European funds of funds look set to resume a recent pattern of strong growth lifted by increased demand for multi-asset funds of funds in the wake of the financial crisis, according to the March issue of The Cerulli Edge-Global Edition.
Net new flows into fund-of-funds accounts across Europe exceeded €40 billion (US$54.7 billion) in 2013, the biggest inflow in recent years.
More than 300 multi-asset funds of funds were launched in 2013.
The United Kingdom has one of the strongest growth rates for funds of funds, with assets under management (AUM) almost doubling in the last five years to more than €100 billion.
AUM in funds of funds have soared in Scandinavia; more than tripling in Sweden and Norway, and more than doubling in Finland and Denmark.
Demand for funds of funds in Germany and France recovered in 2013 after two years of outflows.
"Funds of funds in a single asset class, such as funds of equity funds, have a long and established history," says Barbara Wall, Europe Research Director at Cerulli Associates. "But the financial crisis sparked greater interest in multi-asset funds of funds as investors sought greater diversification, more exposure to a wider variety of asset classes, and a range of investment styles."
This growth could gather momentum as more advisors outsource investment decisions, and regulatory costs rise, with Cerulli senior analyst Angelos Gousios noting that "model portfolios are now less attractive because they are proving costly to maintain, and lack the flexibility of funds of funds."
- Growth in passive fund-of-funds offerings is now greater in certain key markets such as Switzerland and the United Kingdom as pension investors look to reduce benchmark risks, and regulatory changes push financial planners toward risk-rated, managed solutions.
- All of Japan's largest asset managers rely heavily on subadvisors, with more than 90% of overseas equities and REITS and close to 80% of foreign bond assets managed by non-Japanese subadvisors. The subadvisory asset market grew thirteen-fold between 2000 and 2007, and while growth has recently slowed, AUM with foreign managers are still 63% higher than in 2008.
- The greatest opportunities for growth in the U.S. subadvisory market are in unaffiliated variable annuity relationships, with a four-year compound growth rate of 15.5%. Total assets in variable insurance strategies rose 12.9% to US$836.4 billion in 2012, and unaffiliated subadvised variable annuities saw their marketshare increase by 2.3 percentage points to 42.9%.
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