US managers have come up with workarounds in order to avoid a deeper realignment that would hurt their ability to do business in Europe. — Bloomberg
NEW YORK: US money managers are working on private arrangements to stem a wave of defections by sustainability-focused clients in Europe’s €6 trillion pensions market.
The urgency of such deals was underlined on Monday, when Dutch pension fund Pensioenfonds van de Metalektro (PME) said it decided to end its relationship with BlackRock Inc over what it described as differences in how the two view issues such as climate risk and stewardship.
It’s the latest in a string of similar breakups, with State Street also among firms to have lost European mandates.
The development has led US managers to come up with workarounds in order to avoid a deeper realignment that would hurt their ability to do business in Europe.
Workarounds include side letters, whereby tailored portfolio management terms are negotiated in private, or segregated accounts that allow asset managers to hold on to clients that might otherwise walk away, according to lawyers and investment managers interviewed by Bloomberg.
In response to PME’s decision to drop it, BlackRock said it’s been “entrusted in the Netherlands and around the world to manage more sustainable and transition assets than any other asset manager”.
“These clients see us as their partner of choice for achieving their investment goals, including their net-zero objectives,” BlackRock said in an emailed comment.
Last quarter, BlackRock saw about US$48bil of fund withdrawals by an investment client seeking sustainable solutions.
But instead of losing that money, BlackRock was able to keep the client by offering tailored products that aren’t part of its standard fund range, according to an analysis by Morningstar and confirmed by a BlackRock spokesperson.
The client, a UK-based asset manager, was acting on behalf of multiple pension funds, according to a person familiar with the matter.
The need for discretion is growing in the current political context, with the administration of US President Donald Trump making it ever harder for American asset managers to openly pursue environmental, social and governance (ESG) strategies.
As a result, Wall Street has walked away from net-zero alliances and ditched what had once been a public embrace of diversity, equity and inclusion (DEI) policies.
In Europe, meanwhile, where asset owners face regulations to disclose ESG data, many continue to demand that the managers receiving their investment mandates allocate funds in ways that take account of ESG and DEI factors.
Against that backdrop, side letters are becoming a regular workaround, said Heike Schmitz, a Frankfurt-based partner and co-head of ESG Europe, Middle East and Africa at law firm HSF Kramer.
They’re a “very secret business”, said Schmitz, who advises both asset managers and institutional investors.
The alternative, which is “to have it all in your fund documents, is now obviously a bit more challenging”, she said.
There’s no official comprehensive data on the number of side letters, or the assets under management they represent.
But Schmitz said she’s seen a clear increase in such contracts in 2025.
Data compiled by Bloomberg, meanwhile, showed that BlackRock continues to dominate client flows.
In the year through October, BlackRock had US$293bil of flows into its US-based mutual and exchange-traded funds, far outpacing its biggest peers, according to data compiled by David Cohne, an analyst at Bloomberg Intelligence.
Even among Europe-based funds, BlackRock saw flows soar US$127bil in the period, topped only by the US$197bil that flowed into funds run by Amundi SA, the region’s biggest asset manager, according to the Bloomberg Intelligence data.
European asset owners have been scrutinised the house policies of US managers and established that there’s limited alignment of sustainability goals, according to a senior executive at a major UK pension fund. — Bloomberg
