’s director of economics and research,
told LII that worse was been avoided by virtue of the principle of
asset diversification by the fund managers among EFAMA members,
with their professional personnel finding the “right frontier”. The
plunge would have been all the larger if the proportion of
investments in equity had been higher.
Delbecque continued: “Discretionary mandates, that is, portfolios
managed by asset managers on behalf of clients, typically insurance
companies and pension funds, continued to attract positive inflows
He praised the merit of “solid nerves” of the investors who
continued to make net contributions to life insurance products and
occupational pension plans. He also applauded the value of these
contracts, noting the long term nature of these investments.
Commenting generally, Delbecque pointed out that Europe’s
investments amount to as much as a third of what is managed
globally. In EFAMA’s asset management report, which was published
for the first time last year and was initiated as a response to the
lack of an encompassing perspective on the asset management
industry, it notes that major centres of asset management in Europe
are the UK, France, Germany and Italy.
The combined total of funds under management in these three
countries at the end of 2007 was €9.4 trillion. Other important
management centres are in Belgium and the Netherlands.
Reflecting the size of the domestic savings market, the degree of
development of the local financial services sector and the level of
delegation to asset management companies by institutional
investors, the UK, France and Germany accounted for 66 percent of
total assets under management in Europe at end of 2007. Italy and
Belgium followed in this ranking with a combined market share of 10
The report continued that European investment funds represented 51
percent of assets managed in Europe at the end of 2007, with
discretionary mandates accounting for the remaining 49
Discretionary mandate funds are in general more conservatively
invested, having a relatively higher exposure to bonds. At the end
of 2007, for example, the average discretionary mandate fund had a
40 percent exposure to bonds, 37 percent to equity, 13 percent to
the money market and 10 percent to other assets. However, there
were significant variances with the UK having the highest average
equity exposure at 44 percent and Germany the lowest at 11
In contrast to the average discretionary mandate funds, investment
funds assets are on average more heavily invested in equity.
Although there are large differences across countries, on
aggregate, the dominant asset classes were equity and bonds, with
40 percent and 30 percent of total under management, respectively,
at end 2007.
But again there were significant variances, with investment funds
managed in the UK having, at 74 percent on average, the largest
exposure to equity and, at 17 percent, the lowest exposure to
bonds. At the other end of the scale were Portuguese investment
funds, with an exposure of 15 percent to equity and 43 percent to
Banks dominance not universal
In most European countries, banking groups represent the foremost
parent category, controlling more than half of all asset management
companies in Greece, Italy, Austria and Portugal.
The main exceptions to the bank dominated model are primarily the
UK and France, where insurers accounted for 60 percent or more of
all asset management companies, as well as Hungary and Germany
where they accounted for almost half.
In the largest asset management category in Europe, institutional
funds insurance companies represent the largest institutional
client category, accounting for 42 percent of the total of €8.84
trillion in institutional funds 2007. In the institutional
category, which accounted for 65 percent of Europe’s total asset
management industry in 2007, pension funds held the second position
with a share of 30 percent.
One common feature among most European countries is that insurance
companies represent a very large source of institutional assets
The highest contribution was in the UK where insurers accounted for
76 percent of institutional funds in 2007. The UK was followed by
France at 61 percent, Germany and Hungary at 58 percent and
Portugal at 54 percent.
In other countries insurance companies accounted for a smaller yet
significant proportion of institutional investors. These included
Italy and Belgium, both at 38 percent.
The top three investment fund domiciles in terms of assets are
Luxembourg, France and Germany, followed by the UK, Ireland, Italy
and Spain. The strong market shares of France, Germany, the UK,
Italy and Spain primarily reflect the significant size of the
domestic savings market in these countries.
By contrast, the position held by Luxembourg and Ireland is
attributable to the importance of these countries in the
distribution and administration of cross-border UCITs in Europe and
other parts of the world.
For Europe as a whole, the asset management industry represents not
only a major source of income but of employment as well, with EFAMA
estimating that 70,000 people work directly in asset management
EFAMA adds that, by taking in related services, such as accounting,
auditing, custodianship, marketing, research, order processing, and
distribution, the level of direct and indirect employment linked to
asset management companies would increase to a significantly higher