EUROPEAN EQUITY MARKETS: The Underappreciated Opportunity


On the surface, the U.S. equity market appears to dwarf the European market, with $45.7 trillion in equity assets under management, compared to $13.1 trillion in Europe.


However, these figures don’t fully reflect the desirable addressable market within Europe’s institutional investor base. Many U.S. companies do not actively market to European investors due to misconceptions about the market’s size and the opportunities it presents. This perception leads companies to undervalue Europe as an important region for investor relations efforts. Through our extensive work helping clients engage with European institutional investors, we have formed a very different view about the market’s true potential.


Quantifying the European opportunity


To better size the opportunity, we devised a novel approach we have named Desirable Equity Assets Under Management, or DEAUM. Using DEAUM, we were able to more accurately assess the European market opportunity and contrast it with the U.S. market. Essentially, DEAUM represents the total aggregate equity assets managed by institutions that have active exposure to U.S. equities, are sizable enough to take meaningful positions, and have investment mandates that align with our clients’ value propositions. On a simple level, the DEAUM calculation works like this:


Equity Assets Under Management


 


 


Desirable Equity Assets Under Management


Further supporting the appeal of the European market, we have noted steady market growth, with net assets doubling since 2013. European exposure in U.S. equities has also surged during the same period, increasing to 44% of equity assets under management in 2023.


Source: EFAMA, Fact Book 2024.


Far more meaningful than headline numbers suggest


Using DEAUM as our barometer, we uncovered some interesting insights about the European equity market, validating much of what we’ve observed firsthand with our clients. Most notably, over 80% of European equity assets are actively managed - by institutions that base their investment decisions on in-depth fundamental analysis. This is in sharp contrast with the U.S. market, where the shift towards passive funds is well-documented, and passive assets now account for over 50% of total equity assets under management.


Despite the U.S. having a larger total equity market, Europe has a much higher concentration of Desirable EAUM.


DEAUM Comparison (in trillions $)


$45.7


Extraneous EAUM Desirable EAUM


$27.6 $13.1 $18.1 U.S.


Total EAUM Passive funds


# of high-velocity hedge funds Hedge funds (% of active EAUM) DEAUM (% of Total)


$45.7 trillion (52.4%) (78)


(7.4%)


$4.3 $8.8


Europe


$13.1 trillion (18.8%) (11)


(2.1%) $18.1 trillion (39.6%) $8.8 trillion (67.1%) Source: S&P Global Market Intelligence; Rose & Co. Research.


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