Weekly Fund Distribution Notes – 05 August 2025
16th October 2025
We are in summer, beaches here are packed and fund buyer news slow down – hopefully recovering from the challenging first 7 months of the year. Naturally, fund selectors, asset allocators and asset owners alike needed to revise their base scenarios for 2025 and asset allocation going forward. High octane active equity, active fixed income and also long / short equity return into the spotlight.
We already addressed the paradigm shift in favour of high octane active asset managers a number of times this year. Our Biannual European Fund Distribution Landscape report, which will hit our clients’ inboxes today, provides further evidence. Ignites Europe quotes us today as saying that “there had been a sharp increase in European fund selector searches for active equity funds over the past 12-18 months, with an accompanying increase in allocations to these products … The investment environment had fundamentally changed this year and we expected the case for true active equity funds to gain pace and remain intact for the foreseeable future”. We also expect some reversion back from cheap beta into true active strategies. However, this does not mean that the European passive ETF industry will necessarily slow down in growth.
In this context, the Financial Times ran a story on equity long-short funds attracting investor inflows for the first time in a decade. 2025’s market volatility so far has proved a more fertile environment for L/S hedge funds. London-based hedge funds, including TCI, Egerton and Kintbury Capital, earned returns of 20% or more and equity strategies in Europe have been the best performing of any region this year. The FT also stated that a broadening of equity market returns, which for many years have been dominated by big US technology stocks, was also helpful. On Wall Street, the equal-weighted version of the S&P 500 has kept pace with the main index, which is weighted by market value, this year so far.
Nonetheless, the European ETF industry continued to grow strongly in H1. Although flow numbers for H1 2025 were slightly behind H2 2024, the European ETF sector reached a new record level in AuM (EUR 2.2 trillion) and market share (17% versus 16% at the end of 2024. H1 inflows amounted to EUR 141 billion. Whilst the number of ETF issuers is growing, success remains elusive for many: over 50% of European ETFs still have less than EUR 50 million in assets. The long tail is getting longer, not stronger. Also, remember, barriers to entry are low, barriers to success are very high. Unsurprisingly, we also see pull-outs from the European ETF market and despite more asset managers talking about going to ETFs, we expect pull-outs to continue, if not to accelerate.
PGIM’s latest annual Gatekeeper Pulse study, surveying 210 gatekeepers across Europe and Asia, published in July, revealed that, interestingly, the 150 European selectors surveyed expect a more risk-aware approach than their Asian counterparts. Yet, within fixed income, they take a more aggressive stance with seeking alpha by increasing credit risk. Across the board, global fixed income ranked #1 in bullishness, increase of allocations. Liquid vehicles continued to be the preferred structure. 72% of European gatekeepers – of those expecting to increase equity allocation – favour global equities (72%), followed by European equities (60%). US equities ranked unsurprisingly at the bottom of the list (24%).
Talking recent investor surveys, the latest Schroders Global Investor Insights Survey revealed that out of 995 institutional investors surveyed (representing USD 67 trillion in assets), 80% plan to increase their allocation to active management over the next 12 months. In some markets, sentiment is even stronger. For example, 87% of investors in Spain expressed intentions to raise their use of active strategies.
In terms of mandates, US asset manager Fisher Investments has been selected to co-run an active equity mandate by the LGPS for the Shetland Islands. Fisher will oversee half of the portfolio’s active allocation, with the remainder run by Baillie Gifford. BlackRock runs the passive equity portion. Bain told MandateWire that Fisher was chosen as the best fit for the strategy with Baillie Gifford. Meanwhile, Man Group recorded its strongest-ever six-month period of inflows in H1 2025, thanks to a EUR 11.4 billion subscription from a single client in systematic long-only investments.
Last but not least, this newsletter will take a short summer break and will be back on 25 August.
