EFAMA’S 2023 Fact Book Reveals European Fund Industry Trends

On June 13, 2023, European Fund and Asset Management Association (EFAMA) published the 21^st edition of the Fact Book. The Fact Book is the ultimate source of data on the European investment fund industry. It offers a comprehensive analysis of the developments in 2022 and regulatory advancements across 28 European countries.

Key developments of 2022

• The year 2022 was difficult for Undertakings of Collective Investment in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs) which net sales have turned negative, but the decline in net assets was mostly due to the fall in stock and bond prices.  Bond UCITS registered their worst results in a decade, primarily due to a sharp rise in interest rates that negatively impacted the valuation of outstanding debt securities and the attractiveness of bong funds.
• UCITS and AIFs recorded significant net outflows of €167B and €105B, respectively.
• Net outflows from AIFs reached €105B in 2022, mainly due to the decision of several pension funds in the Netherlands to manage their assets in segregated mandates rather than AIFs, because of the new Investment Firms Regulation (IFR)/Investment Firms Directive (IFD) prudential rules. Excluding the Netherlands and Denmark, where there was also a trend away from AIFs, AIFs would have registered solid net outflows in 2022 (€108B), in particular in other AIFs and multi-asset AIFs.
• The war in Ukraine and rapidly rising interest rates led to weaker economic growth and net outflows from long-term UCITS in 2022. This confirms that the economic situation has a strong impact on investors’ willingness to invest in capital markets and, in particular, in long-term UCITS.
• The COVID-19 pandemic in 2020 led to a decline in Gross Domestic Product (GDP) and a fall in the net sales of long-term UCITS during that year. At the same time, the strong rebound in economic growth in 2021 was accompanied by record net inflows into long-term funds.
• Net sales of Sustainable Finance Disclosure Regulation (SFDR) Article 9 funds amounted to €20B in 2022, with positive net inflows in each month of the year. These solid net inflows were even more striking given that many SFDR Article 9 funds were reclassified as Article 8 in the second half of the year in order to comply with the SFDR Level 2 guidance provided by European Securities and Markets Authority (ESMA).
• UCITS Exchange Traded Funds (ETFs) attracted €86B in net new money in 2022, a stark contrast to the overall net outflows from long-term UCITS (€195B). This suggests that the demand for ETFs is less impacted by the global economic and market environment.

Who invests in European funds?

• UCITS and AIFs held by investors both within and outside the European Union (EU) increased until 2021, before dropping in 2022. Net assets of UCITS and AIFs owned by EU investors amounted to €12.5T at end 2022, compared to €6T in 2012. Over the same period, the net assets of European funds owned by non-EU investors also rose strongly, from €2T in 2012 to €4.4T in 2022, therefore confirming the popularity of UCITS as a global brand.
• Insurers and pension funds are the largest fund Investor in the EU. At the end of 2022, insurers and pension funds held approx. €4.2T of UCITS and AIF net assets. Households were the second-largest investors with fund holdings of €3.2T, compared to €1.7T in 2012. Long-term investment funds were the third main type of investor, holding €3T of funds at end 2022.
• EU retail investors have steadily purchased investment funds in recent years. Households in the EU acquired a net €88B in investment funds in 2022, despite the drop in stock and bond prices. They also continued to contribute to pension savings products and life insurance, and even kept investing directly in stock and debt securities. Together, the increase in bank deposits slowed considerably compared to previous years, mostly due to the sharp fall in the gross saving rate of EU households, from 18.7% in 2020 to 17.1% in 2021 and 13.3 in 2022.

The outcome of 2023 is still uncertain, but the current indications suggest that it could be a more positive year in terms of fund performance, despite the remaining geopolitical and economic uncertainties.