January 28, 2025 — European investors entered 2025 with a surprising level of optimism given the set of economic, political and geopolitical challenges facing Europe’s investment markets.
As the year unfolds, European institutions are implementing two important strategies in their investment portfolios: They continue to implement “barbell lite” portfolio constructions and are doubling down on ESG—often preferring the branding of sustainability or stewardship.
Barbell “Lite” Portfolio Construction
Across Europe, institutional investors and intermediary fund distributors are making a slow and deliberate move toward barbell portfolio strategies. For example, according to new data from Crisil Coalition Greenwich, investors on intermediary distribution platforms in continental Europe have been steadily increasing their allocations to index and ETF products, typically for passive strategies, which have grown from just 22% of total assets in 2020 to 29% in 2024.
Meanwhile, more than a third of intermediary fund distributors in continental Europe and the United Kingdom expect investors on their platforms to significantly expand allocations to alternative asset classes such as private equity, commodities and private credit in the next year.
However, it’s important to note that net expected flows into traditional equity and fixed-income strategies is expected to hold strong against growth in alternative and passive segments,” says Christopher Dunn, Head of Investment Management – Europe and co-author of Three trends signal direction of European asset management. “That’s the ‘lite’ in barbell lite.”
A New, Data-Driven ESG
Despite some serious obstacles, momentum for ESG shows no signs of slowing in Europe. To the contrary, nearly 70% of European institutional investors expect ESG’s influence to increase over the next 12 months. That said, the ESG of the future will look much different than the ESG of the past. Given the difficulty of demonstrating impact and the negative effects of greenwashing accusations, many asset managers, institutional investors and companies are dropping the name “ESG” altogether in favor of less loaded terms like stewardship and sustainability. Nevertheless, European investors remain deeply committed to ESG and are advancing into a new phase characterized by improved reporting, better data and an emphasis on quantifiable impact.
“In the next, more mature phase of ESG, investors and companies will spend less time marketing and brand-building around these issues, and more time generating and quantifying impact,” says Christopher Dunn. “That means more accurate and standardized reporting, better and more reliable data, and more active ownership in which investors generate impact by working directly with portfolio companies to change practices.”
Three trends signal direction of European asset management presents the results of the Coalition Greenwich Voice of Client – 2024 European Institutional Investors Study, including a breakdown of portfolio allocations among institutions and intermediary fund platforms on the Continent and in the United Kingdom, and an analysis of important industry trends, including an effort by asset managers to capitalize on the growing importance of reporting and data delivery by differentiating themselves with best-in-class operations.