Could Trump’s Policies Revitalize European Asset Management?
In an unexpected twist, former President Donald Trump’s potential return to power might inadvertently bolster the asset management industry in Europe. As American asset managers appear to retreat from green initiatives under a possible second Trump administration, European firms could seize this moment to capture business from pension funds increasingly focused on climate-related risks.
A Lucrative Chance for Asset Managers
Recent analysis from JPMorgan sheds light on this emerging opportunity for European asset managers. In a report to clients, the investment bank examined the largest 100 asset owners globally, a group that encompasses pension funds, sovereign wealth funds, and charitable foundations. Among these, 60 asset owners, collectively managing $17.9 trillion, publicly commit to incorporating sustainability into their investment strategies. JPMorgan estimates that these entities typically outsource around 39% of their portfolios to external managers, suggesting a substantial long-term potential of $7.3 trillion linked to sustainable investing for asset managers.
European Firms Positioned for Growth
This sizable figure is likely to attract attention from European asset managers eager to challenge the current dominance of U.S. firms, which presently manage nearly two-thirds of the outsourced investments by major asset owners. Research from the non-profit organization ShareAction indicates that European managers typically rate significantly higher than their U.S. counterparts regarding sustainability practices, especially in shareholder voting. This advantageous positioning could allow them to secure more mandates from asset owners who emphasize responsible investing.
Competitive Landscape and Challenges
Prominent European asset managers like Robeco, Axa Investment Managers, and BNP Asset Management rank highly according to ShareAction’s evaluations. The ongoing transition from actively managed funds to passive sustainable offerings presents a unique opportunity for firms such as France’s Amundi and Germany’s DWS, which excel in this area. Conversely, large U.S. firms like BlackRock and State Street, along with JPMorgan’s asset management division, may face setbacks due to their withdrawal from green financial collaborations and a decline in support for climate-focused shareholder proposals.
Concerns and Cautionary Signals
Despite these promising opportunities, caution is warranted. The manner in which each of these 60 asset owners integrates sustainability varies significantly, with some taking it more seriously than others. Even those who prioritize climate and social risks must balance these concerns against other factors, particularly cost and historical performance, where U.S. giants often maintain an advantage. Furthermore, major U.S. firms assert their commitment to addressing climate risks despite their exit from green partnerships.
Recent Developments in Sustainability Mandates
Recent events have raised alarms for U.S. asset managers. For instance, the UK’s People’s Pension Fund withdrew a £28 billion ($36 billion) mandate from State Street in February following a review of its sustainable investment policies. Similarly, Denmark’s AkademikerPension ended a two-decade, $470 million mandate with State Street for comparable reasons. Other significant asset owners in the UK and the Netherlands have hinted at making similar decisions, alongside New York City’s public pension fund overseer, Brad Lander. Norway’s $1.8 trillion sovereign wealth fund has also cautioned that the market may undervalue the risks climate change poses to equity valuations.
Market Opportunities and Global Context
While the potential growth within European asset owners appears limited, the opportunity is still noteworthy. The European asset owners analyzed in this report outsource only 20% of their investments to external managers—a figure heavily influenced by Norway’s wealth fund, which outsources just 5%. In contrast, the global average stands at 39%. Thus, of the $7.3 trillion long-term opportunity identified by JPMorgan, only around $500 billion pertains to Europe. In North America, sustainability-focused asset owners represent approximately three times that amount, while the Middle East and Asia collectively contribute even more, with Asia accounting for a staggering $3.4 trillion. If pension and sovereign wealth funds in these regions begin reallocating mandates due to climate-related concerns, it could spell significant trouble for U.S. asset managers.
Additional Insights
In other noteworthy news, a $33 billion deal to take a forklift truck manufacturer private has raised critical questions about corporate governance in Japan. Meanwhile, the UK’s wind farms faced a record rate of payments to shut down last year. Lastly, the pan-African trade finance institution Afreximbank has accused rating agency Fitch of overstating its potential exposure to losses.
