Uneven European asset management growth in 2014 – Fitch
The European AM industry is expected to grow unevenly as competition remains intense in the market, Fitch Ratings latest report says.
Total assets under management (AUM) in the European asset management industry reached almost €16trn in June 2013, mainly driven by market performance in the past 12 months. Investors are also returning to the industry with net inflows of €110bn in 2013 YTD and €186bn in 2012.
The renewed focus on equity in particular is likely to be beneficial for the industry, as net management fees on equities are on average 50% higher than on bonds. Despite the overall growth, there has been substantial variation by product type, asset class and individual manager.
“European managers who are well positioned in the cross border space and in global bonds, global equities, specialities or multi-asset are likely to grow more as these areas will attract investor flows,” says Aymeric Poizot, managing director in Fitch’s Fund and Asset Manager Rating Group.
Half of European managers had no fund inflows in the three years to end-July 2013, while the top 10 firms received 50% of inflows in bonds and mixed asset funds, and 75% of inflows into equity funds. “AUM in traditional asset classes such as domestic equities or government bonds are threatened by changing investor allocations. In particular, managers that have large AUM in government bonds or aggregate portfolios would suffer from rising interest rates,” adds Alastair Sewell, director in Fitch’s Fund and Asset Manager Rating Group.
Fitch studied the financial statements of 24 major European asset managers, with combined AUM of almost €8trn. On average, Fitch’s study found that independent asset managers are more profitable than subsidiaries of banks or insurance companies, benefiting from higher margin on AUM and lower cost/income ratios. A number of subsidiaries may be looking to improve their cost structures with rationalisation and restructuring, to bring cost/income ratios in line with the 65bp median 2012 level observed at independent managers in Fitch’s sample.
As Fitch report also highlighted, there is a continued need for business focus rationalisation in an industry consisting of more than 34,860 funds (source: Lipper). The industry eliminated around 500 funds in H113 (net), around the same level as the 1,000 that were closed in 2012. However, nearly two-thirds (65%) of cross border fund ranges still lack a single flagship fund of more than €1bn, the report also showed.
With changing market conditions and investor demand, business diversification and a clear marketing strategy capable of anticipating cycles will be increasingly important considerations. In addition, innovation and a strong franchise in multi-asset and solutions will be a key performance driver, particularly as this business is less cyclical than traditional equity or bond fund management. The development of defined contribution pension schemes and retail investors’ need for diversified low risk products support growth and innovation in this area.