Institutional investors across Europe are steadily increasing proportional investment exposure via mutual funds, even where mandates could be demanded, according to the latest issue of “The Cerulli Edge – Global Edition.”
Cerulli Associates, a global analytics firm, says statistics suggest that, while insurers are leading the way, the trend in Europe is pan-institutional. For example, German pensions’ proportional exposure via funds rose from 41.3 percent in 2011 to 50.1 percent in 2015.
“In the search for better investments, insurers are turning to less familiar asset classes, prompting the use of funds rather than segregated accounts to make their investments. There is clearly a greater willingness to have commingled investments,” says David Walker, director European institutional research at Cerulli.
He notes that early allocations to less well-trodden asset classes will be smaller, and therefore the volumes involved may not justify, in either the insurer’s or asset manager’s eyes, a separate account. That said, even in some of the more familiar yield classes — for instance high yield and emerging market debt — certain insurers prefer funds as these are easier to enter and exit compared with being in a segregated account.
“One manager Cerulli interviewed uses geography to split his insurer clientele’s preference for commingled/pooled structures, or investing via mandates. He has mutual funds more generally in France, Germany, Italy, and Spain, but mandates typically in the UK and Europe’s north,” says Walker.
He notes that some institutions are not willing to forfeit the influence over the strategy/risk exposures and the briefings that are part and parcel of a mandate-based relationship. For some institutions, not knowing the identity of the other co-investors in a broader pooling vehicle is a step too far.
“Some insurers seeking prize investment assets such as buildings or infrastructure projects in this yield-starved environment argue that they lose competitive edge by ‘sharing’ them with rivals in a pooled structure,” says Walker.
The convergence of retail and institutional markets across the globe is requiring asset managers to re-evaluate the way they structure their sales and distribution teams. Cerulli says that while the necessary changes may go against the grain, those firms willing to be flexible will be best placed to succeed in tomorrow’s world.
The bumpy ride independent financial advisors are suffering in a number of European countries looks set to continue, says Cerulli, because even though take-up of robo-advice remains patchy, regulatory changes coupled with the traditional influence of banks and insurance companies mean generating business will not become any easier.
Even robo-advisors that appear to be completely automated offer some form of human interaction–a fact that is often overlooked by asset managers in the United States amid the alarm sparked by the spread of digital advice, says Cerulli.