BVI study: German asset management industry strong in sustainable funds
- Germany one of the largest hubs for sustainable funds in Europe
- Great growth potential for impact investing products
Germany is well prepared for competition in the European market for sustainable retail funds. In a recent study by the German Investment Funds Association BVI, Germany, together with France, Sweden, the Netherlands, Switzerland, the UK and Norway, comes out as one of the most advanced markets for sustainable funds in Europe, also referred to as 'sustainable fund hubs' in the study. These countries account for almost 90 percent of the sustainable fund market in Europe. The advanced markets for sustainable funds are characterised by low product costs and above average returns. The BVI market analysis relies on Morningstar data*, focusing on the retail fund market with traditional asset classes.
The study takes the progressiveness of national regulation and the market share of sustainable retail funds in domestic and European fund volumes as the criteria for inclusion in a 'mature' sales market. With 10 percent of the European market volume, German fund companies rank fourth behind France (21 percent), Switzerland (15 percent) and American providers (11 percent). 'Germany has developed into one of the largest hubs for sustainable funds in Europe,' says BVI CEO Thomas Richter. 'Regulators should promote this dynamic by means of sensible and practical sustainability regulation.'
So far the additional costs that sustainable funds incur due to the more complex fund analysis and additional ESG data do not seem to be a burden for advanced fund market providers. On the contrary, Germany seems to be scoring here with lower product costs. The study attributes this mainly to the fact that sustainable funds have been launched in recent years, in an environment of high margin pressure. In addition, the performance of sustainable funds is above average in advanced markets.
The study examined the use of exclusion criteria, 'ESG Strategies', 'ESG Engagement', themed funds and 'Impact Investing' as investment strategies. 'ESG Strategies’ predominate in almost all the markets examined; these are strategies that commit to further sustainability aspects beyond the usual fundamental parameters, both in investment allocation and in the selection of securities as for example the Best-in-class approach. In order to remain competitive in the sustainable fund market in the long term, the study shows that, in addition to the size of a sales market, product innovation and product differentiation will be decisive. The study highlighted great growth potential in the German fund market, particularly as regards sustainability strategies such as impact investing.
The young segment of sustainable funds shows dynamic growth
BVI members manage EUR 3,7 trillion for their clients. This makes the industry one of the most important providers of capital playing a key role in sustainable investments. Assets under management have grown over several decades thanks to institutional and retail investors. The segment of sustainable funds is still young in comparison, but it is growing very rapidly in Germany: the assets invested in open-ended sustainable funds have now exceeded the EUR 129 billion mark, of which around 60 percent are invested in retail funds. New business has also grown strongly. By September 2020, sustainable funds recorded net inflows of EUR 10.8 billion. Compared to the same period in 2019 (January to September 2019), this represents an increase of 110 percent.
* Morningstar data provides perspective by fund launch location. In order to achieve a realistic country comparison, the study assigns funds launched in Luxembourg and Ireland to the original main locations of the providers (countries of origin).
The BVI additionally publishes a quarterly overview of the German sustainable fund market entitled 'BVI Snapshot Sustainability'.