The market is leaving its “golden era” and moving to a “new macro regime”, said Liam Martin, director of global insights at Broadridge, at this year’s Association of the Luxembourg Fund Industry (ALFI) Global Distribution Conference.
Martin made the comments in a panel entitled ‘Net inflows by asset class and geographies’, in which he outlined that while the European asset management industry has grown exponentially over the past decade, there are now serious challenges emerging. Although various crises have proved difficult in the last 10 years, drastic inflation rates are changing the market, he added.
Currently, those who are succeeding in the market have strong passive franchises, proprietary assets, and ESG investments, however, multi-asset and absolute return strategies have appeal, Martin continued.
Martin drew on Broadridge’s insights over the past 10 years, highlighting the reasons behind the aforementioned shift, and what asset managers need to do to appeal to fund distributors in a new climate. He noted the importance of keeping up-to-date with product trends and passive strategies, and highlighted three areas in particular that should be taken into consideration: “storytelling”, ESG, and diversification.
‘Storytelling’, or thematic equities, are currently the second strongest-selling equity sector in Europe. These offer investors funds with strong narratives, around subjects such as clean energy or climate change. Fund selectors are looking for asset managers that can provide marketing alongside the assets themselves.
ESG has seen huge cumulative growth over the past years, particularly throughout the COVID-19 pandemic, Broadridge data finds. Even an ESG-related name can increase an asset’s worth, Martin said.
Diversification is also valued, with allocation to alternatives, particularly private markets, a priority for fund selectors.
In terms of what distributors are looking for, Broadridge’s research has found that service is more important than product innovation. Although asset managers’ adaptability over COVID-19 was admired, distributors are still looking for improvements. Fund selectors want asset managers to improve their transparency and reporting, and provide them with more targetted information, in place of generic offerings.
While the road ahead will prove difficult to navigate, Martin stressed that the future is not entirely bleak. Although 2022 has seen muted fund flows, these are “not as bad as last year’s were good”, and strong sectors are continuing to gain assets. The “macro regime” will be challenging, but the market will adapt.
