The subadvisory model looks set to continue to attract attention from asset managers and distributors across Europe, even though bargaining power resides largely with distributors, according to the latest issue of The Cerulli Edge—Global Edition on 9 June.
Subadvisory has been gaining traction in Europe in recent years and the outlook remains mostly positive for the longer term. However, the assets of subadvised funds domiciled in Europe grew by 1.1% year-on-year in 2020, a much slower pace than in previous years, according to data from Broadridge.
Nevertheless, fewer than 4% of the asset managers Cerulli Associates surveyed across Europe do not believe that subadvised assets will grow in Germany and France in the next five years.
Although subadvisory has gained traction in the region, it is not a suitable model for all managers."
Elsewhere in Europe, the outlook is also positive. For example, 17.4% of the managers that responded to Cerulli's survey expect Italian subadvised assets to grow quickly and 61.0% believe these assets will achieve moderate growth over the next five years.
In the UK, 19.0% of surveyed managers anticipate fast growth of subadvised assets and 58.0% foresee moderate growth.
Fabrizio Zumbo, associate director at Cerulli, said that although subadvisory has gained traction in the region, it is not a suitable model for all managers because the associated administration, compliance, and risk management require significant infrastructure.
Larger asset managers generally benefit more than small players, because building an asset base in some countries involves significant price cutting and stricter monitoring requirements.
In addition, although sponsors are focusing on diversifying their strategies for subadvised mandates in a bid to build robust and varied offerings, many prefer working with a small number of subadvisors to limit the internal administrative and compliance burden and to improve operational efficiencies.
Nevertheless, asset managers that offer expertise in a specific region or sector—for example, alternative strategies or environmental, social, and governance investing—will find opportunities with sponsors.
Other key findings:
- In the US, the dynamics of selling asset management products into intermediary advisor channels are shifting in several critical ways. Cerulli believes that the changes in advisors' behaviour and priorities will ultimately increase the opportunities for asset managers to move beyond merely selling to intermediary broker/dealers and wealth management firms.
- The proliferation of digital channels in Southeast Asia is likely to enhance, rather than disrupt, fund distribution in the foreseeable future, says Cerulli. Although robo-advisors are yet to pose a significant threat to traditional distributors in the region, they are helping to increase public awareness of the benefits of investing, which could in turn make it easier for banks and managers to sell their investment products.