Stable outlook not in sight for asset management industry

Global asset managers are still not out of the woods yet, despite improved equity markets, according to Moody's latest report. Noting that the industry's earnings strength is still 25% below peak levels on average, the rating agency states that the credit outlook for the asset managers remains negative because market conditions have not yet normalized and because investors' appetite for active management has diminished after the severity of their losses during the crisis.
"In the last couple of years, investors have watched the industry lose a great deal of their money and so they are now opting for lower risk fixed income products and more passive, lower-fee forms of money management, like ETFs, which squeeze the managers' revenue yields," noted Dan Serrao, US Team Leader of Moody's Global Managed Investments Group.
"Another challenge has been the sharp consolidation in distribution platforms, such as brokerages and financial advisors," the analyst said, "which allows the survivors to increasingly find ways to build on their new-found scale and cut fees paid to asset management firms."
The four broad areas of the industry examined in the report are: macro / market; investor demand; products/competition; and distribution.
"The one positive trend is that the savings rate remains relatively high and people are seeking out investment options," Serrao observed. A return to net inflows into actively managed equity funds and further signs that the macroeconomic recovery is on solid ground are important to Moody's before its outlook can be moved to stable. According to Moody's, a key hurdle is that the industry's quarterly earnings strength is restored to 90% of peak levels.