The new fund brings Aviva’s LTAF range to three with the Multi-Sector Private Debt product joining real estate and climate transition focused funds which are designed to make it easier for retail investors such as defined contribution (DC) pension scheme members to invest in illiquid assets.

The new LTAF received an initial GBP750 million of investment capital from the asset manager’s My Future Focus default DC pensions solution, and the asset manager expects other workplace schemes to follow suit.

Daniel McHugh, Chief Investment Officer at Aviva Investors, says:“Private debt is a key growth area for us, and we believe our multi-sector approach will best-capture relative value through the market cycle. This should give it potential to deliver strong risk-adjusted returns and diversification to pension schemes, whilst also meeting their liquidity needs.”

The first LTAF received Financial Conduct Authority (FCA) approval in March 2023, with a view to allowing retail investors move avenues to invest in illiquid assets.

2024 has seen something of a flurry of LTAF releases. This November, Fulcrum Asset Management announced it had received regulatory approval for its first commingled Long Term Asset Fund.

The WS Fulcrum Diversified Private Markets LTAF is the firm’s second LTAF following the launch its first offering on behalf of a single-employer UK DC pension scheme earlier this year.

The latest fund is an open-ended UK OEIC targeting long term capital growth via exposure to a diversified mix of private assets including value-add real estate, value-add infrastructure, natural resources, alternative credit and private equity including venture capital.

And this September, Schroders received approval for is Capital UK Innovation LTAF which will invest in early-stage UK life science and technology companies that align with eight key innovation themes: artificial intelligence, cybersecurity, fintech & payments, consumer, infrastructure software, vertical SaaS, oncology and biotech discovery platforms.

This is the first venture capital LATF to hit the market.

The rush to market for LTAFs follows increasing demand from DC schemes for suitable vehicles in which to channel assets to private markets.

An Aviva survey published this January found more than two-thirds (69 per cent) of DC pension funds expect to increase allocations to real assets over the next two years, up from 51 per cent a year earlier.

A second survey of institutional investors conducted by Carne Group in 2024 reports that more than three-quarters (78 per cent) of DC schemes expect the level of investment into private markets by wealth managers in the UK and Europe to increase over the next three years because of LTAF opportunities, 31 per cent of whom forecast a dramatic rise.

The Investment Association’s Imran Razvi expects to see more LTAFs launched, notably those focusing on single asset classes.

He says: “Our sense is the LTAFs that are currently available are more of a multi-asset, one stop shop approach to private markets. But increasingly you might see more asset class specific products as well.”

Far reaching changes to the ELTIF rules that took effect in January this year have brought momentum in terms of new launches and innovation in investment strategies as fund promoters gain confidence that the new formula meets the needs of asset managers and of individual as well as institutional investors.

Slow beginnings

The regime was conceived as a means to encourage the deployment of retail savings in the European Union toward assets seen as possessing long-term economic, social, environmental and strategic value, including critical infrastructure, the transition to sustainable energy and decarbonisation of the economy, and unlisted small and medium-sized companies that needed new sources of capital to exploit their potential.

The first iteration of the legislation did win some converts, especially in Luxembourg, which quickly became established as the go-to domicile and service centre for ELTIFs targeting cross-border markets. But the sector’s growth was slow; over the seven years after the regime’s introduction in December 2015, just 81 funds were launched, attracting an estimated EUR7.4 billion in assets.

Managers expressed frustration about many aspects of the rules, often added in the name of investor protection, including diversification requirements that stipulated individual assets could not exceed 10% of a fund’s portfolio, and tight restrictions on the use of leverage. Meanwhile the bar was high for acceptance of non-professional investors, so much so that promoters opted to concentrate on institutional money or different types of fund.

The dawn of ELTIF 2.0

Hence the concerted effort launched by the European Commission in 2021 to revise the ELTIF Regulation in order to fulfil its original ambition of mobilising retail as well as professional investment. Following extensive consultation with asset managers, and with support from EU member states which perceived that the urgency of the envisaged investment priorities had in no way diminished, what has been dubbed ‘ELTIF 2.0’ is now in effect.

The revised regime addresses most issues raised by asset managers regarding ELTIF investment strategy rules, including greater flexibility on diversification, borrowing limits and eligible assets. It also removes many of the barriers to non-professional investors, including the previous minimum investment requirement of EUR10,000 for non-high net worth individuals.

Also important are the detailed regulatory technical standards adopted by the European Commission on July 19 this year. Following a debate with the European Securities and Markets Authority, the Commission has opted for a flexible approach to liquidity and redemption policy at ELTIFs open to individual investors, giving promoters freedom to adapt the fund’s structure and terms, including redemption frequency and notice period, to its investment strategy and goals and the needs of the investors it targets. Asset managers are satisfied that a philosophy of flexibility has won out over rigid one-size-fits-all requirements.

To this extent the regulatory regime promises to drive growth in the establishment of ELTIF funds and the assets they attract. One of the key aims behind the launch of regulated long-term funds was to channel retail capital into strategies aligned not just with the investment needs of the economy but with the long-term retirement provision requirements of an ageing population. The constraints of asset classes that do not offer short-term liquidity, including real estate, infrastructure and private equity and debt, fit better with longer investment horizons.

The conception of ELTIFs also tied into the economic environment of the 2010s, with low inflation and rock-bottom interest rates diminishing the appeal of savings accounts and fixed-income investment. While that changed with surging prices and the rapid rise in central bank rates in the wake of the Covid-19 pandemic, the signs point to lower levels in the coming years. The search for higher returns than those offered by short-term investment look set to be a permanent characteristic of the investment landscape in the years to come.

Optimism for the future

Are these factors bringing new impetus to ELTIFs? The signs are positive: as of the end of August, a total of 132 funds had been established across Europe, with Luxembourg accounting for almost two-thirds (84). And despite the ongoing process of finalising the detailed rules, 34 have been launched so far since January 10, 2024, when the ELTIF 2.0 legislation took effect.

Forecasts for the growth of the ELTIF range from €35 billion by the end of 2026, according to German rating and analytics firm Scope, to a more speculative European Parliament report suggesting that ELTIF assets might reach EUR100 billion by 2028. But there is broad confidence that the legislative and regulatory tools are now in place for Europe’s long-term fund regime at last to fulfil its potential.

This includes several novel fund categories, taking on board recent market evolutions. At the most granular level, there are currently more than 880 fund subcategories included in the EFC. During the latest update, the following categories were added:

o   Crypto asset funds

o   FX funds

o   Ultra-short bond funds

The EFC is the only classification scheme that is owned and managed solely by the fund industry. It is completely free of charge, both for fund groups/managers and for data users. The entire classification process is done on a non-monetary basis, with results freely available to all interested users via the EFC webpage or bespoke feeds.

Thomas Tilley, Senior Economist at EFAMA, says: “The recent leap in the number of EFC classified funds  further establishes it as THE credible and comprehensive fund classification scheme for Europe. In the current Value for Money (VfM) discussions, it looks possible that some form of peer comparison to evaluate whether funds are indeed providing value for money will be mandated. The EFC, as the only industry-driven, transparent and fully objective pan-European fund classification scheme, could form the basis of such a peer comparison.”

Ireland is home to 6 per cent of worldwide investment fund assets, making it the third largest centre in the world and the second largest in Europe, with the total number of Irish domiciled funds, including sub-funds, reaching a record 8,853 – of these 5461 (61 per cent) UCITS funds totalling EUR3,5 billion in net assets, and 3392 (38 per cent) AIF funds totalling EUR890 billion.

At its 25th Annual Global Funds Conference Inflection Point: Ireland and Innovation, held today in Dublin, policymakers, regulators and industry leaders highlighted innovation as a driving force in Ireland’s success, including the ongoing evolution of private markets, with the launch of European Long Term Investment Funds (ELTIFs) following recent changes by the Central Bank of Ireland, and the growth of Investment Limited Partnerships, now numbering more than 50, after the overhaul of the partnership regime in Ireland in 2021.

Additionally, Ireland has also emerged as a leader in sustainable finance, being home to 1,664 Article 8 funds with approximately EUR1.2 trillion AuM and 159 Article 9 funds with approximately EUR30 billion, emerging as a leader in ESG products in Europe.

Irish Funds Chief Executive Pat Lardner says: “The Irish funds and asset management industry’s continued growth highlights the expertise and stability of Ireland’s asset management landscape, buoyed by constant innovation. The growth in sustainable finance and establishment of the ELTIF framework are testament to this. Facilitating investment into the real economy to support climate transition, fund businesses and build the EU’s capital markets is a key priority. This requires us to innovate further to develop Ireland’s offering to enable investments in long term assets and projects which are aligned with both domestic and EU policy. Our people are our key strength, 19,0000 of whom are directly employed by the industry across the island. They provide the expertise and skills to deliver the solutions individual and institutional investors are looking for.  Additionally, the role the industry plays in underpinning the ability of individuals to achieve long-term financial well-being is critical. This is why Irish Funds expanded our Financial Literacy TY Programme for schools this academic year, engaging over 600 students across 10 counties. Irish Funds will continue to work with our wide-range of stakeholders to innovate and continue to grow the industry while supporting the Irish economy and the ability for people to build more secure futures.”

The firm writes that, powered by BBH’s data integration and connectivity engine Infomediary, the service involves the curation of fund holdings data, which can be leveraged as part of multiple fund output publications, including regulated fund disclosures.

The curated data, which involves ingesting, transforming, and aggregating disparate data and optimising it for distribution, has resulted in greater efficiencies, enhanced risk mitigation and transparency, and improved consistency across AB’s outputs, the firm says.

“Having easy access to high-quality fund holdings data that can be leveraged in our fund reporting is critical for us to evolve our business,” says Joe Mantineo, Head of Fund Administration at AB. “With BBH as our partner in this regard, we have consistent and reliable data to support these activities – data that is available on-demand and is customizable.”

BBH’s data management services can be configured to aggregate data across all administrators and third parties, enabling a provider-agnostic model that gives flexibility and interoperability to the asset manager. The authoritative data set has provided a doorway into other strategic areas in need of data transformation and oversight solutions and will lead to addressing additional use cases.

“Simply put, an asset manager’s ability to focus on the front office is limited by inconsistency and the burden of manual reviews and processes,” says Josh Fine, Co-Head of Infomediary Data Solutions at BBH. “Our work with AB demonstrates the value of addressing those issues with authoritative data sets. What started as a specific use case with fund disclosure documents, is now scaling to other use cases across fund operations.”

The firm writes that given China’s significant market size, its current dominance in emerging markets (EM) portfolios, and specific factors such as geopolitics and regulatory policy that could affect performance, it has chosen this setup, designed to offer investors a more balanced exposure to the EM opportunity. The EM ex- China strategy builds on Robeco’s 30-year track record in fundamental EM investing.

The new actively managed strategy enables investors to carve out China from their EM allocation and gain more exposure to smaller EM economies under-represented in the main index, such as Korea, Taiwan and Brazil. It invests in over 1,100 companies, in high-growth sectors like fintech and semiconductors. The fund consists of a diversified portfolio of 60 to 80 stocks, selected with a value tilt, targeting attractive valuations with potential earnings upside. It offers a unique blend of fundamental and quantitative research for stock selection, with the objective of achieving a better return than the index.

The dominance of China in portfolios has increased over the years. In 2000, Chinese stocks comprised only about 5 per cent of the index, which at the time was dominated by the likes of South Korea, South Africa, Brazil, Mexico and Taiwan. But much has changed since then. China’s economy has grown by a factor of 15, becoming the world’s second largest economy. By comparison, South Korea’s economy roughly tripled over the same period, while South Africa’s and Taiwan’s barely doubled.

As investor interest in China’s remarkable growth story has surged, so too have Chinese equities’ share of the MSCI EM Index. At the peak of the market in 2020, Chinese stocks accounted for nearly 40 per cent of the index. Today, even after their recent downturn, they comprise roughly 25 per cent of it by weight – one and a half times the proportion of Taiwanese stocks in the MSCI EM (17 per cent), and nearly twice that of South Korean equities (13 per cent).

Wim-Hein Pals, Head of Emerging Markets Equities at Robeco, says: “We are launching this fund to offer clients and prospects a more balanced exposure to the EM opportunity given China’s dominance in the EM index. Given that emerging economies are growing faster than developed countries and have stronger balance sheets for governments, companies and households, we believe rebalancing may be overdue as investors globally are underexposed to EM ex-China.”

As slowing growth colours global economic forecasts in 2024, fund groups need to play to their strengths and flex their brand attributes to compete in a saturated market that cannot sustain the current levels of competition, the firm says.

“In a year that saw passive managers gain further momentum, Vanguard moves into the top-10 brand rankings, scoring highly as a key international player and for its solidity,” says Barbara Wall, Director of Global Distribution Insights, Broadridge. “Fellow passive specialist iShares also moves up the league table from eighth place to sixth, unseating Robeco, although the Dutch active manager maintains pole position for its ESG credentials. The passive trend is further evidenced by the entry of Xtrackers into the top 50, with the firm’s range of sectoral and thematic ETFs proving popular with fund selectors.”

The independent study, now in its 13th year, measures and ranks asset managers’ relative brand attractiveness based on fund selector perceptions: taking into account 10 brand attributes to reveal the top global and regional brands in Europe, APAC, and the US. FB50 also reveals the local market brand leaders in Europe and APAC’s most significant retail markets for third-party fund distribution. 

The top 10 European asset management brands according to the study are: BlackRock; JP Morgan Asset Management; Fidelity; Pictet Asset Management; Amundi; iShares; Robeco; Schroders; Vanguard and PIMCO.

The firm writes that the top-five global brands, led by BlackRock, are all industry giants in terms of both assets under management and operational scale. While the top five remain undisturbed from last year, there is significant movement in the top 10. The remainder of the top-50 list sees selector’s favourite companies run the gamut, from niche product and local market specialists to the major one-stop-shop providers.

The big story is that 2023 was a bad year for ESG in Europe, Broadridge says. “Transparency issues, poor performance, regulatory pressures, and energy security issues all exacerbated the situation. Outflows from responsible investment funds, greenwashing concerns, and the reclassification of many Article 9 products were all compounding factors, as some commentators have questioned whether ESG has reached a tipping point.”

Broadridge interviews with fund selectors suggest that this may be overexaggerated, as ESG still constitutes a major consideration in investment decision-making. But firms are undeniably more sceptical and subject asset manager credentials to greater scrutiny to validate a firm’s ESG bona fides. To facilitate this, selectors would like a more standardised vocabulary around ESG, as well as improved communication around portfolio positions and engagement.

Asset management brands strongly associated with ESG investing, such as Robeco, Liontrust, Nordea, and Pictet have all seen their brand scores fall in 2023, which may point to sustainability credentials being less of a differentiator in this more sceptical climate. Further regulation has been touted as a solution, but Broadridge’s fund selector interviews suggest that this could prove a hindrance, rather than a help, to the ESG cause.

The top-five most important attributes in Europe have seen subtle shifts in 2023. ‘Appealing investment strategy’ replaces ‘Client-oriented thinking’ in first place. This is due to asset managers presenting alternative investment choices to worried clients, many of whom were withdrawing from long-term mutual funds and resting their money in interest-bearing savings accounts.

Fund launch activity was subdued as providers prioritised cost-cutting efforts. The firm writes that this is telling that ‘Innovation/Adaptation to market change’ dropped out of the top five to be replaced by ‘Solidity’ – an attribute that last year was far more prominent in US and APAC than EMEA. “This change benefits the large global firms, a trend we have also observed in APAC and the US. Big firms tend to benefit when investor confidence is low,” the firm says.

“Good communication remains vital, which is why ‘Keeping best informed,’ moves up a rung to third place. Selectors particularly value proactive communication when funds have underperformed.”

Additional findings from this year’s study include:

·          While ESG convictions may not be the game changer they once were, it is noteworthy that 50 per cent of the top-10 brands score highly in this area. Amundi, in particular, has been praised for its range of sustainable investments, including its climate-neutral ETF offerings.

·          The expansion into the private markets space is an emerging differentiator. Schroders reputation in the growing private markets and fixed income spaces mitigated criticism of the firm’s fees and allowed the manager to limit the damage done to their brand to dropping a single rung on the ladder.

·          Fixed income was one of the few bright spots in an otherwise gloomy landscape, as risk-averse investors sought guaranteed returns. PIMCO’s strength in the fixed income space helped the firm regain a top-10 berth.

·          A relatively risk-averse European climate was a boon to passive specialists. In many cases, this was at the expense of active specialists, although active ETFs are a growing niche – comprising approximately 5 per cent of Europe’s total ETF intake in 2023, the firm says.

The total number of global true cross-border funds reached 14,725 in 2023, up from 14,607 in 2022. As for the number of global cross-border registrations, it increased by 1.6 per cent to reach 140,635 in 2023, up from 138,467 in 2022. Luxembourg remains, by far, the leader in global cross-border fund registrations with a market share of 54.6 per cent, though experiencing a minor decline by 0.4 per cent in the registrations of the Grand Duchy’s funds in 2023.

The insights come from the 24th edition of PwC Luxembourg’s Global Fund Distribution (GFD) Poster, offering a comprehensive analysis of global fund distribution trends across more than 40 countries.

Key findings include:

Overall trends

●        Luxembourg and Ireland maintain significant market share, collectively managing EUR 7.5tn in UCITS assets out of the total EUR 13.1tn European UCITS market in 2023.

●        Luxembourg’s domicile share for cross-border funds is still dominant at 54.6 per cent, while Ireland stands at 36.4 per cent.

●        Spain leads in terms of total new registrations in Europe in 2023, experiencing 262 new registrations, followed by Italy (251), Austria (225) and Denmark (217).

●        Equity funds hold the lion’s share (50 per cent) of global cross-border assets, followed by bond funds at 27 per cent.

●        UCITS funds command the majority (91.6 per cent) of global cross-border funds, with Luxembourg in the lead with 54.5 per cent, followed by Ireland with a 32.0 per cent market share.

●        Within non-UCITS true cross-border fund registrations, both Luxembourg and Ireland gained market share in 2023, increasing by 0.6 per cent and 1.0 per cent respectively.

●        Franklin Templeton and BlackRock maintain dominance in cross-border distribution, with Fidelity Investments, UBS, and JP Morgan moving up the ranks among top asset managers of true cross-border funds.

Registration Hot Spots

●        Europe: Within Europe, Spain was the top country for new registrations (262) followed by Italy (251), Austria (225), and Denmark (217).

●        APAC: Singapore retains its position as the top market for new registrations, followed by Hong Kong and Macau.

●        Middle East: The UAE further underlines its front-running position in the region with 401 registrations.

●        Africa: Although South Africa continues to have the highest number of registrations (302), the total number of funds declined by 8 in 2023.

●        Americas: Bermuda experienced significant growth with 48 new registrations, while Chile continues to lead the region in total registrations (1,754).

Sustainable Finance

●        SFDR Article 8: Luxembourg leads with 62.7 per cent of true cross-border funds under SFDR Article 8, followed by Ireland (24.9 per cent) and France (4.4 per cent).

●        SFDR Article 9: Luxembourg dominates the Article 9 market with 66.1 per cent of true cross-border funds, followed by Ireland (22.2 per cent) and France (6.3 per cent).

Robert James Glover, Advisory Partner for Global Fund Distribution at PwC Luxembourg says: “The appetite for global diversification is undeniable. We’re seeing a surge in new fund registrations, particularly in Spain, as investors seek exposure to international markets. Equity funds remain the clear favourite, holding the majority of cross-border assets. Interestingly, UCITS funds continue their reign supreme, with Luxembourg leading the pack. While Non-UCITS haven’t reached critical mass yet, the rising market share in key jurisdictions such as Luxembourg and Ireland suggests a potential shift on the horizon.”

“We saw a balanced increase of 0.9 per cent in both cross-border ETFs and mutual funds, and the number of registrations grew by 1.6 per cent compared to last year. To that end, the distribution landscape shows remarkable resilience, with growth continuing despite the headwinds of a volatile macroeconomic environment impacting the global cross-border fund distribution.”