EUROPE – European smaller banks are increasing their use of subadvisors in order to be able to offer a broader selection of investment funds, says consultants Cerulli Associates.
Last year globally the subadvisory market was worth 331 billion dollars (282.5 billion euros), of which 94 billion dollars (80.2 billion euros) is derived from non-US markets. According to research by Cerulli, European small banks now comprise a greater proportion of this total.
Regional banking networks accounted for 18% of continental Europe’s 30 billion dollars in subadvised mutual fund assets at year-end 2002, up from 10% in December 2000. Says Cerulli: “As the investment culture spreads from cities to provinces in Europe, smaller banks lacking large asset management subsidiaries increasingly use subadvisors to offer a full array of mutual funds under their own brand.”
In Europe, 43% of subadvised investment fund assets result from strategic relationships, whereby the sponsor forms partnerships with a set number of manufacturers to provide all subadvisory services. Around 35% of investment fund subadvisory assets in Europe are given to unaffiliated subadvisors through manager searches based on performance. This compares to the US, where only 6% of assets result from strategic relationships, and 71% from manager searches.
According to Cerulli, investment fund subadvisory relationships benefit manufacturers in a number of ways. It enables them access to new markets without investing in local infrastructure or branding, for example. It expands the diversification of sources of revenue which can control concentration risk, and are also less volatile than fund of funds assets.
For the vendor, subadvisory relationships allow a broader range of products to be offered. The sponsor can also learn from the subadvisor and possibly bring subadvised funds back in-house. For those which already have manufacturing divisions, the employment of a subadvisor frees up fixed costs by allowing the sponsor to outsource selected asset classes.