Morningstar Data Shows Renewed Interest in Risk: Record Inflows Into Equities and Notable Outflows From Money Market Funds

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According to the latest data collected by Morningstar, in May, investors showed a positive sentiment, possibly driven by hopes of interest rate cuts and positive macroeconomic data on economic growth, investing 54 billion euros in funds domiciled in Europe. In terms of flows, this figure makes May the best month so far in 2024.

Among the trends observed in May, global equities strongly recovered from the previous month’s losses, with developed markets outperforming emerging markets overall. “Investors continued to anticipate interest rate cuts, despite the US Federal Reserve keeping interest rates unchanged once again in May, with Chairman Jerome Powell indicating that easing was postponed but not canceled. In fact, the decline in US inflation has stalled in recent months, highlighting that the final stretch towards 2% inflation will be difficult for the Fed. Conversely, in Europe, a more moderate narrative emerged, with the market anticipating the European Central Bank meeting in June where a rate cut was widely expected, though the path beyond this remains less clear,” Morningstar explains in its report.

Notably, long-term index funds recorded inflows of 33.1 billion euros in May, compared to the 20.8 billion euros gained by actively managed funds. According to Morningstar, last month, none of the broad global category groups experienced outflows from either passive or active strategies. “The market share of long-term index funds increased to 28.25% in May 2024 from 24.93% in May 2023. Including money market funds, which are dominated by active managers, the market share of index funds stood at 24.57%, compared to 21.78% 12 months earlier,” they indicate.

Regarding the major players, the data shows that global large-cap blend equity funds were by far the best-selling in May, with Mercer Passive Global Equity CCF raising 1.4 billion euros in new net funds during the month. “Global large-cap growth equity funds and US large-cap blend equity funds followed at some distance,” they add.

In the case of passive management, BlackRock’s ETF provider, iShares, topped the list of asset gatherers last month, with net inflows of 8.4 billion euros in May. The iShares Core S&P 500 ETF was the best-seller, attracting 1 billion euros. Capital Group and J.P. Morgan secured the second and third largest inflows in May, with 6 billion euros and 4.6 billion euros, respectively.

Analysis of Flows

In this context, it is noted that investors showed a very positive sentiment towards equities in May, with equity funds receiving 30 billion euros, the best monthly result in terms of flows since January 2022. “Passive strategies took the majority, with 20.3 billion euros in net inflows during the month. Nonetheless, active equity funds managed to capture 9.7 billion euros, ending a 14-month period of net monthly outflows. Global large-cap equity funds were by far the most sought-after products last month,” they highlight.

Regarding bond funds, they received 30.2 billion euros in May, the eighteenth month of positive flows in the last 19 months. It is noteworthy that both passive and active strategies shared the benefits, with net inflows of 12 billion euros and 18.3 billion euros, respectively. In this regard, the Morningstar report clarifies: the fixed-term bond category was the best-seller in May, followed by very short-term euro bond funds.

In contrast, May data shows that allocation and alternative strategies continued losing assets with net outflows of 4.1 billion euros and 1.2 billion euros, respectively, in May. “Allocation strategies have had only one positive month in terms of flows since December 2022. Meanwhile, alternative funds have experienced net outflows every month since June 2022,” they explain. On the other hand, commodity funds had net inflows of 515 million euros and, finally, money market funds lost 3.7 billion euros last month, “confirming a renewed appetite for risk,” they highlight.

Sustainable Investment

Lastly, the report notes that funds within the scope of Article 8 of the Sustainable Finance Disclosure Regulation had net inflows of 18.7 billion euros in May, the best monthly result since December 2022. “Global large-cap blend equity funds were the main driver, as well as global small- and mid-cap equity products,” it points out. At the same time, funds falling under Article 9 lost 617 million euros in the month.

As Morningstar explains, from an organic growth perspective, Article 8 funds showed an organic growth rate of 0.73% so far this year. On the other hand, products in the Article 9 group had a negative organic growth rate of 2.40% in the same period. Between January and May, funds not considered Article 8 or Article 9 under the SFDR had average organic growth rates ranging from 0.13% to 2.69%.

DWS Appoints Ulrich von Creytz as Head of Real Estate for Europe

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DWS has announced the appointment of Ulrich von Creytz as Head of Real Estate for Europe. Based in Frankfurt, von Creytz will report to Clemens Schaefer, Global Head of Real Estate, APAC, and Europe.

In his new role, Ulrich will leverage his extensive experience in client relations and deep knowledge of the European real estate sector, acquired over 20 years, to enhance the platform’s investment process, both in terms of client guidance and capital orientation. Supported by DWS’s thematic investment approach, he will drive the entity’s market positioning and strategy in the real estate segment, working closely with the European platform strategy, portfolio management, and transactions teams.

Ulrich joined the company in 2004 and has held several senior positions in the real estate sector. Most recently, he served as Head of Real Estate Specialists for EMEA, overseeing teams in Frankfurt and London. He has played a key role in growing client relationships, demonstrating his ability to align investment themes and product offerings with clients’ strategic investment goals. Additionally, as a board member for nearly a decade, Ulrich has been actively involved in investment decisions for two legal entities, in line with the strategy and within the parameters of DWS’s fiduciary duties to deliver the best results and performance for investors.

He will join DWS’s European Investment Committee and will retain his two board positions in Germany. Clemens Schaefer, Global Head of Real Estate, APAC, and Europe, stated, “I am confident that Ulrich’s extensive experience and strategic capability will have a positive impact on the investment process, aligning investment themes and sources of capital.” He added, “His strong relationships built through the platform, industry, and our investor base will play a crucial role in shaping the future growth of DWS’s European real estate platform.”

In the words of Ulrich von Creytz, the new Head of Real Estate for Europe, “This position is a great honor given DWS’s long-standing track record as a leading real estate investment manager in Europe. I am looking forward to defining an investment agenda focused on value creation and growth, aligned with our clients’ aspirations.” He added, “We are starting to see some attractive opportunities in European real estate markets. This is driven by a window of opportunity for investors willing to enter the market in the next 2 to 3 years, which we believe could benefit from the expected strong recovery.”

Ulrich holds a Law degree from the University of Freiburg, a Law degree from the Higher Regional Court of Berlin, a PhD in Constitutional Law from the University of Freiburg, and a Real Estate Specialist degree from the European Business School.

Amundi Adjusts the Management Fees for a Wide Selection of Its ETF Range

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Amundi is committed to making its range of ETFs more competitive. The asset manager has announced that it has been adjusting management fees across a wide selection of its passive funds. According to Amundi, this move demonstrates its commitment to “offering investors industry-leading products that combine performance, diversification, and cost efficiency.”

Amundi’s position as a key player in the market allows cost efficiencies to be passed on to investors. They indicate that the fee reductions will apply to key exposures such as traditional and ESG U.S. equities, euro equities, U.S. government debt, and euro credit. This initiative aligns with Amundi’s goal of making diversified investment accessible to all types of investors.

Amundi ETF offers more than 300 ETFs covering various asset classes, geographies, sectors, and themes, enabling investors to find solutions tailored to their specific investment needs and objectives in a competitive manner.

“One of Amundi’s long-term commitments is to ensure that our clients benefit from our adaptability and innovation across our extensive range of ETFs, as well as from our economies of scale. We value the importance of cost efficiency in investment, and these reductions will help investors achieve their investment goals without compromising on quality. By reducing the fees on such a diverse range of ETFs, we are making it easier for investors to benefit from our extensive range of products,” explains Benoit Sorel, Global Head of Amundi ETF, Indexing & Smart Beta.

How to Use Securitization As a Key Tool for Distribution?

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Denys Nevozhai - Unsplash

Asset securitization has had a significant impact on portfolio management and distribution, providing asset managers with an additional tool to diversify, optimize performance, and manage risk more effectively. This article by the fund manager FlexFunds explores how portfolio managers can use asset securitization to enhance the distribution of investment strategies, examining its benefits, challenges, and impact on capital markets:

Asset securitization

Asset securitization is nothing more than the process of transforming any type of financial asset into a listed security. Through this financial technique, exchange-traded products (ETPs) are created, acting as investment vehicles aimed at giving the underlying assets greater liquidity, flexibility, and reach.

FlexFunds, a leading company in the set up and issuance of investment vehicles (ETPs), defines asset securitization as a tool used by asset managers as a bridge to facilitate access to investors and foster capital raising for various investment strategies.

Among the main benefits that securitization offers to portfolio managers are:

1.- Increased liquidity: The securitization process of any asset results in a product listed on the stock exchange with an individual identifier (ISIN) that can be bought and sold through Euroclear and Clearstream, making it possible to hold it in an existing brokerage account.

2.- Risk diversification: By distributing the risks associated with the underlying assets among multiple investors, securitization helps reduce exposure to risk for any individual investor. This is especially important during times of market volatility.

3.- Access to international capital: Securitization facilitates access to international capital markets, allowing companies to attract investment from a global investor base.

4.- Centralized account management: Securitization can offer the advantages of centralized account management. It avoids the administrative redundancies of separately managed accounts and allows investors to access higher-ticket projects that they would not have been able to access otherwise.

5.- Protection of assets under the structure: Because the issuance is executed through a special purpose vehicle (SPV), the underlying asset is isolated from the credit risk that may affect the manager, and thus, the investor.

In general terms, asset securitization is a process that allows multiple classes of assets, liquid or illiquid, to be converted into listed securities. Additionally, it offers the inherent capacity of exchange-traded products (ETPs) to transform assets into “bankable assets,” understood as assets that acquire the capacity to be distributable on various private banking platforms, according to the specialized opinion of FlexFunds.

 How can asset securitization help distribute your investment strategy?

Asset securitization plays a crucial role in the distribution of investment strategies internationally. Here are some ways this process can enhance these strategies:

  • Flexibility in strategy management: Securitization allows asset managers to access a broader range of assets that they might not otherwise have access to. This includes assets from emerging markets or specialized sectors that may offer higher returns but carry higher risks.
  • Facilitates complex investment structures: Through securitization, asset managers can structure more complex investment products, such as collateralized debt obligations (CDOs) or mortgage-backed securities (MBS), which attract different types of investors with different risk profiles.
  • Efficiency in distribution: Securitization facilitates the distribution of investment products in different jurisdictions, leveraging the infrastructure of international capital markets. This allows asset managers to reach a broader and more diverse investor audience.
  • Transparency and international standards: Securitization requires compliance with international regulatory and transparency standards, increasing investor confidence and facilitating the distribution of products in multiple markets.

 Challenges of securitization

Despite its numerous benefits, asset securitization also presents several challenges that must be managed carefully:

  1. Opacity risk: While securitization can disperse risk, it can also introduce complexities that make the products less transparent.
  2. Regulation and compliance: The regulatory requirements for securitization can be complex and vary between different jurisdictions. Managers must ensure compliance with all applicable regulations, which can increase the costs and time needed to structure and issue securitized products.
  3. Market risk: Although securitization disperses risk, the underlying assets are still subject to market risks. A deterioration in the quality of the underlying assets can negatively affect the performance of securitized securities.

The future of securitization in international capital markets

As capital markets continue to evolve, asset securitization will remain a vital tool for distributing investment strategies.

Regulations will keep changing: the securitization market has been subject to increased regulatory scrutiny in recent years, and this trend is expected to persist. As regulators gain a better understanding of the risks associated with securitization, they are likely to introduce new rules and guidelines to ensure the market remains stable and transparent.

Moreover, the growing demand for sustainable investments is driving the development of securitized products that incorporate environmental, social, and governance (ESG) criteria. Asset managers are exploring the securitization of green assets, such as renewable energy projects, to attract investors seeking to generate a positive impact along with financial returns.

In summary, asset securitization is a powerful tool that can enhance the distribution of investment strategies in international capital markets. By transforming any type of asset into listed securities, securitization improves liquidity, diversifies risk, and facilitates access to global capital. However, it is crucial to carefully manage the associated challenges, including transparency, regulation, and costs.

If you want to know how asset securitization can enhance your investment strategy and facilitate capital raising in international markets, contact the specialists at FlexFunds at contact@flexfunds.com

Private Credit I: Origins, Classification, Characteristics, and Risks

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Private credit has emerged as a popular asset class over the past decade, especially among sophisticated investors seeking diversification and attractive returns outside traditional public markets. In the following lines, we analyze this asset class from its inception, considering both the opportunities and the risks that must be carefully assessed.

Origins of Private Credit

The birth of private credit is closely tied to the banking sector in the United States. As shown in the following chart, from the end of World War II until the 1980s, the number of banks in the United States ranged between 13,000 and 15,000. Following the financial crisis known as the Savings & Loans Crisis, the number of banks gradually decreased to 8,000. Later, due to the Great Financial Crisis, a second wave of consolidations reduced the number of banks to the current 4,000. Not only did the number of banks decrease, but the size of the surviving banks grew significantly, leaving a large gap in the segment of medium-sized banks that, in turn, served the middle market segment. This market went from having thousands of banks offering medium-sized loans to not having enough banks to request loans from, particularly during crisis periods.

This gap in the mid-small financial segment was filled by non-banking financial companies such as GE Capital or CIT and what is known as Business Development Companies (BDCs). BDCs can be public companies, listed on stock exchanges and registered with the SEC, through which investors, by purchasing their shares, provide the capital that is lent to medium and small companies. They can also be established as private companies or funds.

Classification of Private Credit

There are different ways to classify private credit into subcategories, each with its own characteristics and risk-return profiles. These categories include:

1. Direct Lending: Loans to medium-sized companies that do not have access to public capital markets. Direct loans are often collateralized and have strict covenants that provide additional protections for lenders.
2. Special Situations: Non-traditional lending scenarios where companies seek financing due to extraordinary circumstances or specific needs that are often complex and require customized solutions.
3. Mezzanine Debt: This type of debt is positioned between senior debt and equity in a company’s capital structure. It offers higher returns than senior debt but carries higher risk due to its subordination.
4. Distressed Debt: Investments in the debt of financially troubled companies. Distressed debt investors seek to benefit from the restructuring of these companies.
5. Asset-Based Financing: Includes loans secured by specific assets, such as real estate or inventory, providing an additional level of security for lenders.

The following chart shows the main subcategories of private credit compared to traditional liquid fixed income and bank debt markets.

Relationship Between Private Equity and Private Credit – Sponsored Transactions

Often, transactions in the direct lending subcategory occur when a private equity (PE) fund wishes to acquire part or all of a company’s equity. The PE fund becomes the sponsor of the transaction and invites a BDC to participate by lending money to the target company, positioning itself in the senior part of the capital structure, protected by the sponsor’s equity injection. Due to these types of sponsored transactions, a significant percentage of private credit deal flow is closely linked to PE transactions.

Characteristics of Private Credit

Attractive Returns and Diversification

Private credit offers returns generally higher than those obtainable in public bond markets. These additional returns compensate for illiquidity and, in many cases, the greater complexity of these instruments. Some of the most notable characteristics of private credit are:

1. Inflation Protection: Since many private loans have variable interest rates, they can offer effective protection against inflation. This is especially relevant in economic environments where interest rates are rising.
2. Strong Financial Covenants: Private loans often include rigorous financial covenants that allow lenders to intervene early if the borrower’s financial situation deteriorates. This can include restrictions on the borrower’s ability to incur additional debt or make dividend distributions.
3. Flexibility and Customization: Private credit allows for greater customization in loan structuring compared to public bond markets. This flexibility can include payment terms tailored to the specific needs of the borrower and lender.

Risks of Investing in Private Credit

1. Credit Risk: The most obvious risk is that the borrower may not be able to meet its payment obligations. While financial covenants can mitigate some of this risk, it remains a crucial consideration. Private loans are often made to medium-sized companies that may be more vulnerable to economic cycles.
2. Lower Liquidity: Unlike public bonds, private credit instruments are not traded on liquid secondary markets. This means investors may have difficulty selling their investments before maturity without incurring significant discounts.
3. Complexity and Administrative Costs: Structuring, managing, and monitoring investments in private credit can be complex and costly. It requires a specialized and experienced team, which can increase operational costs compared to more traditional investments.
4. Interest Rate Risk: While variable-rate loans can offer protection against inflation, they can also expose borrowers to higher interest costs in a rising rate environment, potentially affecting their ability to pay and increasing credit risk.

Final Considerations

Given the above, does it make sense to include private credit funds in client portfolios at this time? It may not be prudent to give a generic “yes” without considering the characteristics and needs of investors, but an asset class with a 20-year history, nearly $2T in assets, and consistent results having weathered the Great Financial Crisis (2007-2008) and the 2020 pandemic deserves serious consideration. Let’s review some important details:

Firstly, the fact that institutional investors maintain positions in private credit provides great stability to the asset class. American pension funds, with a very long-term investment horizon, hold private credit investments ranging between 5%-10% of assets under management. Additionally, 38% of family offices (FOs) worldwide invest in private credit, increasing to 41% if the FO is located in the United States. On average, private credit investments make up 4% of total assets, although this varies depending on the volume under management.

Secondly, it is a strategy that produces and distributes cash flows, a highly valued characteristic during market panic or volatility. Additionally, as of the end of 2023, these cash flows are 30% higher than those provided by high yield bonds, and more than 100% over treasury bills.

Thirdly, the fact that it is a largely illiquid strategy reduces portfolio volatility and correlations with other asset classes, acting as a diversifier.

Finally, it is very important to highlight that the dispersion of returns among different private credit managers is substantially wider than among public credit managers, and the persistence in the different quartiles is very pronounced. This implies that the manager selection process is the determining factor, and it invalidates the use of averages as an indicator of the asset class’s performance.

Due to its private nature, access to information about different private credit managers is limited, making evaluation difficult. At Fund@mental, we have developed expertise in private funds and offer an analysis and due diligence service.

Analysis by Gustavo Cano, Founder and CEO of Fund@mental.

Sustainable ETFs: A Polarized Global Market with Europe as the Leading Region

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Sustainable ETFs have experienced extraordinary growth, reaching $550 billion in assets under management by the end of 2023, according to a report published by State Street and JP Morgan AM, which outlines the key trends in the passive management industry. One of the main conclusions of this document is the significant disparity between the situation and evolution of ESG ETFs on both sides of the Atlantic.

The report explains that ESG ETFs have undergone substantial development over the past decade. The most pronounced increase occurred during the pandemic years, 2020 and 2021, when assets under management grew by $335 billion, a 275% increase compared to 2019. “The COVID-19 pandemic greatly accelerated ESG investment, highlighting the importance of addressing global challenges such as pandemics, climate change, and biodiversity loss. This period emphasized the need for a more comprehensive investment strategy that integrates traditional financial analysis with a broader consideration of a company’s social and environmental impact,” the report explains.

Europe Reigns Supreme

The growth and development of this segment of the industry have been uneven on both sides of the Atlantic. According to the report, European investors have consistently led the adoption of ESG ETFs, driven by strong legislative frameworks such as the SFDR (Sustainable Finance Disclosure Regulation) and a deeply ingrained cultural emphasis on sustainability.

As of 2023, the region maintains a dominant advantage, representing nearly three-quarters of the global ESG ETF market, with assets totaling $402 billion. While North America has slightly lagged behind Europe in the growth of ESG ETF assets, it has still maintained a strong presence, with total assets currently at $131 billion, just $10 billion less than its peak in 2021. The report indicates that this trend was supported by an increase in U.S. corporations adopting ESG standards and favorable changes in U.S. government policies, making ESG funds more attractive to retirement plans.

The Asia-Pacific region, while considerably smaller in scale compared to Europe and North America, has shown notable growth. From a modest start with $385 million in ESG ETF assets in 2014, the region expanded its portfolio to $15 billion by 2023.

According to the report’s data, from 2014 to 2023, the number of ESG ETFs globally skyrocketed from 148 to 1,826, highlighting a shift towards sustainable investment. “The EMEA region led this growth, with ESG ETFs expanding from 107 to 1,281, demonstrating a strong commitment to ESG principles. North American ESG ETFs grew from 34 to 430, reflecting an increasing interest in sustainable investment, although at a slower pace than in EMEA. The APAC region, starting from a smaller base, saw a steady increase from 7 to 115 ESG ETFs. The recent trend in ESG ETF launches, especially in North America, is quite distinctive. Despite a general slowdown in new ESG ETF introductions in 2023, the sharp decline in North America is particularly noteworthy,” the report adds.

After a period of robust growth culminating in 115 new funds in 2021, North America experienced a sharp decline to just 13 new launches in 2023. This drop starkly contrasts with the previously buoyant trend and reflects broader shifts in investment priorities.

Flows Tell the Full Story

The full stance of North American (NORAM) investors on ESG, as the study shows, is clearly illustrated through ETF flow trends, highlighting a significant move away from ESG investments in the region. “In 2020, global net flows into ESG ETFs soared to $93 billion, reaching a peak of $165 billion in 2021. During this peak, the EMEA region contributed an impressive $109 billion in net flows, representing 65% of the total, while NORAM also saw a significant increase with approximately $51 billion,” the report indicates.

However, this upward trajectory in North America changed notably in the following years. By 2023, net flows in this region not only decreased but also turned negative. The report explains that this sharply contrasts with the steady growth in EMEA, which recorded nearly $50 billion in net flows during the same period. “This shift dispels the previous assumption that North America was rapidly scaling and poised to surpass Europe in the ESG ETF space. Current trends, according to the report, point to a reevaluation of NORAM investors’ strategies towards ESG investments, particularly in the United States,” the document states.

A key conclusion is that the decline in ESG investment, particularly in the U.S. in recent years, can be attributed to several factors, with a significant one being the rise in anti-ESG legislation driven mainly by political changes. This trend began gaining momentum in 2021 and reached new levels in 2023, with over 150 anti-ESG bills and resolutions introduced in 37 states. Although many of these proposals were rejected or stalled, by December 2023, at least 40 anti-ESG laws had been passed in 18 states, according to Harvard Law School. Conservative factions have also initiated boycotts against brands they consider overly progressive, resulting in considerable opposition to such brands and the ESG initiatives they support.

Investor dissatisfaction is another important factor in the declining interest in ESG initiatives. There is a growing preference for strategies that emphasize financial returns and a profit-centric approach, leading to less focus on social causes that do not produce immediate economic benefits.

According to the report, as a result of these dynamics, companies, including ETF issuers, have started to downplay ESG discussions, leading to a decrease in the promotion of related products and a subsequent decline in net flows into ESG ETFs compared to previous years. This divergence in investment philosophy has allowed ETF issuers to introduce Anti-ESG funds, which have seen increased interest over the past year. These Anti-ESG funds emphasize a more traditional profit-focused approach, attracting investors who prioritize financial returns over broader ESG goals.

While Europe, according to the report, exhibits a less polarized approach to ESG investment and has largely set a global example in ESG adoption, the past few years have seen a slight slowdown compared to the momentum of 2020 and 2021. Despite significant investment flows in 2022 and 2023, European interest in ESG has somewhat waned due to economic uncertainties, high interest rates, inflation, and geopolitical tensions, which may have led investors to shift towards other investments.

Moreover, the underperformance of certain ESG strategies, particularly in thematic areas like renewable energy, affected by rising financing costs, material inflation, and supply chain disruptions, among other factors, has played a role in fostering this cautious sentiment. Additional concerns about greenwashing and evolving regulations, covering issues such as fund reclassification and SFDR implementation, have created uncertainty for ESG investors, potentially causing them to temporarily pause investments until greater clarity emerges.

The Active Approach

The analysis of NORAM’s negative net flows in 2023 reveals a distinctive pattern: $6.6 billion in outflows predominantly came from passive funds, while active ESG ETFs were in demand, attracting $5.3 billion in new capital. This shift indicates a growing preference for active management in ESG investment. Investors, according to the study, appear to be moving towards strategies that offer greater flexibility and alignment with their specific investment goals, diverging from the constraints often associated with passive funds. For some investors, active ESG investment could offer a more dynamic approach, allowing them to have a potentially greater social impact and more direct influence over corporate behavior through activism.

According to the report, this involves deep analysis and engagement with companies in the form of activism, although it typically carries higher fees than passive strategies. By the end of 2023, the proportion of actively managed ETFs within the total AUM of ESG ETFs in NORAM had significantly increased to 13%, compared to just 3% in 2018. This notable growth underscores a substantial shift in investor preference towards active management in the ESG space over the past five years.

In Europe, passive ESG ETFs remain the predominant choice for investors, holding a significant 94% share of total ESG ETF assets. They also maintain a dominant position in terms of annual net flows. This trend persists despite a general decline in inflows into ESG ETFs on the continent that leads in ESG.

The acronym ESG stands for environmental, social, and corporate governance, introduced by the United Nations in the 2004 document titled “Who Cares Wins.” This document marked a crucial moment, advocating for the integration of these critical factors into financial analysis and decision-making. Over the subsequent 19 years, ESG has transformed from a niche concept into a central element of corporate strategy, permeating every sector of the industry, including financial instruments like ETFs.

ZEDRA Will Expand Its Corporate and Fund Services Offering

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ZEDRA, a global specialist in Active Wealth, Corporate and Global Expansion, and Fund and Pension & Incentive Solutions, together with CreaPartners, an independent provider of corporate, investment fund, and family office services based in Luxembourg, have announced their plan to embark on a new collaboration project. This partnership will merge the strengths of both organizations, marking a pivotal moment for ZEDRA as it expands its corporate and fund services offering.

With over 1,000 current employees in 16 key locations and 28 offices, this latest development further underscores ZEDRA’s ambition to be recognized as an international leader in corporate and fund services, the company explains in a statement.

With nearly twenty years of experience, the CreaPartners team, consisting of 25 professionals, has been providing central administration services for corporations, developers, investors, alternative fund managers, issuers, securitization vehicles, wealth managers, high-net-worth individuals, and family offices.

Ivo Hemelraad, CEO of ZEDRA, comments: “The synergies between CreaPartners and ZEDRA further consolidate our joint approach of being the preferred partner for clients in the corporate and fund sectors. We look forward to working with the CreaPartners team. I am confident that this advancement will add great value to our clients and employees worldwide, who will benefit from the wealth of knowledge and experience that the CreaPartners team brings.”

The board of directors of CreaPartners Sàrl welcomes this new collaboration and comments: “Our clients recognize us as a preferred partner thanks to our working model, advanced technology, and our deep understanding of the legal, regulatory, and tax environment in Luxembourg and internationally. We are delighted to collaborate with ZEDRA as we evolve our operations in the alternative investment sector.”

North American Managers Opt for the European Passport as a Way to Reach Clients in the Old Continent

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North American managers plan to create European funds and use the passport to attract investments in Europe ahead of reverse solicitation and National Private Placement Regimes (NPPR), according to a new study by Ocorian. The study surveyed executives in venture capital, private debt, real estate, private equity, and infrastructure fund management in the US and Canada, responsible for $1.591 trillion in assets under management.

The latest survey reveals that 41% chose the passport for future fundraising in Europe, compared to 25% who selected NPPR and the same percentage who opted for reverse solicitation as their preferred methods for fundraising in the study of passports, reverse solicitation, and NPPR.

The study shows that 61% will use placement agents to raise capital in Europe over the next 18 months, nearly half (49%) will also use direct sales teams, and 47% will rely on third-party distributors. Around 28% will use private banks. Approximately 63% have used reverse solicitation in the past to raise funds in Europe, while 40% have turned to the passport and 36% to NPPR, with one in eight (12%) using all three methods.

When asked what makes the passport more attractive, 56% chose market perception and the ability to reach more investors in more countries among their top three reasons, while 44% rated efficiency as a key attribute. The same question about NPPR found that 70% cited cost-effectiveness and 64% flexibility as the two main reasons for using it, while 69% said the amount of capital they have raised from European investors through reverse solicitation has increased over the past two years.

The research found that 82% of North American fund managers are likely to increase pre-marketing activity in Europe over the next two years, with 73% saying it is much or more attractive to pre-market in Europe due to the lower initial investment before fully establishing. However, the study found varying levels of understanding regarding the pre-marketing changes implemented in Europe in June 2021, which included specific changes to the cross-border distribution of collective investment funds under the AIFMD and UCITS Directives in the EU. Only 38% said they understood them very well, while 58% said they understood the changes fairly well.

“There is a strong appetite among North American fund managers to raise capital in Europe and a growing debate about the best methods to do so. At Ocorian, we have supported several managers seeking to test European appetite for their strategy and proposed product through pre-marketing. It is a cost-effective way to decide whether to launch an EU-authorized AIF and use its passport to conduct distribution activities across the region. We only see demand for this service increasing as North American managers conclude that the passport is the most attractive distribution method for the future,” notes Paul Spendiff, Head of Business Development and Fund Services at Ocorian, in light of these findings.

State Street Names Dagmar Kamber Borens Head of Global Markets for Continental Europe

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State Street Bank International (SSBI) has appointed Dagmar Kamber Borens as Head of Global Markets for Continental Europe. Borens will report to Anthony Bisegna, Head of Global Markets at State Street, and Andreas Przewloka, CEO of State Street Bank International.

According to the company, Borens will also join the Global Markets Executive Management Group and will retain her current responsibilities as Country Head for Switzerland, in addition to continuing as a member of the SSBI Executive Management Board. “Borens’ professional experience and progress in developing our business in Switzerland make her the ideal candidate to take on the role of driving our growth in the broader region,” stated Andreas Przewloka, CEO of State Street Bank International.

Anthony Bisegna, Head of Global Markets at State Street, added, “State Street’s markets business continues to grow, so it is critical to have the right team structure in place to support the changing needs of our clients in Europe and globally.”

In her role, Borens will be responsible for delivering the bank’s global market strategy for Continental Europe, as well as collaborating with stakeholders in Global Markets and Investment Services to enhance client engagement. “European institutions and investors are facing challenging times and are looking more than ever for partnerships that help them achieve their goals. Deepening our client relationships while continuing to drive an innovative approach to developing client solutions is essential to our ability to help European clients continue to meet their growth ambitions in a volatile environment,” concluded Borens.

Fundraising in the Private Equity Market Is Expected to Stagnate at $1.1 Trillion in 2024

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Bain & Company has published the latest edition of its Private Equity Midyear Report, analyzing the global evolution of the private equity market so far this year. Up until May 15, 2024, the sector has raised $422 billion, compared to $438 billion during the same period last year.

The report reveals that private equity fundraising could reach $1.1 trillion this year, 15% less than the previous year. Buyout funds are leading, with $199 billion raised, and are expected to reach $531 billion by the end of the year, a 6% increase compared to 2023. Although the activity volume seems to have stabilized, the study notes it remains at historically low levels, especially considering the $3.9 trillion in available dry powder, of which $1.1 trillion is committed capital pending investment from buyout funds.

Bain & Company explains that, as of May 15 this year, the number of buyout deals had decreased by 4% annually compared to the previous year, suggesting that 2024 could see similar figures to 2023. However, the total value of these deals is on track to end the year at $521 billion, 18% more compared to $442 billion in 2023, largely due to the increase in the average transaction size (from $758 million to $916 million).

At the same time, divestitures of buyout fund holdings have seen stable annualized growth. While the total value of these exits is expected to reach $361 billion in 2024, representing a 17% increase from 2023, this year could be the second worst since 2016. Moreover, the stagnation of divestitures is leaving private equity funds with “aging” assets and limiting capital returns to investors, who are pressing for increased distributions on their deployed capital.

According to Cira Cuberes, a partner at Bain & Company, the growing investor interest in a small group of private equity funds is changing the landscape. “For buyouts, the 10 largest funds have raised around 64% of the total capital to date. The largest, EQT X, valued at $24 billion, captured 12% of the total. This leaves most buyout funds vying for the remaining 36% of available capital, with at least one in five of these funds falling short of their fundraising targets,” she notes.

Álvaro Pires, also a partner at Bain & Company, believes the outlook for private equity investment has improved, and the total deal value in 2024 is likely to approach pre-pandemic boom years. However, he cautions that it may take at least 12 months for an increase in divestitures to also shift the fundraising trend. “Even if deal activity picks up this year, we might have to wait until 2026 to see a real improvement. In such a competitive market, companies must adapt to new macroeconomic challenges and fully understand investor expectations to develop comprehensive plans in their portfolios that meet their demands and add value,” Pires adds.