Union Investment’s business remains robust despite changing conditions

  • New business from retail investors forms a key pillar
  • Institutional business presents a mixed picture
  • Long-term trends in fund investing remain intact

In a market environment shaped by the adverse influences of the war in Ukraine, high inflation and the lingering pandemic, Union Investment recorded robust inflows in the first half of 2022. The asset manager attracted net inflows of €9.6 billion in the first six months of the year. This represents a marked decline compared with the record figure of the prior-year period (H1 2021: €24.4 billion), but is substantially higher than the corresponding figure from the first year of the pandemic (H1 2020: €4.3 billion). Assets under management stood at €416 billion at the end of June 2022 and were thus down slightly year on year (30 June 2021: €427 billion).

In spite of high market volatility, the retail business was once again a key pillar in the first half of 2022. The volume of net inflows came to €8.1 billion, which is lower than the record volume of the prior-year period (H1 2021: €9.7 billion) but much higher than in the first half of 2020 (H1 2020: €3.7 billion). Although these net inflows were encouraging, assets under management in the retail business were down slightly at €193 billion at the end of the reporting period (30 June 2021: €196 billion). This was attributable to weak conditions in the capital markets since the start of this year.

Once again, traditional fund-linked savings plans proved to be the backbone of new business with retail clients. In the twelve months to 30 June 2022, the number of contracts in this category rose from around 3.5 million to more than 3.8 million. The 6.4 million fund-linked savings plans currently managed by Union Investment consist of traditional savings plans, Riester savings plans and plans under the employer-funded capital-formation scheme.

Equity funds (€4.0 billion), mixed funds (€3.0 billion) and open-ended real estate funds (€1.4 billion) were particularly sought-after among retail investors. By contrast, fixed-income funds attracted only minimal inflows (€0.1 billion). Other products such as capital preservation funds recorded net outflows of €0.4 billion. “Many savers have realised that the best way to navigate high inflation is to invest in assets that offer substance, like equities and real estate. For fixed-income funds, it is relatively difficult to generate positive returns in the current environment of rising interest rates,” explains Hans Joachim Reinke, Chief Executive Officer of Union Investment.

Demand for sustainability-oriented investment solutions among retail investors continued to grow rapidly. In the reporting period, 59 per cent of inflows were directed at sustainability-oriented funds, compared with just 9 per cent in 2018.

Institutional business presents a mixed picture

Institutional clients were much more cautious in the reporting period than they had been in the prior-year period. In the first six months of 2022, net inflows in this segment totalled €1.5 billion (H1 2021: €14.7 billion) and were thus up slightly on the corresponding period of 2020 (H1 2020: €0.6 billion). Assets under management for institutional clients stood at €223 billion at the end of June 2022 (30 June 2021: €232 billion). The bulk of the inflows (€4.1 billion) went into segregated funds, while institutional mutual funds recorded outflows of €3.1 billion.

The more muted demand among institutional clients was likely attributable to caution in response to uncertainty arising from very high market volatility. Overall, investors reduced their exposure to risk assets. “We could see that some institutional investors were building up low-risk liquidity due to investment policy restrictions. But, in general, institutional investors have remained very level-headed and there are now encouraging signs that issuance activity is starting to pick up again,” says Reinke. Sustainability remains a positive business driver. The 2022 institutional client survey conducted by Union Investment once again confirmed the high relevance of sustainability to this investor group: 83 per cent of the surveyed institutional investors in Germany stated that they apply sustainability criteria. This is the highest figure since this survey was introduced in 2010.

Long-term trends in fund investing remain intact

Although the exceptional growth of 2021 was not repeated, Reinke still sees plenty of reasons why investing in funds is a good choice. “Within just a few months, we have been thrown into a completely new world that plays by completely different rules,” he says, adding that this is also being reflected in the investment markets: “There is less certainty, but the markets continue to offer significant opportunities. Sustainability and digitalisation are structural drivers of growth that will only increase in importance.”

Reinke believes that investors should not discount the upside potential that funds can offer over the medium to long term, especially when it comes to products such as pension plans that have a long capital accumulation period. “Nominal interest rates are returning to positive territory. But after adjusting for inflation, we can see that savers are still losing money, and currently at an unprecedented rate. These days, a more balanced investment mix – including assets that offer substance, such as equities and real estate – is indispensable,” emphasises Reinke. In a challenging market environment, Union Investment’s equity funds achieved an average return of 7.0 per cent over the five-year period to 30 June 2022 and an even higher average return of 9.3 per cent over a ten-year horizon.

 

As at 5 August 2022.

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