Union Investment 2018: Solid inflows in a challenging environment
Investment generated net new business of €15.3 billion (2017: €25.1 billion).
This equals two thirds of the industry’s total net inflows from a managedassets
perspective in the German market. “Our net inflow figures are above the ten-year average. This means that 2018 was another strong year in our company’s history,” said Hans Joachim Reinke, Chief Executive Officer of Union Investment, at the company’s annual press conference. Healthy inflows helped offset downward trends in the stock markets, especially in the last quarter of 2018. Union Investment’s assets under management held steady at €323.4 billion (2017: €323.9 billion). Profit before taxes came to €502 Million (2017: €610 million). “Union Investment managed to stay on track in a challenging year on the capital markets. Compared with the performance of the fund sector as a whole, we can be very satisfied with what we achieved,” Reinke stressed.
Despite turbulent conditions in the stock markets, Union Investment attracted inflows of €7.5 billion from retail clients in 2018 (2017: €9.9 billion) – its third-best figure in the past ten years. At €135.7 billion, retail fund holdings remained slightly below the prior-year record high of €136.0 billion.
Once again, most interest centred on multi-asset solutions, open-ended real estate funds and fund-based saving in regular instalments. Among the multi-asset solutions, demand was highest for PrivatFonds funds, which recorded net inflows of €3.2 billion (2017: €4.7 billion). At the end of 2018, the six PrivatFonds funds managed assets worth nearly €23.1 billion in total.
The four open-ended real estate mutual funds for retail clients generated net inflows totalling €1.7 billion in 2018 (2017: €2.3 billion), although only a small portion of the demand for high quality real estate investments could be met due to limited supply. “Managed real estate assets rose above €0 billion for the first time,” Reinke pointed out. “This shows that the open-ended real estate fund is a popular format that was launched 60 years ago and has been successful ever since.”
The success story of fund-based saving in regular instalments at Union Investment continued last year. Riester savings plans generated solid net inflows of around €.2 billion. Total assets of €6.7 billion were held in 1.87 million Riester savings products. The number of traditional fund-linked savings plans grew by 378,000 contracts year on year to nearly 2.3 million contracts. This means that the number of contracts has doubled over the past three years. “We are particularly pleased to see that 95 per cent of savings plan customers are now investing in equity funds, mixed funds or open-ended real estate funds. Just five years ago, this figure had been much lower, at 78 per cent,” Reinke explains. In addition, the average rate of savings per customer has risen from €12 to €62 over the past five years. “Fundlinked savings plans have now established themselves in the role for which they were designed 50 years ago,” Reinke added. “The concept of paying small monthly contributions into a fund-linked savings plan to secure access to the global capital markets has gained broad acceptance among cooperative bank clients. A product that started out as an apparent non-seller has become a key solution in the evolution of saving.” More than half of all new business from retail clients can now be attributed to saving in regular instalments. In 2018, inflows including assets from employer-funded capital-formation schemes and pension schemes amounted to €.5 billion (2017: €.9 billion). At the end of 2018, Union Investment managed 4.8 million savings contracts with a total volume of €4.6 billion. This includes conventional fund-linked savings plans, contracts under the employer-funded capital-formation scheme and Riester savings plans.
“We work with 915 cooperative banks. Together, we have been successful in advocating the long-term benefits of a balanced asset structure to our clients, even in challenging capital market conditions. I would like to thank our partner banks for this achievement,” emphasized Reinke.
Net inflows from institutional investors are weakening
New business from institutional investors flagged noticeably in 2018. Net inflows came to €7.8 billion (2017: €15.2 billion). Assets under management for institutional investors remained almost constant at €187.7 billion and thus stayed close to the record high of €187.9 billion achieved in the previous year. Institutional investors mainly focused on ensuring broader diversification within their portfolios. Rising levels of volatility in the capital markets triggered two different types of response among investors: Institutional investors with annual financial reporting obligations reduced their risk positions, whereas institutional investors with a longer time horizon specifically scanned the market for opportunities with upside potential and invested very selectively, e.g. in concentrated portfolios. “We recorded outflows in the short-dated fixed-income segment and saw investors taking profits on corporate bonds, whereas equity funds with a specific focus, mixed funds and open-ended real estate funds attracted inflows,” Reinke elaborated.
Interest in sustainable investment opportunities remained high among Institutional investors. Across all client segments, the volume of assets held in Union Investment’s sustainably managed funds grew from €3.5 billion in 2017 to €1.4 billion in 2018.
Sustainability is becoming a success factor for asset managers
The figures show that sustainability is in the process of becoming the fourth dimension of financial investment, alongside yield, security and liquidity. Demand is currently still dominated by institutional investors, but interest among retail clients is growing. “In 2018, a quarter of the invitations to tender for institutional portfolios that we saw made reference to sustainability, and the number of retail clients who take sustainability into account is also growing,” said Alexander Schindler, a member of the Board of Managing Directors of Union Investment, at the annual press conference. The European Commission is also promoting sustainability through ist action plan. In future, institutional investors such as pension funds and insurers will be required to disclose sustainability risks, and minimum requirements for the ESG dimensions (environmental, social and governance aspects) will become applicable even for funds that do not explicitly claim to invest sustainably. “Regulatory requirements are making the integration of ESG criteria into the investment Analysis a fiduciary duty,” Schindler emphasized. “We see ourselves as the market leader in Germany in this respect and with nearly 30 years of experience in sustainable investing, we are in a very good position.” Nonetheless, the company will continue to invest in the development of skills and expertise and in the necessary Systems. These investments will be focused on closely integrating conventional Investment analysis and ESG research. Union Investment has already started to build up resources in this particular area. There are plans to add another five people to the ESG analysis team over the course of this year and to further develop the proprietary research tool SIRIS. “Our goal is to achieve a comprehensive Integration of ESG criteria into our processes across all major asset classes,” Schindler concludes. “In five years, the ESG standards that we use for sustainable Investment solutions today will be taken into account in the investment analysis used for all assets managed by Union Investment. Sustainability will become the new standard.”
As at: 14. February 2019