Bank- and insurance company-owned money managers in continental Europe need to globalize their businesses or focus strictly on their home markets in the next three to five years to survive, according to a new Casey, Quirk & Associates report.
That’s the bad news. The good news is that stepping up their game will add more than €2 trillion ($2.87 trillion) in new assets under management to these firms. That’s a 16.7% increase over current assets of about €12 trillion.
Large European managers — nearly all of which are owned by banks or insurance companies — need to become more competitive on a global scale, or abandon globalization to focus solely on Europe, according to the report, “Untapped Opportunity: Realizing Value in Continental Europe’s Asset Managers.”
European managers’ growth has lagged that of their British and American counterparts, to which European firms also have ceded market share in Europe. In the six years through Dec. 31, the combined AUM of managers in continental Europe grew by an average annualized 2% vs. 5% each for managers in the U.S. and U.K. Meanwhile, overseas competitors had nabbed 28% of European mutual fund revenue as of Dec. 31, up from 22% five years earlier.
Overseas competitors, being largely independent managers, “had a currency that the European asset management firms didn’t have to attract talent,” said Benjamin Phillips, partner at Casey Quirk and one of the authors of the report.
European firms need to compete better for talent by offering the right compensation packages, and need to boost their distribution capabilities to third-party institutional investors. U.S. and U.K. firms spent an average 22% of all compensation costs on sales and marketing personnel, while firms on the Continent spent 14%. Adding roles such as investment consultant relations and product specialist staff is a good place to start, according to the report.
Finally, European managers should strengthen their investment offerings, moving beyond the cash, passive and benchmark-hugging products on which many now rely. Instead, managers need to compete with overseas managers on higher-alpha products that draw higher fees, according to the report.