Continental European asset managers represent about 31 percent of professionally managed assets in the world. But the euro zone crisis presents a major challenge. In fact, it has added to woes going back almost a decade. Between 2004 and 2010, European managers grew at a compound annual growth rate of two percent. By contrast, the U.S. and U.K. markets grew by five percent. What’s more, during the five years ending in 2010, foreign firms garnered 75 percent of new flows into long-term mutual funds in the region. But now with the European debt crisis in full swing and the future of the euro in question, continental European asset managers are facing an even bigger threat as their parent banks struggle with capital requirements and sovereign debt on their balance sheets. 

To get a clearer picture of what is happening to European asset managers, Senior Writer Julie Segal interviewed Kevin Quirk, a founding partner of Casey, Quirk & Associates, a consultancy for the investment management industry.

1. We all hear daily of the fiscal and currency woes in Europe. What does this mean for the asset management industry there?

It’s substantial. Virtually all of the top 30 asset managers with headquarters in continental Europe are owned by banks and insurance companies. These are obviously companies in weakened positions. So as owners of these asset managers, they have to think about what they’ll do with them. Their hands are being forced in a way that they haven’t been before. That’s on top of a foundation that was already weakened because these asset managers don’t have all the competitive boxes checked. A fair number of global asset managers — noncontinental European headquartered managers — have been going in and eroding the banks’ market share, especially in higher-fee products. It’s been really painful for them.

2. What will happen as a result?

They have one or two distinct paths that they can take. One is that they can exit and sell, recognizing that asset management is not a core competency. They may want to realize some value in them and shore up their capital adequacy requirements.

The second is they can hold on but begin to make investments in the business and increase its value. We think a fair number will do this. The asset management business is fundamentally a good one for them to be in; it’s a diversified feature of their business, but it’s also potentially a higher margin business with a more stable fee base than their core businesses. If they can build a truly competitive business, then holding on to it will be a good thing.