Investing in Europe
Europe - a history of Innovation and a future of sustainability
Europe's vibrant history and record of innovation has led to it being the world's third-largest economy. The region's expansive population and long-established academic and political institutions have made it home to a multitude of exciting investment opportunities.
With ageing populations, expectations for higher correlations between asset classes, and the world’s total negative-yielding government debt reaching €15.25tr2 there has never been a more urgent time for investors to have access to financial markets, and opportunities abound in Europe.
While the region has suffered some setbacks, particularly in the face of Covid-19, the eurozone alone represents 11% of the world’s economy, which makes its markets an important destination for global investors. Based on 2019 GDP, Germany is the world’s fourth-largest economy, the UK is ranked sixth globally, and France comes in at number seven, making these markets extremely important for global investors. From its fast-growing emerging countries to traditional powerhouse economies like Germany, Europe offers a unique depth and breadth of options for investors. Many of the world’s leading entrepreneurial mid cap businesses are listed in Europe – providing compelling investment opportunities. And while the region has contended with a difficult year due to Covid-19, we believe these challenges are temporary.
A commitment to sustainability
Another attraction is that European governments, societies, and businesses are deeply committed to sustainable development, sustainable investing, and achieving environmental targets. Innovations and new technology that will usher us into a more sustainable future ̶ such as clean energy and advancements in artificial intelligence (AI) ̶ are already squarely in focus.
European governments and regulatory bodies are prioritizing green initiatives and responsible investing. The introduction of the Sustainable Finance Disclosure Regulation (SFDR) should help to ensure sustainable investing practices, and the European Commission’s European Green Deal aims to make the EU climate-neutral by 2050, providing a hospitable environment for ESG focused assets and funds.
Opportunities in private equity
Europe-based private equity has been on an upward trajectory since 2000, with a notable jump in the last four years—and it’s estimated that there could be the potential for more than €500 billion in unrealized value available. There are currently more than 200 Europe-focused private capital funds and nearly 3,000 institutional investors active in the alternatives market.
Growth of indexed assets
We’ve also seen a 19% growth in indexed assets in EMEA over the last 5 years, with $2.6tn now managed by indexed products. A trend that has picked up at the beginning of this year with Europe catching up with the US.
Sustainable investing in Europe
Our investment conviction is that sustainability and climate-integrated portfolios can provide better risk-adjusted returns to investors. And with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward.
Europe is a global standard bearer in the long-term structural shift towards sustainability, due to economic and social forces as well as a focus from policymakers. The European Green Deal puts sustainability at the heart of the Covid fiscal recovery package, and consumer demand remains buoyant, with Europe recently becoming the number-one region for electric vehicle passenger sales.
The introduction of the Sustainable Finance Disclosure Regulation (SFDR) is a key catalyst for sustainable investing in Europe. We see the standardization of definitions and concepts as crucial for advancing sustainable investing, with investors seeking increased transparency and data on sustainable risks and opportunities.
Tiffany Lalremruati
