Europe's fund managers hit by ESG scepticism as prices sag

Copenhagen

SHAREHOLDERS are treating Euro-pean asset managers with caution amid signs that the industry is facing a regulatory crackdown on its claims around environmental, social and governance investing, according to a fresh analysis.

The share prices of asset managers in Europe "have unexpectedly disconnected" from their estimated earnings, according to Mandeep Jagpal, an analyst at RBC Capital Markets in London. Consensus earnings are up 7 per cent since the end of the second-quarter reporting period, while share prices across the industry have fallen by 8 per cent, he said in a client note on Tuesday (Oct19).

After years of unchecked ESG claims, the fund management industry now faces a much tougher regulatory environment as authorities try to eradicate greenwashing. The seriousness with which regulators are tackling potentially misleading claims of green investing became clear in late August, when it emerged that Deutsche Bank's asset management arm DWS Group was being investigated in the US and Germany. DWS, which has denied it misstated the scope of its ESG business, has yet to recover from a 14 per cent share-price slump triggered by an investor panic.

Because of the DWS example, the "implications of potential wider regulatory interventions into ESG across the sector may be acting as an overhang on the share prices", Jagpal said.

While shareholders remain cautious, clients at the asset managers appear to be less so, according to the RBC analysis. "We expect strong net inflows" at DWS in the third quarter, Jagpal said. Amundi, which is due to report on Nov 4, is likely to see a "slowdown from the high net inflows" that it enjoyed in the first and second quarters, Jagpal said. Still, "despite elements of caution heading into third-quarter reporting" for DWS and Amundi, Jagpal said "current valuations remain attractive". BLOOMBERG