European active mutual funds lose out on €8bn in revenues

Active asset managers are facing an €8.3bn hit to their revenues this year after fund outflows and challenging markets kept industry assets under management depressed for a second year in a row.

The findings bear out senior European fund executives’ warnings of “unprecedented” pressure on active managers’ margins.

European actively managed mutual funds’ estimated annual fee revenues are set to be 10.5 per cent lower this year compared with 2021. Management fee revenues fell 8.9 per cent in 2022, according to Ignites Europe calculations based on Broadridge and Morningstar data.

Combining data for 2023 and 2022 suggests the active industry has missed out on over €15bn in fee revenues had industry assets stayed at 2021 levels.

This article was previously published by Ignites Europe, a title owned by the FT Group.

The decline is the result of lower assets under management, which stand at €8tn, almost 20 per cent below levels recorded in early 2022, before Russia’s invasion of Ukraine.

Sandro Pierri, chief executive of BNP Paribas Asset Management, said the pressure on asset managers’ margins over the past two years had been “unprecedented”.

For the past 30 years, asset managers have had 30 per cent or 40 per cent operating margins and so “pressure on costs was not there”, Mr Pierri said at the recent Future of Asset Management Europe conference.

Åsa Norrie, European chief executive and head of European distribution at Principal Asset Management, agreed, saying geopolitical risks and the macro environment provide “a completely different framework” for asset managers’ operating models compared with the past 30 years.

European mutual funds have never had two consecutive years of negative fund flows, data from Broadridge shows.

“It definitely feels tough at the moment for many active fund groups, especially as fees are under pressure so money gained is often at a lower fee than that lost,” said Chris Chancellor, vice-president, data and analytics at Broadridge.

He said that, in addition, new regulations and rising servicing needs were “putting upward pressure on costs” and taken together, these factors were “creating margin pressures” for firms.

Many firms have cut costs to deal with these pressures, with BlackRock, Franklin Templeton, M&G and T Rowe Price among asset managers that have reduced headcount over the past two years.

Meanwhile, passive funds, including exchange traded funds, are enjoying fee revenue growth of €500mn in 2023 compared with the previous high in 2021.

Index-based funds’ assets under management in Europe have reached €2.8tn, recovering losses suffered in 2022, with estimated fee revenues in 2023 up 10.7 per cent compared with two years ago.

While index-based funds and ETFs are “not immune from the cost pressures”, their positive inflows are “easing the pain”, Chancellor said.

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“[Passive funds] have never had a negative sales year as even in a bad year for the market they are taking share from active [funds],” he said.

In the face of these challenges, active fund houses will be seeking to reverse investor sentiment and attract or retain clients in order to take advantage of potentially beneficial savings trends.

“The long-term savings needs and drivers to invest remain in Europe. As rates stabilise and fall, investors are likely to come back to funds for long-term growth,” Chancellor said.

Ignites Europe’s revenue estimates are based on asset data provided by Broadridge and management fee data for 90,533 shares classes from Morningstar.

*Ignites Europe is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at igniteseurope.com.