April 9, 2024 — Institutional investors in Europe are transforming their investment processes and portfolios by further integrating sustainability, expanding allocations to private markets and exploring artificial intelligence (AI).
Europe’s institutional asset management industry is changing at a considerable pace and is driven in large part by three powerful trends:
- European institutional investors are doubling down on their commitments and integrating the concepts of sustainability and stewardship even deeper into their investment processes.
- European institutional portfolios continue to evolve with the introduction and expansion of private asset allocations.
- Across continental Europe, asset managers are experimenting with AI solutions to revolutionize nearly every aspect of the business, from the investment function to marketing, sales and client service.
More than 90% of the European institutional investors participating in a recent Coalition Greenwich study consider ESG metrics in their process for making investment decisions and hiring asset managers. Three-quarters of institutions participating in the study believe ESG factors will take on a bigger role in investments and manager hiring in the coming 12 months.
“While the debate surrounding the place of ESG investing becomes more complicated in the U.S., European institutional investors are firmly committed to integrating sustainability even more deeply into their investment processes and portfolios,” says Mark Buckley, Global Head of Investment Management at Coalition Greenwich and co-author of European Institutions Double Down on ESG and Private Markets with Eyes on AI.
European institutions are also planning significant increases in target allocations across a full slate of alternative asset classes. Approximately a third of institutions in the study expect to significantly increase allocations to private equity or infrastructure equity, and about 1 in 5 plan to boost allocations to private debt and infrastructure debt.
“Growing allocations to alternatives are expected to translate into a rising tide of new mandates for managers in private markets,” says Christopher Dunn, Head of Investment Management – Continental Europe at Coalition Greenwich and co-author of the new report.
In addition, AI is permeating the asset management business and is poised to transform the European marketplace. Approximately 45% of asset managers competing in Europe say they have already implemented AI solutions or are actively developing AI applications.
“European asset managers believe AI’s revolutionary potential is strongest in investment functions like research and idea generation, and in marketing,” says Mark Buckley. “However, managers also believe the technology will have a major impact across a broad range of functions, from compliance and client service to portfolio optimization and sales.”