instiHub, which tracks EUR1.8 trillion in assets delegated to third-party fund managers, has reported 6 per cent (EUR63.2 billion) growth of sub-advised fund assets during the second quarter.
Fund sponsors in Ireland and France (the second and fourth largest sub advised markets) were responsible for the highest Q2 growth: 10 per cent and 9 per cent, respectively. Both Sweden with EUR25.7 billion in sub-advised AUM and Germany (EUR14.4 billion) grew by 8 per cent. On a YTD basis, France, Sweden, the UK and Germany are the strongest growing sub-advisory markets.
Having dominated the AUM growth story during Q1 with a 11 per cent gain, Equity funds’ glow cooled during Q2 to a still strong 6 per cent while some investors in sub-advised funds appear to have taken profits: Money Market funds were up by 3 per cent after a 2 per cent decline during Q1. Meanwhile, Multi-asset fund growth, at 7 per cent, overtook as the strongest growing asset class. Fixed Income AUM rose again at 4 per cent after flatlining in the first quarter.
Since December 2020, the share of sub-advised fund assets in ESG marketed funds has grown from 3 per cent to 4.2 per cent, with AUM growth of 60 per cent against 13 per cent for the total market. That is the single largest growth story in the sub-advised fund space that has been building for the past five years. Since December 2016, ESG marketed fund assets have grown from EUR5 billion to EUR48.5 billion or 858 per cent.
Growth has accelerated since June 2020, with AUM more than doubling to June 2021, coinciding with greater environmental awareness as the pandemic unfolded. In this period, the number of sub-advised ESG marketed funds has increased from 64 to 83. Global Equity funds represent the largest sector with just under 60 per cent AUM share. The fastest growth has been in Global Multi-Asset ESG funds, doubling their AUM share from 10 per cent in December 2020 to 21 per cent by the end of Q2 ’21.
Much of the sub-advised fund industry’s recent product launch activity has revolved around ESG marketed funds with 27 per cent or 26 of all 95 newly launched mandates in 1H 2021 awarded to ESG funds.
New sub-advisor appointments have accelerated in the second quarter to 126 mandate wins worth EUR21.8 billion, easily overcoming 108 mandate losses worth EUR8.9 billion. For Q1, losses were greater than wins.
Average wins from fund launches and outsourcing of funds previously managed in-house have steadily increased on a rolling 12-month basis. While the average deal was worth EUR38.5 million during the 12 months to March 2020, sub-advisers were awarded an average EUR66.8 million during the 12 months ending June 2021.
Looking ahead, instiHub anticipates above-average growth of the sub-advisory industry in Europe to continue, receiving a significant boost over the next six months as platforms with access to large investors start seeding newly established sub-advised solutions or grow existing ones to build scale.
Some of this growth will diminish third-party fund distribution opportunities according to Andreas Pfunder, CEO of instiHub: “analysis of our data clearly indicates that sub-advised funds are encroaching on third party fund holdings. Fund-of-fund managers who also run sub-advised programs are increasingly replacing third party fund holdings with in-house clones that are sub-advised by the same third party manager at a lower fee. We see these trades becoming more widespread and worth tens of billions. I expect this trend to continue, also within discretionary and model portfolios.”