The detailed numbers behind our report on ‘Driving growth’

The available data around the capital markets in Europe is very patchy and inconsistent. In producing our report ‘Driving growth: making the case for bigger and better capital markets’ we had to make lots of assumptions, some more informed than others. Here’s a summary of where we got the data for our report and what estimates we made.

If you have any queries about our data or analysis, please contact us on william.wright@newfinancial.eu

Background information

What exactly is ‘Europe’? 

We defined Europe as members of the EU plus Switzerland, Norway and Iceland.

GDP

Data for historic GDP came from the IMF

Market capitalisation

Data for market capitalisation came from the World Federation of Exchanges. Any gaps or inconsistencies were cross-checked with data from the Federation of European Securities Exchanges and with individual stock exchanges.

Exchange rates

Year end and average €/$ exchange rates from came from the ECB.

Bank lending

Data for new lending in the eurozone came from the ECB

Data for value of outstanding lending in the EU came from the ECB

Outstanding debt securities

Data for value of debt securities in the EU came from the ECB

Infrastructure 

Estimates on required nfrastructure investment came from the European Commission

Pensions liabilities

Estimated public pensions liabilities came from Edhec

How deep are European capital markets?

Pools of capital

Insurance assets

We estimated the value of European insurance assets by triangulating three estimates from Oliver Wyman, InsuranceEurope and TheCityUK

This gives an estimate of $11bn or 59% of GDP.

For the US, we based our estimate of $7tn in assets (42% of GDP), on data from the National Association of Insurance Commissioners and the annual report on the insurance industry by the uS Treasury.

Pensions assets

We estimated the value of European pensions assets by triangulating three estimates from the OECD, Towers Watson and PwC.

This gave us an estimate of $8tn in assets or c43% of combined GDP

For US pensions assets, we triangulated three sources: the Investment Company Institute, Towers Watson and the OECD, giving an estimate of 125% of GDP or $21tn.

Mutual funds

We based our estimate of the value of US mutual fund assets on data from the Investment Company Institute, giving a figure of $15tn. This also gives an estimate of $9.3tn for Europe.

As much as two thirds of mutual fund assets are double-counted because they are part of pension fund assets.

Market value

Stockmarket

All data on market capitalisation came from the World Federation of Exchanges.

Any gaps or inconsistencies were cross-checked with data from the Federation of European Securities Exchanges and with individual stock exchanges.

Corporate bond market

Data on the size of the US and European corporate bond market came from the Bank for International Settlements, MarketAxess, and Sifma

Securitisation market

Data on the value of outstanding securitisation assets in Europe came from Sifma

Assets under management

Asset management

We based our estimate of the value of assets under management on three sources: Boston Consulting Group, the European Fund and Asset Management Association, and PwC, giving an estimate of $21tn for Europe and $33tn for the US.

Private equity

Our estimate of private equity assets under management in Europe is based on global data from Preqin which we adjusted according to the regional balance of deal activity. This gives an estimate of $408bn for Europe and $748bn for the US.

Hedge funds

Our estimate of hedge fund assets under management in Europe is based on estimates by Preqin, Hedge Fund Research, Hedge Fund Intelligence and TheCityUK. This gives an estimate of $500bn in assets for Europe and $1,650bn for the US.

Venture capital

Our estimate of venture assets under management in Europe is based on global data from Preqin which we adjusted according to the regional balance of deal activity. This gives an estimate of $51bn for Europe and $298bn for the US

Capital markets activity

Debt capital markets

All of our data for debt issuance volumes (government bonds, investment grade corporate bonds, high-yield bonds, syndicated loans, leveraged loans, and corporate asset-backed securities, comes from Dealogic.

Equity capital markets

All of our data for equity issuance volumes (initial public offerings, follow-on offerings, and convertible bonds) comes from Dealogic.

M&A activity

All of our data for M&A activity comes from Dealogic.

Private equity activity

Our date for private equity buyout activity comes from Preqin and Dealogic.

Venture capital activity

Our data for venture capital investment activity comes from Preqin and the EVCA.

Trading

Equities trading

Data on trading volumes in Europe and the US comes from Thomson Reuters.

Bond trading

Estimates of bond trading volumes come from MarketAxess, and Sifma.

 

A licence to print money?

We estimate that the capital markets industry generates at least $250bn in revenues in Europe year, and probably a lot more. Given the lack of disclosure and ptachy data, this is  starting point for discussion rather than a definitive number. Here’s how we came up with it:

Investment banks

Our estimate of the combined revenue of investment banks in Europe is based on estimates by Oliver Wyman and Coalition, as well as estimates derived from Dealogic data on investment banking fees in Europe and our own analysis of the top 15 investment banks. This gives an estimate of $90bn.

Asset managers

Our estimate for asset managers is based on revenue margins (revenues as a percentage of assets under management) of roughly 30 basis points (from Boston Consulting Group) and our own analysis of the annual reports of 25 large asset managers (39bps). We took an average of 35bps and applied it to the $21tn in assets under management in Europe. This gives an estimate of $75bn.

Wealth management

We estimated that there are $5 trillion of assets managed by private banks and wealth managers in Europe, based on estimates by Cap Gemini / Royal Bank of Canada, PwC and Scorpio Partnership. We applied a weighted revenue margin of 70 basis points (from Boston Consulting Group) and applied it to these assets. We then assumed one third of this revenue was double counted under asset management. This gives an estimate of $23bn.

Pensions

The figure for pensions represents the operating costs of pension schemes excluding any fees paid to investment managers. Research for the Pensions Regulator on the cost per member of running a pension scheme gives a weighted cost of 30 basis points, of which 40% is investment costs. Research by the OECD also gives a weighted cost of 30bps for European pensions. We estimated that operating costs are about 18.5bps of assets. This translates into an estimate of $15bn in costs.

Legal services

We based our estimate on the revenues of the top 50 law firms in the world (according to Legal Business), assumed that Europe accounts for one third of their revenues, that capital markets accounts for one third of their revenues in Europe, and they account for one third of the total legal service revenues from capital markets. This gives an estimate of $15bn. That is the same as 5,000 partners in capital markets in Europe generating $3m in fees each.

Private equity

We assumed that private equity firms charge an average 1.5% management fee on their estimated $408bn in assets under management and a 17.5% average performance fee on an average 10% return. We made the same assumptions for venture capital but lowered the average return to 5%. This gives an estimate for private equity and venture capital revenues of $14bn.

Hedge funds

We assumed that hedge funds charge an average management fee of 1.5% of their estimated assets under management in Europe of $500bn, and an average performance fee of 15% on an average return of 8%. This gives an estimate for hedge fund revenues of $14bn.

Market structure

We collated the revenues of 13 large exchange and market infrastructure companies in Europe and assumed that captured two thirds of the total revenues of the market infrastructure industry. This gives an estimate of for infrastructure revenues of $10bn.

Regulation and policy

We collated the budgets of 18 regulatory bodies in Europe and assumed they accounted for two thirds of the total spend on regulation and policy. This gives an estimate for the operating cost of regulation of $8bn.

Others:

We did not attempt to estimate the revenues of the rest of the support services industry in and around the capital markets in Europe, such as IT firms, consulting, recruitment and PR. If you have interesting data on these markets, please contact us on william.wright@newfinancial.eu