Money managers under the microscope
Piggy in the middle
Fitch’s annual review of the European asset management industry dished out some home truths for fund firms hoping they can begin to put that horrible financial crisis behind them.
Unveiling highlights from Fitch’s upcoming report at a briefing this week, Manuel Arrive, a senior director at Fitch Ratings, said he expects assets under management to rise more slowly and pressure on revenues to continue as investors shift to lower margin products. “Asset managers remain vulnerable to a renewed market downturn,” he said.
Asset managers slashed costs by between 10 and 15 percent through the recession and Arrive said they could not reduce costs further without compromising their franchises. Those who weathered the downturn the best tended to be the big diversified managers and specialists with good track records in the asset classes that were in demand.
But Arrive was critical of fund firms occupying the middle ground, arguing that the crisis had revealed a lack of focus and specialisation with “misplaced” innovation reflected in ‘product of the month’ launches. “ Managers need to decide if they are are a cost leader (selling passively-managed products cheaply in bulk) or a high value added provider. Being stuck in the middle is not the best place to be. Tougher decisions need to be taken in respositioning,” he said.
But despite pressure on fees from institutional investors, on average, asset managers have stayed profitable, suggesting there will be little impetus to take those tough decisions if the markets stay bouyant. “Margins are still high and asset managers don’t need growth to survive,” said Aymeric Poizot, regional head, EMEA, at Fitch.