Moody’s sees stable outlook for global asset management
The 2013 outlook for the global asset management industry remains stable, supported by moderate growth prospects and a return of inflows into equity funds Moody’s Investors Service says in a new Industry Outlook.
However, the US-based rating agency warns the stable outlook will be challenged by a sluggish economic recovery in developed markets and regulatory pressures.
“We forecast moderate growth prospects for asset managers in 2013, following market appreciation that drove assets under management higher in 2012,” says Robert Callagy, a Moody’s Vice President, Senior Analyst and co-author of the report.
“We base our expectation of moderate growth on modest gains in equity markets, continued low interest rates, and a gradual erosion of risk aversion. We’re basing this on our forecast of a sporadic recovery amongst developed economies in 2013, but relatively stronger growth prospects for emerging economies,” explains Callagy.
Throughout 2013, return expectations on fixed-income assets will remain low. “With the low-yield environment, we expect industry growth to be driven by two ends of the product spectrum: low-cost, passive investment strategies like ETFs on the one hand, and alternative, niche investment opportunities such as infrastructure debt and senior bank loan funds on the other,” said Michael Eberhardt, CFA, a Moody’s Vice President — Senior Analyst and co-author of the report.
Regulatory pressures are expected to strengthen. The sheer volume of new regulatory reform initiatives presents serious challenges for the asset management industry over the next two years. The reality of complying with increased regulatory oversight and reporting requirements will result in higher operating costs and management distraction for asset management firms.
Larger-scale managers, although likely to be subject to greater regulatory requirements, will have a competitive advantage relative to smaller peers given their greater flexibility to absorb the added compliance and infrastructure costs.
Among other findings are that investor preferences will continue to shift. The increasing use of passively managed products will continue in 2013 as the value proposition of active management comes under scrutiny.
At the other end of the spectrum, the growing need for alpha and the diversification benefits of alternative asset classes will drive appetite for alternatives. Managers with niche expertise in areas such as senior and mezzanine bank loans, infrastructure equity and debt as well as direct lending to small and medium-sized enterprises are well positioned to benefit from this trend.
Further improvements in earnings is likely, as changing investor preferences and muted organic growth in assets under management, push managers to control discretionary spending in areas such as compensation and marketing, which has helped support their margins.
Managers’ improved cost control and conservative approaches to liquidity and leverage management will continue to support an improvement in the industry’s financial metrics.
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