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. Whats 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
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
Its 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 theyll do with them. Their hands
are being forced in a way that they havent been before.
Thats on top of a foundation that was already weakened
because these asset managers dont 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. Its 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
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; its a diversified feature of
their business, but its 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.
3. But some just wont be able to sell, will
No. For some portion of these banks, selling wont be
an option. Many of these asset management businesses today
arent really worth that much because they are too
integrated in the bank, and the banks havent built a
really quality organization. Of the top 30, perhaps one half of
them have the opportunity to sell their business in a way where
it would financially make sense and a transaction is actually
doable. Who will do it? Thats much more difficult to
4. You mentioned that global leaders have had some
success in Continental Europe. Why?
If you look at the business broadly and globally, there are
probably three or four characteristics of an asset manager that
make them successful.
Its fair to say that the global leaders are better
able to tick off those boxes than the Europeans are, generally.
Global asset managers have better incentive alignment.
Theyve found some way to link the franchise value of the
asset manager to the compensation incentives for the critical
people in the asset management organization. The European
banks, like most banks, have not been able to do that.
Theyve rewarded their management teams with bank stock
and cash, creating an inherently less competitive and less
Second, these global organizations have done a much better
job of investing in third-party distribution. The European
firms are reliant on the captive distribution of the parent
company. When the parent company went through the financial
crisis, they began to see their own customers move back into
bank deposits, taking money away from asset management
products. The asset management subsidiary without a
well-developed third-party distribution system was a net loser
in terms of assets.
The non-European headquartered firms also did a better job
of investing in products and investment capabilities that the
market wanted. Products that are less home country biased and
more global and emerging markets, for example, as well as
alternatives that have higher fees and better margins.
5. It seems that the European debt crisis will have
a permanent and far reaching impact on the asset management
There really is a bigger question beginning to emerge. I
think these banks have an existential question they have to ask
themselves. Will they and can they continue to own asset
managers in reality? From a shareholders and a
regulators standpoint, this will potentially come to a
head over the next year or two. Its not unfathomable that
in five years a lot if not most of the banks are out of the
asset management business.