The Thinking Ahead Institute also found that the number of strategies on offer during the year increased across 70% of the surveyed firms, and sources said that managers operating in areas attracting higher investor demand, such as ESG or private markets, generated better organic AUM growth.
Active managers that have traditionally operated in public markets are trying to organically or through acquisitions expand their presence into private markets and ETFs, Moody's Mr. Callagy said.
For example, in October 2020, PineBridge Investments said it agreed to acquire U.K.-based private equity real estate manager Benson Elliot Capital Management. At the time of the announced deal, PineBridge had a total $104.4 billion in assets under management, and ran $6 billion in alternative assets under management as of June 30, according to its website. The transaction added more than $3.5 billion in AUM. In another deal, CI Financial Corp. completed the acquisition of exchange-traded fund business WisdomTree Asset Management Canada Inc. in February 2020. The transaction added 14 Toronto Stock Exchange-listed ETFs with assets totaling C$958 million ($733 million), a spokesman said at the time.
Buying a firm gives scale faster than trying to break in on the ground floor, Mr. Callagy said. "It's harder to grow the ETF segment because you have large players with large scales," Mr. Callagy said.
"We are seeing more competition on the ETF side with firms entering the market, firms that are converting existing mutual funds into an ETF wrapper or active ETFs where they can take (an) existing capability and offer it in a wrapper. That seems to be resonating with investors," he said.
While money managers have been grappling with increasing regulatory and technology costs of running their businesses, they are finding ways to offset these costs, other sources said.
The element that "is protecting fees is the pivot from asset managers to incorporate ESG as a core element of how it is you invest … driven for some by regulation," said Jonathan Doolan, managing partner at consultant Indefi in Paris. Markets are acknowledging that ESG can lift active management in a lot of ways, he added.
Going forward, Mr. Doolan thinks that investors and intermediaries will opt for specific sustainability propositions, such as focusing on clean water, so these buyers can meet their ESG policies.
Specific ESG strategies are "going to sell more effectively going forward and that's what's going to be required for products with higher fees," he said.
In response to the effects of the pandemic and Europe's Sustainable Finance Disclosure Regulation, managers increased their focus on the ESG objectives of their clients in 2020. The Thinking Ahead Institute found that client interest in sustainable investing, including voting, increased across 91% of the firms surveyed.
"The investment industry had to raise its game significantly to take account of sustainability," said Roger Urwin, global head of investment content at the Thinking Ahead Institute in London, noting that COVID-19 put an accentuated focus on sustainability issues.
"Because of the pandemic we became more aware of the interconnectedness of the financial system with the social and environmental systems," he added.
Mr. Doolan added that subadvisory is one of the fastest-growing businesses in Europe when it comes to specialist strategies such as ESG as well as more niche asset classes such as Asian high yield.
"You are seeing on the emerging markets equity side and debt side significant appetite and significant use of subadvisory," he noted, adding that managers can still profit while outsourcing these strategies to specialist providers.