The FINANCIAL -- Based on the staff costs, taxes paid and profits of the industry, it is estimated that the European asset management industry contributes an average of 0.35% per year to European GDP and has very significant potential to fill the gap left by banks in providing finance to European economy, according to Societal and Economic Impacts of the European Asset Management Industry, a report by Jens Hagendorff, Professor of Finance & Investment at the University of Edinburgh, sponsored by EY.
The European asset management industry is large, with assets under management of over 115% of European GDP (or nearly €17 trillion). It directly employs around 95,000 individuals across Europe and is estimated to indirectly employ 530,000 full-time equivalents. The value added is particularly large in the UK, where it contributes 1% of GDP per annum, and in France, where it contributes 0.5% of GDP per annum. In absolute terms, the figures are also large – across Europe the report estimates that yearly value added of the industry is €50b.
“What makes the size of the industry particularly noteworthy is the rate at which it is growing. Comparing OECD data for the UK in 1980 against comparable data for today shows that the industry has grown six-fold in little more than 30 years. This is largely because populations have become larger, older and wealthier and this trend shows no sign of slowing. Asset management is a European success story. Policymakers need to recognize the potential of the asset management industry to play a larger role in financing the ‘real economy’,” Roy Stockell, Wealth & Asset Management Leader for EMEIA at EY, said.
Asset managers are already key to the financing of the economy
In 2012, the asset management industry held debt securities issued by euro area residents worth €4 trillion. This amounted to 23% of all debt securities outstanding at the time and corresponds to 32% of the value of euro area bank lending. The ratio increases to 43% if mortgage lending is excluded from bank lending figures.
The figures are particularly high in the UK where the debt securities managed by the industry correspond to 26% of all debt securities, but 82% of bank lending and 87% of bank lending excluding mortgages, according to EY.
The report also considers equity financing. In 2012, European asset managers managed equity values at €1,374b, which corresponds to 31% of the market value of euro area listed firms and nearly 40% of the free float of European listed firms.
“Long-term savings and risk management are at the heart of what the industry provides, which makes it suitable to provide long-term finance to European corporations. As such, the industry provides a crucial link between investors and the needs of the real economy. It also should be noted that the European asset management industry does not attract a costly bailout guarantee and can therefore offer financing services in a more cost-efficient way than banks, generating a large saving for society,” Jens Hagendorff, Professor of Finance & Investment at the University of Edinburgh and author of the report said.
The industry acts as a steward of Europe’s corporate landscape
The report estimates that nearly €500b of the value of the European equity market is due to the role European asset managers play in improving the corporate governance of the firms they invest in.
“We are very supportive of research initiatives such as the one carried out by this report, as they are crucial tools to communicate better on how our industry meets important needs of European societies," Christian Dargnat, President of European Fund and Asset Management Association, commenting on the report, said.
“The evaluation of how we, asset managers, have a significant and positive impact on the European economy bears strong significance for the role we have to play in the financing of this economy.
“Policymakers, the media, peers and the public equally need to be made aware of the potential we can bring to this crucial goal — which ranks high in the agenda of both international and European top-level regulating bodies,” he added.