Third party marketing European Union (EU) is one of the largest and most diverse investment fund markets in the world. It offers international asset managers unparalleled opportunities to distribute their UCITS* and AIFs across multiple countries. Successfully navigating this market requires an in-depth understanding of local regulations, market trends, and a strategic approach to distribution.

We have compiled an overview for sales decision-makers who want to expand their presence in the EU and utilise partnerships to optimise their reach.

Attractiveness of the European Union Investment Fund Market

International asset managers should not miss the opportunities the EU investment fund market presents. By the end of 2024, the market will exceed total assets under management (AUM) in UCITS and AIFs of €15 tn. This makes the EU a prime market for managers targeting retail and institutional investors. UCITS funds, known for their stringent regulatory standards and cross-border opportunities, represent around €10 tn, while AIFs, which target more professional and institutional investors, hold approximately €5 tn.

Within the UCITS segment, equity funds are particularly significant, managing nearly €4 tn in assets, driven by the demand for diversified global equity exposure. Bond funds hold about €3 tn, appealing to conservative investors seeking stable returns. Multi-asset funds, managing approximately €2 tn, attract investors looking for balanced portfolios across asset classes. With this wide range of fund types in the EU, international managers can tailor their offerings to specific markets.

Market Structure and Investor Segments

It is important to understand the diversity of the EU investment fund market. There is a variety of countries with different investors’ preferences and needs, as well as different investor segments, including:

Institutional Investors: These include pension funds, insurance companies, and large foundations, which are significant players in AIF investments. They seek long-term investment opportunities, especially in infrastructure and real estate, which provide steady returns and diversification benefits.

Retail Investors: The retail market is primarily accessed through UCITS, thanks to their high level of investor protection and transparency. Retail investors often favour equity and balanced funds distributed through banks, financial advisors, and online platforms.

Banks and Wealth Managers: Banks and private wealth managers play a pivotal role in connecting international asset managers with both high-net-worth individuals (HNWIs) and retail investors. Their deep client relationships make them crucial distribution partners across the EU.

Depending on the country, the preferences might differ. So, understanding the unique characteristics of each market within the EU is essential for crafting effective distribution strategies that reach the right investor segments.

Regulatory Requirements and Challenges

Navigating the EU’s regulatory environment is a critical aspect of successful market entry. While the UCITS and AIFMD directives provide a harmonised framework across member states, local variations in implementation can present challenges. Key considerations include:

UCITS Passporting: The UCITS passport is one of the main advantages of the EU for international asset managers. It allows for cross-border distribution of funds with a single approval. This enables managers to launch their UCITS funds in multiple EU countries without needing separate approvals.

AIFMD Requirements: The AIFMD (Alternative Investment Fund Managers Directive) allows non-EU AIF managers to access European markets, but with more stringent requirements, including reporting, transparency, and the appointment of local representatives. AIF managers must carefully navigate these requirements to ensure compliance.

ESG and SFDR Compliance: The Sustainable Finance Disclosure Regulation (SFDR) is increasingly shaping the investment landscape in the EU. Asset managers need to be transparent about their sustainability practices and ESG criteria. This can also be a key differentiator in attracting investors, particularly in countries with strong demand for sustainable investments.

The complex but unified regulatory structure of the EU allows for both broad market access and the need for localised compliance strategies. For success, partnerships with local experts are, therefore, crucial.