Commentary: Rethinking Europe — the multitrillion

When it comes to the international revenue diversification of U.S. asset managers, all eyes have been on Asia — and particularly China — over the past decade. However, geopolitical tensions there and changing dynamics elsewhere should have them reassessing priorities.

Europe remains the second-largest asset management market after North America, and the industry there also benefits from secular growth drivers that offer fertile ground for U.S. managers to harness their domestic experience to seize new opportunities.

Several catalysts will fuel growth in Europe's asset management industry over the next decade.

Navigating the European regulatory framework remains a must-have for U.S. managers with global ambitions — from the use of UCITs structures, well regarded in many markets for the strength of their governance, to SFDR, which is becoming the default sustainability framework in other regions.

U.S. managers' ability to capitalize on opportunities in Europe will hinge on a few key success factors.

Accessing the European market requires adapted investment vehicles, so managers need to be thinking about how they amend their product lineups. It will also be critical to align investment capabilities with available local market and pan-European distribution opportunities and understand demand driven by FAs , banks, insurance, and pension funds.

Similarly, familiarity with European markets—beyond investment products—will help managers develop successful strategies. And while ESG faces headwinds in the U.S., managers entering Europe should be prepared for a regulated environment as it pertains to sustainability at both the European Union and national levels. Enhanced client expectations are driving demand around both investment and risk management processes and outcomes.

There are a few paths forward for U.S. asset managers to pursue these new foreign opportunities. The default go-to-market strategy is building a presence from the ground up, but it's not the only way.

One alternative path involves partnering with a relevant third party to fuel distribution efforts targeting specific segments or markets. This often seems like a "quick fix" but may not always deliver sustainable expansion benefits.

Another approach is inorganic expansion to turbocharge growth in a European market that remains extremely fragmented and ripe for consolidation. This should be particularly attractive to those with in-house tech capabilities. M&A will be a dominant strategic theme for the decade to come as: large bank or insurance-affiliated incumbents face difficulty expanding their business beyond the shores of their parent group; boutiques, which harbor much of the investment talent, often maintain a domestic bias and operate under a growth potential cap, struggling to build a regional, let alone, global presence; and independent private market GPs face the headwinds of diminishing institutional allocations and do not always have the critical size or business acumen to grow a wealth/retail footprint.

The ability for U.S. firms to expand into Europe is much improved, and the opportunity significant. With trillions of dollars in untapped AUM at stake, fortune will favor those bold enough to seize it.

Richard Bruyere is a managing partner, and Jim McCaughan is U.S. practice leader, at Indefi, an asset management strategy consultant. This content represents the views of the authors. It was submitted and edited under P&I guidelines but is not a product of P&I's editorial team.