Investment funds witnessed a marginal recovery in 2023, following the tumultuous year of 2022. This revival, however, was achieved amidst mounting challenges. At the same time, the Belgian fund market has demonstrated considerable resilience, as reported by Koen Van de Maele, the Chair of the Belgian fund federation Beama, during the Trends Investment Summit 2024 on Wednesday. Van de Maele inaugurated the investment conference with an analysis of the Belgian fund industry and its global context, shedding light on pivotal trends.
Growth predominantly not attributable to new inflows
The international fund sector experienced a rebound in 2023. “With 123 trillion dollar under management at the end of 2023, the end-2021 levels are coming back into sight, and the 2022 losses have been all but recouped. But for growth, Asia should increasingly be looked to. Over the period 2023-2027, annual growth of 13 per cent is expected there, while expectations for the same period for Europe and North America are 5 per cent and 4 per cent growth, respectively,” Van de Maele said.
Van de Maele, who has served as global head of investment solutions at Belgian asset manager Candriam since 2017, emphasised that the 2023 surge in assets under management at mutual funds was largely attributed to market performance improvements rather than new cash inflows. Specifically, in Europe, the sector barely grew in 2023. The 82 billion dollar increment was almost exclusively the result of money market funds’ performance, as equity funds experienced a 34 billion dollar reduction. This downturn was primarily due to investor uncertainty, exacerbated by high inflation and geopolitical instabilities.
Van de Maele subtly indicated that the increasing popularity of money market funds, which are less profitable for fund managers, does not bode well for the industry.
Nevertheless, Belgium outperformed the wider European market, with a 1% increase in assets under management in 2023. Contrary to the average trend in Europe, Belgian equity funds saw marginally positive inflows. Bond funds, particularly those focusing on Eurozone bonds, enjoyed a significant resurgence, registering a 9% increase. Meanwhile, mixed funds experienced a minor 2% reduction. Van de Maele highlighted that this slight downturn in the largest segment of the Belgian market is noteworthy.
Investment category growth In Belgium in 2023
All in all, Van de Maele noted that the Belgian fund market - which is larger than the Dutch fund market - continued to do well. In the third quarter of 2023, 17.14 per cent of Belgian household assets were invested in investment funds, compared to 9.47 per cent for European households. In 2013, these percentages were 10.79 per cent and 6.54 per cent respectively. Belgian pension funds also continue to do well despite the difficult macroeconomic environment. As many as 1.8 million Belgians invest in them compared to 676,250 in 1996, accounting for annual growth of 3.7 per cent, he explained.
ESG fatigue
A key trend Van de Maele identified last year was ESG fatigue among investors. “ESG has been at the top of a lot of fund industry agendas in recent years. To such an extent, in fact, that 53 per cent of funds in Europe now describe themselves as sustainable compared to 11 per cent in 2020. In the first half of the year, ESG continued to attract money, but from June onwards, interest suddenly dried up rapidly: a kind of ESG fatigue among investors clearly set in. The lagging average performance is no stranger to that.”
Strikingly, in Europe, large differences between countries are noticeable in terms of SRI assets (see table below). “In Belgium, the Netherlands, France and the Nordic countries, most of the funds under management are in sustainable funds. In southern Europe, Switzerland and the UK, we see the opposite.”
On top of that, the BEAMA chief also points to the United States, where interest in ESG has disappeared altogether. There, sustainable funds even see money flowing away.
Sustainably invested assets in Europe in 2023
Eltifs seen as breakthrough for private markets
Van de Maele further noted that two more trends are coming to the fore: the breakthrough of private markets and the further growth of ETFs and passive investments. “Access to private markets has been democratised. Retail investors have only 1 per cent of their assets invested in private markets where it is many times higher among institutional investors. The Eltif legislation has provided the bridge and Eltif 2.0 coming into force in January 2024 will further drive interest among retail investors.”
Not surprisingly, trackers are taking increasing market share but are still lagging behind in Europe compared to the US. By 2023, ETFs and passive funds accounted for 22 per cent of the market in Europe and 36 per cent in the US. Active ETFs are breaking through in full in the US, Van de Maele said. They already manage 596 billion dollars compared to 31 billion dollars in Europe. “Since the US is often a forerunner, we can bet that we will see these products break through with us too in the coming years.”
Challenges not for the faint of heart
The Beama president listed five key trends for the fund industry. His first observation is that growth is no longer simply guaranteed, and that 90 per cent of the fund industry’s revenue growth from 2006 to 2022 can be credited to market performance.
Passive funds continue to gain in popularity. “Between 2010 and 2022, ETFs and passive funds accounted for 90 per cent of US net inflows. That trend does not seem to be reversing immediately,’ said Van de Maele.
Fees are under pressure from increased competition while costs continue to rise due to tighter legislation, additional ESG obligations, increasing administrative requirements and the implementation of all kinds of technologies.
And finally, the Beama chief noted that fewer and fewer new products are living up to their potential. “Only 35 per cent of new funds manage to last more than 10 years, down from 60 per cent in 2010.”
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