More than half (55%) of boutique asset managers plan to expand internationally within the next two years, particularly into Europe, through a combination of entering new markets and expanding product offerings beyond their home markets, according to an international survey from Universal Investment Group.
It also reveals that many face significant hurdles, including limited familiarity with local markets as a foundation to work internationally and often small investor contact networks outside of their existing domiciles.
The survey, conducted in collaboration with UI efa and Alumia, highlighted that nearly three-quarters of participating boutique asset managers (71%) aim to reach new investors by launching equities strategies outside their home market in the next 12-24 months.
Similarly, an equal proportion plans to introduce alternative investment strategies, such as private equity, private debt or infrastructure.
As the value of Europe’s assets rise, with, for example, pensions funds asset increasing to currently €3.5trn, the primary geographic focus for international expansion is continental Europe, as indicated by 65% of managers. German- and French-speaking countries are top targets, with 24% and 18% of boutiques respectively naming them as key markets for growth over the next 1-2 years.
In light of these target markets, Luxembourg is the preferred fund domicile, highlighted by 40% for its attractiveness in product registration.
To market these funds, all managers surveyed favour regulated fund structures, particularly UCITS and AIF, named by nearly 70% and 19%, respectively.
Marcus Kuntz, head of sales and fund distribution at Universal Investment, said: “European assets under management reached EUR 29 trillion in 2023, highlighting the region’s highly attractive growth potential, with 70% of managed assets coming from asset owners. Luxembourg and Ireland, now the largest global fund domiciles outside of the U.S., provide excellent access to the vast pool of institutional capital in Europe. We continue to see strong growth in both locations.”
Despite the growth potential, two-thirds (67%) of asset managers consider limited familiarity in dealing with international markets, for example local regulations, as the major barrier to expansion. Among those already operating internationally, 40% struggle with attracting potential investors.
Only 10% have a robust network in jurisdictions outside their home market. Consequently, many managers are turning to third-party service providers for fund marketing and distribution support. Engaging independent service providers is becoming a common strategy, with 56% of managers indicating they would seek third-party support for fund distribution to access broader investor bases.
Additionally, 63% would engage third-party providers for fund administration, allowing them to focus on portfolio management and business strategy.
“And for good reason”, commented Marcus Kuntz on the findings. “In a constantly changing market environment, many boutique asset managers are under increasing pressure. The implementation of regulations, such as the 2024 amendments to the European Union Alternative Investment Fund Managers Directive (AIFMD II), adds further complexity. Often, benefitting from the expertise, networks, and scale of an established third-party provider is crucial for long-term success.”
The survey indicates that boutique managers are now allocating more resources to functions such as risk management, regulatory compliance, and marketing responsibilities.
“Interestingly, managers tend to underestimate the costs of establishing their own operations in new markets and overestimate the expenses of partnering with a third-party provider,” Marcus Kuntz said. “As Fund Services Platform, we offer a plug-and-play solution at scale, freeing our clients from complexity and allowing them to focus on their core strengths while we handle the rest.”
Kuntz further emphasized the evolving role of boutiques in the asset management industry, stating: “Boutique asset managers are an indicator of the direction in which the industry is heading. Understanding these managers’ strengths and challenges helps us support their growth ambitions. Leveraging our expertise and networks, we assist managers in capitalising on international opportunities.”
Respondents of the survey were asset managers with no more than EUR 20 billion AuM. Responses were collected between May 6 and June 7, 2024. Surveys were circulated via email and tabulated online.
