The annual report from the European Fund and Asset Management Association published on 14 December has estimated an 11.8% decline in total AUM during the first nine months of 2022, the first year-on-year decline since 2018. 

This fall puts assets at €28.4trn, down from €32.2trn in 2021 and lower than the 2020 figure of €28.5trn.

According to EFAMA, assets under management in Europe had been rising steadily since 2011, when it stood at €14.3trn, apart from a small 2.2% decline from 2017 to 2018.

Pressure on costs

EFAMA predicted that the recent sharp fall in financial markets will lead to a decline revenues and profit margins of asset management companies in 2022, which will, in turn, put strong pressure on costs.

Revenue margins have been rising, despite the continued pressure on fees. According to McKinsey, margins for Western European firms was 32.8bps in 2020 and rose to 34.1bps in 2021.

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This, combined with a decline in cost margins from 19.3bps in 2020 to 19.1bps in 2021, has led to strong market performance in recent years.

However, in euro terms the costs have increased, according to McKinsey. Technology costs rose to €4.4bn in 2021 from €4.2bn the previous year and €3.3bn in 2017. Meanwhile, the overall cost pool, which encompasses things like operations, management, sales and marketing, hit €30.7bn in 2021. This is up from €26.1bn in 2017 and €28.7bn in 2020.

"In the current market environment, asset managers are faced with strong pressure on costs and a sharp decrease in their revenues, not to mention the very significant burden of complying with new regulations," said EFAMA President Naïm Abou-Jaoudé in the forward to the report. "Policymakers should not overlook that reality if we want to have vibrant and diverse capital markets in Europe."

UK dominance

The UK continues to be the largest European asset management market, making up 37% of the total assets at the end of 2021, followed by France at 15.6% and Germany and 10.9%.

Looking at investment funds in particular, the report noted that, compared to five years ago, the market share of the UK has increased 6 points. This was because of "booming stock markets and the higher than average share of equity in the asset allocation of funds managed in the UK".

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In 2016, the UK managed 23% of European investment funds, rising to 29% at the end of 2021. It is followed by France and Germany, who ran 17% and 16% respectively at the end of last year.

The UK also runs a significant 47% of all discretionary mandates, followed by France at 14%.

EFAMA said this was a "direct consequence of the high level of pension fund assets" managed by UK houses.