Page 18 - Banking Finance October 2020

MUTUAL FUND

mutual fund assets in Europe will be portfolios outperformed during the could be the latest business house to
held in funds that consider environmen- Covid-19 sell-off. start a mutual fund (MF) business. The
tal, social and governance factors by "These catalysts are set to usher in the status of MF applications disclosed by
2025, or 7.6 trillion euros ($8.9 tril- greatest shift the European asset and the Securities and Exchange Board of
lion), up from 15.1% at the end of last wealth management industry has ever India (SEBI) shows that Bajaj Finserv
year. In addition, 77% of institutional undergone; presenting managers with had applied for an MF license on Sep-
investors surveyed by PwC said they the opportunity to drive change by tember 28, 2020.
plan to stop buying non-ESG products playing a key role in mitigating climate Entering a crowded space
within the next two years. risk," PWC said. The entry of Bajaj Finserv is likely to
With racial and economic injustice, as PwC forecasts ESG equity funds will see add to the competitive intensity of the
well as climate change, becoming key a compound annual growth rate of MF industry, which already has 40 fund
societal issues in recent years, financial 26.8%, with assets quadrupling to houses. While a large chunk of the
firms have been forced to pay greater more than 3.6 trillion euros by 2025. market share (57.85 per cent of inves-
attention to their own contributions to Bond funds will grow at a rate of 30.4% tor assets) is controlled by the top five
making the world fairer and greener. and assets will exceed 1.6 trillion eu- fund houses, a new entrant such as
That has primarily manifested in an ros in five years time. Bajaj Finserv can gradually gain a solid
explosion of ESG funds with money The consulting firm's report, which footing given its wide distribution
managers of all stripes, from pension was published by its Luxembourg unit, reach.
funds to private equity firms and also featured a survey of 200 asset Bajaj Finance, its sister concern, has
hedge funds, hiring sustainability managers, 300 institutional investors presence in 2,392 locations, including
teams, rolling out new products and and more than 800 retail investors. 1,357 in rural areas, small towns and
touting their green credentials.
The study found that 37% of institu- villages.
"ESG is nothing less than an all-encom- tional investors are willing to pay a pre- This vast branch network can help the
passing shift in the investment land- mium for ESG products, with the major- MF business to penetrate geographies
scape; placing financial and non-finan- ity of them ready to pay between 21 beyond the top-30 cities, which are
cial performance criteria on a level basis points and 40 basis points extra. known as B-30 locations in industry
playing field," PwC said in the report. It also revealed that that while 77% of parlance.
ESG funds are proliferating in Europe institutional investors plan to stop in- Bajaj Finserv as a group is also known
because regulators and policy makers vesting in traditional non-ESG compliant
products within the next two years, only for providing quality digital services to
have made green issues a top policy
14% of asset managers indicated plans customers.
priority and are creating a rulebook to
to stop launching these products in the Making a sizeable dent in the market
ensure financial firms incorporate
sustainability into their operations and same time period. share may be difficult in the short term
root out so-called green washing. At PwC said Europe dominates the global despite the group's wide reach.
the same time, growing public aware- ESG landscape, with the region's 4,741 "With MFs, investors tend to prefer
ness of ESG-related risks - which has ESG mutual funds holding almost 70% known names. This is the reason why
been accelerated by Covid-19 - and the of global ESG assets. And while PWC new entrants could take time to build
emergence of a generation of inves- said it expects the impact of Europe's market share. However, a domestic
tors who prioritize non-financial im- green fervor to stretch beyond its bor- player looking at the MF business is a
pacts alongside financial factors, has ders as new requirements are imposed positive sign; it shows fund manage-
fueled the growth, according to PwC. on non-E.U. companies and investors, ment makes business sense despite so
U.S. asset managers face possible lim-
The performance of ESG funds relative its on green investing. many changes in the industry," says
to their traditional peers in recent Joydeep Sen, an independent MF ex-
months also has caught investors' at- Bajaj Finserv applies for pert.
tention, said PwC. Fund managers An e-mail query sent to Bajaj Finserv
from BlackRock Inc. to Allianz Global mutual fund license regarding the type of funds it hopes to
Investors and Invesco have said ESG inancial services giant, Bajaj Finserv, offer didn't elicit any response.

18 | 2020 | OCTOBER | BANKING FINANCE