Smaller banks muscle in on sub-advisory market

Europe’s smaller banks are scooping up an increasing proportion of the US$94 billion European managed fund sub-advisory market, which consists of funds managed by a single asset manager on behalf of a vendor.

Regional banking networks accounted for 18 per cent of continental Europe’s US$30 billion of sub-advised managed fund assets at year-end 2002, up from 10 per cent in December 2000.

Research group Cerulli Associates says smaller banks lacking large asset management subsidiaries are increasingly using sub-advisors to offer a full array of managed funds under their own brand.

However, in the US, variable annuity providers and banks that have been slow to build managed fund offerings are the main sources of new mandates for sub-advisory groups.

In Europe, 43 per cent of sub-advised managed fund assets result from strategic relationships, according to Cerulli, where a vendor will use a limited number of sub-advisors and new mandates will not be open to competition.

Thirty-five per cent of managed fund sub-advisory assets in Europe go to unaffiliated sub-advisors who compete on their merit and performance.

In contrast, Cerulli says that on a global level, 11 per cent of assets go to strategic partners. In the US the figure is only six per cent.

The research firm says that sub-advisory relationships, which can involve white-labelling or co-branding, can benefit manufacturers because it gives them access to new markets and sub-advisory assets are relatively “sticky”.

The primary risk of the managed fund sub-advisory business for asset managers, according to Cerulli, is an inherent loss of control over product marketing and asset gathering.