European investment managers are currently trading at a premium to their US counterparts, and rightly so, says BNP Paribas Exane.

The equities broker expects stronger fund flows, less cannibalisation from passives and less mature pensions systems to help fund houses in the Europe over the mid-term.

“We do not expect European managers to face in the medium term the issues that their US peers are currently grappling with,” research analyst Arnaud Giblat said in a note on Friday.

“The latter are likely to have weaker flows as the savings ratio in Europe is materially higher.

“In addition, significant pressure from passive is a function of independent distribution in the US while US pension savings are reaching maturity,” he added.

In the US, active funds saw net outflows while passive funds saw net inflows in 2015. 

This was not the case in Europe, where both saw net inflows, although Exane says the trend of passives taking share of flows is still very apparent.

From a cyclical perspective, the firm reckons European markets look far more robust than the US asset managers.

"The savings ratio in Europe far exceeds that in the US, which in our view has been a key driver of the superior flows seen in Europe,” Exane’s paper noted.

“Furthermore, while savings into US pension funds remains a key driver of fund flow growth in the US, the system has reached a certain level of maturity.” 

In contrast, Exane says pension funds remain immature in Europe. For example auto-enrolment in the UK is driving substantial growth in the domestic pension market.

Long-term, however, regulation, remains a headwind for all regions.

First quarter

In terms of first quarter performance, industry data and Exane’s own analysis shows mixed fortunes.

Giblat reckons strong fund performance and exposure to global and absolute return strategies were common drivers of healthy flows between January and March, benefitting UK-based Jupiter and Henderson.

Emerging market assets flows turned positive at the start of the year, but he expects this to have benefitted Ashmore and not Aberdeen.

“Even if appetite for EM persists, we expect any flow improvement at Aberdeen to be driven by a reduction in redemptions rather than an improvement in sales, something we saw following a bounce in EM markets in the third quarter of 2014,” he added.

Exane lowered its rating on Schroders’ to ‘neutral’, citing weak flow and fund performance momentum.

Consolidation  

The broker expects consolidation to remain a key theme and suggests there is “compelling evidence” of Man Group creating significant value through M&A.

It also reckons Amundi will acquire a European captive manager – a move Exane believes should be “highly value accretive”.

“The asset management sector remains ripe for further deals,” Giblat added. "We view valuation as being favourable and we see strong drivers underpinning further consolidation.

“Our analysis of past deals done by the UK listed managers leads us to conclude that there is value creation when there is a focus on costs."

In 2015, the broker said US deals remained focused on areas with significant growth prospects such as passive management, robo-advisers and wealth management. Nonetheless activity in more core M&A has remained healthy.

In its Q4 earnings call, Franklin Templeton said that it saw acquisition opportunities in the “alternatives space”.