Fund firms predict strong growth in ESG demand

Asset managers say sustainable investing presents a huge opportunity for product development

Sustainable investing has been named one of the most important growth opportunities for asset managers in a new survey.

The IFZ/AMP Asset Management Study, conducted by the Institute of Financial Services Zug IFZ and the Asset Management Platform Switzerland (AMP), found that Swiss asset managers view sustainable investing as the second most important opportunity going forward, just behind product specialisation.

The comprehensive study, which included interviews with 67 asset managers, revealed 60 per cent of respondents believe strong investor demand will be the main driver for future growth in sustainable investments.

Moreover, sustainable investments was named as the most important opportunity by the largest asset managers, while product specialisation was most important for small and medium-sized asset management firms.

According to the study, the number of sustainable investment funds has grown by 26 per cent on an annual basis, while the assets managed in these funds grew by over 40 per cent from CHF 109 billion in June 2017 to CHF 157 billion in June 2018.

Citing a separate study by Swiss Sustainable Finance, the total volume of sustainable investments (consisting of funds, mandates, and asset owners) reached about CHF 716 billion in 2018, the IFZ/AMP study stated.

The Swiss Sustainable Finance study also showed 65 per cent of asset managers expect future growth of up to 15 percent in sustainable investing, driven by increased demand from institutional and private investors, as well as regulatory developments.

Among all sustainable investment styles, the largest volumes are allocated to ESG integration, followed by exclusions, and norms-based screening, according to the study.

In terms of asset class distribution, real estate and property is the most popular category for sustainable investing in Switzerland, followed by equity investments (corporate and sovereign), and bonds.

The IFZ/AMP study also revealed asset managers view regulation as the most pressing challenge.

Around 70 per cent of the respondents think the relation between regulatory costs and regulatory benefits is unbalanced a, while the majority of asset management firms consider regulatory costs to be high.

Asset managers named the abolition of the stamp duty and a reduction of the withholding tax in Switzerland as potential steps for regulatory improvement.

The study also revealed asset management in Switzerland remains a strong contributor to the country’s economy.

Total assets under management stood at CHF 2,161 billion at the end of 2018 – approximately three times the size of the Swiss GDP and about twice the amount of assets held in Swiss pension schemes.

CHF 1,243 billion of this was held in collective investment schemes and CHF 918 billion in institutional mandates.

However, the total figure represents a slight decrease of 2 per cent year-on-year due to a sharp drop in global stock prices that occurred in the last quarter of 2018, the study’s authors explained.

In addition, the study found active management dominates the business model and asset allocation of Swiss-based asset management firms.

About 70 per cent of the assets managed in Switzerland are actively managed and 30 per cent passively managed. Among discretionary mandates, about two thirds of the assets are actively managed while for collective investment schemes about 80 per cent of the assets under management are managed using an active approach.

These numbers corroborate findings from the study’s sentiment analysis, which showed Swiss-based asset managers focus on specialised, actively managed products in order to establish a competitive advantage.

Moreover, asset managers in Switzerland have a strong exposure to alternative asset classes, which very often follow active portfolio management strategies.

Commenting on the study’s findings. Lorenz Arnet, CEO of AMP Switzerland, said:  “Asset management substantially contributes to the growth and reputation of the Swiss financial centre. Switzerland is one of the largest and most dynamic asset management hubs in Europe.

Swiss-based asset management companies play an important financing role by channelling savings into the real economy. By doing this, they create jobs and strengthen the economy.”