INTERNATIONAL: Outlook for global asset manager industry is downgraded

Thursday December 8 2016

The acceleration of flows into low-fee passive products from actively managed funds, and regulatory initiatives constraining sales, have disrupted the global asset manager industry, changing the outlook to negative from stable, the credit rating agency Moody’s Investors Service have said in a newly published report.

“Active management performance after fees continues to underwhelm and investors are remaining cost-conscious as scepticism of active management’s value proposition increases.” Says Moody’s Vice-President Neil Epstein. Moody’s notes the rotation into passive has been augmented by the growth of fee-based advice and greater uptake in retirement accounts. ETFs are penetrating new asset classes such as fixed income and emerging market equities.

Global regulation has added to fee pressures. The US Department of Labor’s new fiduciary standard promotes fee transparency while reducing conflicts of interest by ensuring advice is in consumers’ best interest, thereby rooting out excessive fees. In the European Union, MiFID II also seeks to increase investor protection via regulatory oversight.

“Active managers have become more dependent on market appreciation to drive assets under management (AUM) growth,” Epstein says. “Organic growth remains a challenge for many active managers, while organic growth for passive managers outpaces the industry.”

To adapt to the shifting environment, the active industry is expanding efforts to develop products in areas such as smart beta, multi-asset, and global alternatives. Competitors are heightening efforts in M&A to increase scale and diversification.

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