Figures from Morningstar Sustainalytics reveal a 14 per cent increase in assets over 2023, with European investors accounting for more that USD2 billion, with US and the rest of the world accounting for the remaining assets.

Speaking at the Pensions and Lifetime Savings Association conference, Catalina Secreteanu, head of ESG solutions at Morningstar, said regulation had been a major force in progressing ESG investing.

“Europe has been leading the way and regulation has played a role. In 2022, there were about 300 Climate funds launched in Europe, which is significant and compares with 220 in China and 100 in the US,” Secreteanu said.

Investors pointed out that anti-ESG sentiment in the US is hampering progress with some states implementing rules which prohibit fund managers from tendering for public pension fund mandates if their strategy includes a sustainable element.

Gerald Chen-Young, board trustee to the US National Public Pension Fund Association said: “Attitudes towards ESG in the United States are very different from those in Europe. There is clear evidence in states like Texas and Florida, where the government banned money management firms from even participating in RFPs or managing any public assets whatsoever. That hasn’t happened in Europe.”

Secreteanu said the anti-ESG movement, while relatively severe in the US, was not widespread nor likely to have a long-term impact.

“It has been demonstrated that running solely on an anti ESG platform has not been picked up sufficiently to be a reason for candidates to win an election. Anti-ESG sentiment will remain in certain pockets but there is the expectation that it will not emerge further on a national platform because it has been demonstrated that it doesn’t have enough bipartisan support,” she said.

However, she did note that the emergence of ‘green hushing’ where asset managers play down there ESG agenda for fear of alienating investors.

“We have to be familiar with the fact that asset managers continue to work in alignment with ESG strategies but may be less visible about that,” Secreteanu said.

This is the second vintage of BNPP AM’s European Private Equity co-investment strategy, after the full deployment of BNP Paribas Agility Fund, a EUR739 million co-investment fund raised over 2020 and 2021.

Agility 2 aims to build a resilient and diversified portfolio of 30 to 50 minority equity investments across a wide range of industries and with a pan-European focus.  The investments will take the form of co-investments, flex equity and GP-led deals and will range from EUR10 million to EUR50 million each.

The firm writes that Agility 2 will be managed by a seasoned team of 15 investment professionals located in Paris, Brussels and Madrid and will rely on a 15 year track record of in-depth analysis and deal selection.  It will leverage BNPP AM Private Assets’ Fund Platform, which has relationship with 170 general partners (‘GPs’) and AUM of EUR15 billion, to originate co-investment opportunities from the best European GPs.

Agility 2 targets a size of EUR700 million to EUR900 million and benefits from a EUR300 million anchor investment from BNP Paribas.  Agility 2 is an Article 8 fund according to SFDR regulation.

Lionel Gomez and Damien Fournier, co-heads of BNPP AM’s Private Equity team says: “Agility 2 builds on the success of the first vintage.  It will benefit from increased origination capabilities thanks to BNPP AM Private Assets’ Fund Platform and from enhanced ESG capabilities with the support of BNPP AM’s Sustainability Centre.  We believe this new vintage is a great opportunity to showcase our ability to target the best risk-adjusted returns through diversification and portfolio construction”.

Agility 2 will be managed by BNPP AM Private Assets, a specialist investment division established at the beginning of 2023.  BNPP AM Private Assets combines a range of private asset management expertise from across the BNP Paribas Group. BNPP AM Private Assets has assets under management and advisory of EUR40 billion.

Robeco writes that Nick King brings valuable experience to the firm, having previously served in senior roles at Fidelity International and BlackRock, where he specialised in ETF product development, portfolio management, and distribution across various asset classes. King’s expertise will be key in steering Robeco’s development into the ETF market.

Ivo Frielink, Head Strategic Product & Business Development at Robeco, says: “We are very pleased to welcome Nick to Robeco as Head of ETFs. His extensive experience in ETFs and his commitment to innovation align perfectly with Robeco’s strategic vision and research-driven approach. We are confident that under Nick’s leadership, Robeco can successfully wrap its investment expertise and strategies into a comprehensive ETF lineup.”

Robeco writes that ETFs have been under consideration at the firm for a while, given their growing popularity and versatility in the investment landscape. Robeco recognises that ETFs present a major opportunity to package strategies, complementing existing capabilities offered through mutual funds and mandates.

Nick King, incoming Head of Exchange Traded Funds at Robeco, says: “I am delighted to join Robeco during this pivotal moment in its journey into the ETF market. I look forward to leading the charge, and leveraging my experience to drive innovation and success in this rapidly evolving space. Together with the talented team at Robeco, I am confident that we can make a meaningful impact on the future of ETFs.”

Nick King’s new position of Head of ETFs at Robeco as Head of ETFs has been created within the organisation as it explores and prepares to launch ETFs – a new endeavour for the company. His previous experience within the ETF space will prove to be very valuable, the firm says.

The firm adds that Robeco is constantly seeking ways to expand the delivery of its investment strategies and innovate. “ETFs are one such opportunity to achieve both. Given their advantages as compared to mutual funds, we expect ETFs to become a preferred vehicle for investors in the long run. Offering both mutual funds and ETFs will position us up for long-term competitiveness and increase our ability and flexibility to serve clients.”

Commenting on Robeco’s commitment to active management, the firm writes that the notion that ETFs are strictly passive is often misconceived. “Ultimately, ETFs are simply another vehicle to wrap intellectual property, whether that be via passive or active strategies. Managers globally have been coming to market with ETFs to package active strategies. While the active ETF market in Europe may still be nascent, we believe Robeco can capture significant growth as an early adopter and provide differentiated products compared with existing ETFs, especially given our SI expertise.”

Robeco is working to launch its first ETF in the second half of 2024. The firm adds that: “As a complement to mutual funds, the ETF platform will be built to, in time, service all possible Robeco strategies, including within equities, multi asset and fixed income. We will likely also use the ETFs to package Robeco indices.

“Exact strategies to be wrapped are still to be determined; however the focus is that the ETFs will wrap Robeco intellectual property in line with our key strengths of sustainability, quant investing, thematics, credits and emerging markets.”

“Recently, some of Europe’s major asset managers operating absolute return strategies have either merged or closed their absolute return funds or announced plans to do so,” says Fabrizio Zumbo, director, European asset and wealth management research at the firm.

The sector’s AUM fell 30 per cent between year-end 2013 and year-end 2022. Much of this decline can be attributed to outflows from Abrdn Gars and assets moving outside of the sector, rather than being invested in other absolute return funds. AUM for the sector decreased 55.6 per cent between its peak year of 2015 and 2022. The erosion continued in 2023, as asset allocators switched out of absolute return strategies and into long-only global equity and fixed income. The sector has struggled to attract new investment in recent years, with flows being net negative between 2016 and 2020 and again in 2022 and 2023 year to date.

From 2019 onward, total liquidations of funds with absolute return in their names have exceeded the number of launches, Cerulli Associates says. During the first seven months of 2023, four such funds were launched and eight were liquidated. 

Absolute return as a fund category has only a loose sector definition, which can be a significant issue for allocators thinking in terms of asset types and associated risk/return profiles, rather than outcomes. “Performance has been another issue for absolute return funds. Investors have voted with their feet when certain funds have missed their positive return targets,” says Zumbo. In this regard, some 29 per cent of surviving funds with absolute return in their name have delivered a negative return in the three years to the end of July.

Given how varied the absolute space is, it is not surprising that some funds have bucked the broader sector decline and survived or even thrived, Cerulli Associates notes. Notably, some of the funds that have amassed assets in recent years are in the fixed-income space. “Clients are perhaps buying into the exposure to global fixed income more than they are the objective of a positive return over a given period—either way, these funds have been winners within a declining sector,” says Zumbo.

This new service is expected to introduce matching, CCP clearing, settlement and post-trade lifecycle management for SFT transactions in European cash equities and ETFs, for (agent) lenders and borrowers, with settlement taking place in 19 European Central Securities Depositories (CSDs). The exchange writes that as the only pan-European CCP offering these consolidated services for SFTs in European cash equities and ETFs, Cboe Clear Europe is expected to help to bring improved capital efficiencies, enhanced risk management and streamlined operational procedures to this market.

Vikesh Patel, President, Cboe Clear Europe, says: “We are delighted to bring a CCP clearing service to Europe’s SFT market, helping market participants improve their capital and operational efficiencies in relation to these products. It is a natural progression for our business, another important step in our mission to become Europe’s leading multi-asset class clearing house and further demonstrates our commitment to developing innovative client-driven solutions. We are excited to be working with leading firms in the SFT market on this important initiative.”

European SFTs primarily occur on a bilateral basis and are not cleared. However, new regulations including the Central Securities Depositories Regulation (CSDR), Securities Financing Transactions Regulation (SFTR) and planned Basel IV implementation, are resulting in market participants having to manage increased capital demands and additional operational inefficiencies that increase the costs of bilateral SFTs and may lead to a reduced capacity and appetite to borrow or lend. By offering access to a CCP clearing and settlement service for SFTs, Cboe Clear Europe writes that it is expected to help clients navigate these new rules, reduce their capital burdens associated with bilateral SFTs and achieve operational advantages. These include greater settlement efficiency, the elimination of agent lender disclosures, and improved practices around fees management, corporate actions, and post-trade lifecycle processing.

Cboe Clear Europe writes that it has secured the support of a broad range of key market participants, including banks, clearing firms, asset managers and custodians, who are expected to support the launch of this service.

Participant Agent Lenders include BNY Mellon and Citi.

Participant Borrowers include ABN AMRO Clearing Bank, Barclays, Citigroup Global Markets Limited, J.P. Morgan and Goldman Sachs.

In a ranking of the top investment research providers in 2022 from analytics company Substantive Research, Jefferies has jumped from 7^th position in 2021 to reach third place in the latest table.

The provider has ousted UBS to join Morgan Stanley and JPMorgan in the top three; a rise Substantive says follows significant investment by Jefferies in hiring and retaining skilled research analysts.

This is particularly relevant since following the 2018 MIFID-II legislation, which prohibited providers from bundling research costs into investors’ fees across the EU, saw the sell-side considerably shrink its research capabilities.

Mike Carrodus, CEO at Substantive Research, says: “Although Jefferies’s analyst teams have shrunk somewhat post MiFID II, in proportionate terms, the net experience lost between 2019 and the second half of 2022 was 70 per cent lower than the top 10 providers, and 80 per cent lower than their peers in the top five.”

He adds: “What’s more, where Jefferies did lose experienced analysts, they replaced them with targeted, highly ranked analysts in order to maintain the quality of the research product.”

Carrodus says the battle between providers is “much more open than it has been for years”, and notes that the top banks’ commitment to their research products will continue to be tested this year. 

He adds: “Outside of the top 10, there are many high quality, niche providers that will likely be impacted in future, as their ability to subsidise investment in both people and regulatory challenges is limited.”

Those regulatory challenges include a likely softening of the unbundling rules laid out in MIFID-II, although EU regulators are yet to make clear how far back those regulations will be wound.

At the same time the UK is scheduled to conclude its Investment Research Review in June 2023, which also will likely see a return to re-bundling. 

Carrodus says that the buyside is furious that having gone through compliance with the unbundling regulations in MIFDI II, they are expected to return to the old regime.

“The best thing to have done was not do [unbundle] in the first place. They were telling regulators not to do his because it would have an effect and they went and did it anyway.”

There are also questions about the willingness of the buyside to re-bundle the cost of research since doing so would inevitably lead to an increase in client fees.

Carrodus says: “The fact is, there is zero propensity among the buyside in Europe to take advantage of [re-bundling] because in a current market environment, having any discussion about fees are terrifying, even if we are only talking about a single basis point.”

However, the US financial regulator has cleared up some uncertainties that have been plaguing the market since February.

This week the House Financial Services Committee voted to extend the no-action letter for six months and study the impact of potential expiration.  

The no action letter had allowed cash research payments from Europe to the US to accommodate MIFID II but was scheduled to expire on 3 July, leaving US brokers unable to process payments from European clients.

Carrodus says: “The expectation is that this [extension] will not pass before the July 3 expiration date, but hopefully still sends a message to the SEC to extend by six months and give time for more brokers to register as investment advisers or find another solution.” 

The firm writes that the FSA license is a significant milestone, enabling it to offer rolling Spot FX and CFDs to institutional clients in the EU.

Michael Aagaard, Managing Director, GCEX, Denmark says: “This is a major step forward for our business and we believe it will be a significant catalyst for growth in Europe. Brokers, fund managers, hedge funds and professional traders based in the EU will now have the peace of mind and reassurance of knowing that they are transacting with a credible firm which is regulated in their own jurisdiction.”

Lars Holst, CEO, GCEX, says: “It is fantastic news that we now have access to the EU market as an investment firm regulated by the Danish FSA. Obtaining this FSA license involved an extremely stringent process in which we had to demonstrate our experience in financial services, the knowledge of our team, good governance and our strong focus on investor protection. It now opens the door for us to market to EU clients, presenting us with a major opportunity for further growth.”

“From the outset, we have been advocates of operating within strong regulatory environments. Our broader regulatory coverage reflects our ethos of providing a professional, reliable, trusted and robust service in order to be at the forefront of the industry.”

Headquartered in London with multiple offices around the globe including in Copenhagen, GCEX Group aims to enable brokers, fund managers, hedge funds and professional traders to access deep liquidity in FX and CFDs. The firm also offers clients access to XplorDigital, a range of trading solutions.

True Global Ventures are investors in GCEX.

Asset managers headquartered in Europe saw their private market assets continue to grow in 2022, albeit more slowly than in previous years, the firm writes, and their total assets under management (AUM) exceeded EUR2.3 trillion (USD2.4 billion) by the end of the year. 

Institutional investors remain the region’s major allocators to private assets. In contrast, European high-net-worth (HNW) and ultra-high-net-worth (UHNW) investors are still underexposed to private asset classes—but that is set to change. According to the research from Cerulli, most private banks and wealth managers expect their HNW and UHNW clients’ allocations to private assets to increase more than family offices’ allocations, which represents a significant new revenue opportunity for asset managers.  

“Half of the German and around 40 per cent of the Swiss and UK private banks and wealth managers plan to increase their allocations to private equity growth strategies over the next 12 to 24 months,” says Justina Deveikyte, director of Cerulli’s European institutional asset management research. “They already have significant allocations to private equity strategies, yet private banks and wealth managers generally remain bullish on private equity.” 

Although private banks’ and their clients’ demand for private equity and infrastructure funds will remain strong, their demand for real estate is expected to decrease over the next 12 to 24 months. For instance, 20 per cent of the French private banks and wealth managers Cerulli surveyed plan to reduce their recommended allocations to real estate and around 13 per cent of UK and Italian respondents anticipate decreasing their recommended allocation to the asset class over the same period. 

However, private banks and wealth managers are increasingly keen to use technology-driven distribution platforms such as iCapital and S64. More than a quarter (27 per cent) indicated that partnering with distribution platforms will be a high priority for them over the next 12 to 24 months. In addition, Cerulli believes that new semi-liquid products that are yet to come to the market need to be relevant—they need to provide diversification benefits and have a strong focus on sustainability. 

“Rapid development of technology, especially the tokenisation of assets, will help to speed up the democratization of private assets,” adds Deveikyte. “Several managers have already tokenised some of their funds and many more are considering doing so over the next three to five years.”

Kraus whose funds have a decent long-term track record –  they have outperformed the MSCI Europe Small Cap and Micro Cap Indexes by 23.5 per cent and 27.3 per cent respectively since inception in 2017 – but suffered during the challenging economic conditions last year, says the asset class is set to return to favour.

“2022 was awful for European equities,” Kraus says. “We had a recession shock, inflation shock, rate shock, Ukraine shock, energy shock and maybe some other shocks as well. We are a very long-term quality, growth small and very small [cap manager], and the headwinds have never been so severe. It’s not a surprise that we looked like beginners last year.”

However, while Kraus concedes he cannot predict the future, he is optimistic that the headwinds that blew the funds badly off course last year, are set to ease.

“The environment has always been uncertain; nobody knows what is going to happen tomorrow, but we are in a different environment to the one we experienced over the past 12-18 months. I am not saying that things will change in the next couple of weeks, but we are nearing the end of the rate hiking cycle. We have seen peak inflation rates.”

Kraus says fears about a recession in Europe following Russia’s invasion of Ukraine failed to materialise, while energy prices are returning to some normality, all of which bodes well for European equities. 

Further, he says European small-cap and micro-cap stocks that are set to benefit from long-term structural tailwinds. For example, Elmos Semiconductor, a global market leader for semiconductors in the automotive industry, which reported 48 per cent sales growth in the last quarter and is well positioned to take advantage of the long-term trend towards electrification of systems and functions in vehicles.

Looking across Europe, Kraus favours Scandinavian companies, and the funds are overweight in the region, notably in Sweden.

Kraus says this is based on “a very strong competitive start-up scene revolving around tech and healthcare companies, concentrated in Stockholm with effective government backing”.

He gives the example of Medistim, the Norwegian global leader in innovative medical devices for measuring blood flow, which has grown its revenues by an average of 10 per cent a year.

“We look for companies with global leading positions in special niches and technology particularly semiconductor equipment and medical technology. Sweden and Denmark have been at the forefront of innovation in these future-oriented technologies.”

Kraus also says that the current markets present opportunities for established active asset managers, arguing that the research demands in the small and micro cap space function as a high barrier to entry to possible competitors.

“The lack of analyst research and broker coverage creates obstacles for small and micro cap managers who need to cultivate local connections/build up strong research teams, in addition to being willing to translate annual statements into English, to get the best out of the small/microcap markets,” Kraus says.

GDF expects other regulators to follow suit and says a consultation paper from the Bank for International Settlements is already providing confidence for financial institutions to invest in crypto and has set out a potential framework.

Under the new German law, which came into effect on 2 August Spezialfonds – also known as special funds – can hold up to 20 per cent of their assets in cryptocurrencies paving the way for increased investment by pension funds and insurers in Germany.

Analysts are predicting the move could mean up to USD400 billion of crypto investment by Spezialfonds which currently hold more than USD2.1 trillion of assets. 

Lavan Thasarathakumar, Director of Regulatory Affairs EMEA at GDF, says: “This opens the gates for mass adoption. Increased institutional investment into cryptoassets will pave the way for new products and services to be produced and for more innovative solutions that can take the crypto industry on to a new plain and deliver on some of the benefits that it has promised. 

“The key component of the law is that it sets clear guidelines under which financial institutions will be expected to invest in cryptoassets. This gives confidence and a mandate for institutions to be able to invest money into crypto.”

GDF expects others to follow the ‘very proactive approach’ of German regulators and also highlights the decision by the Securities and Exchange Commission in the US to allow special purpose broker dealers to invest in cryptoassets as a great starting point.

GDF, which with its members promotes the greater adoption of market standards for the use of crypto and digital assets, says cryptoassets such as bitcoin are in great demand by both retail and professional investors due to the uncorrelated 10-year performance which is the best of any asset class.