Money managers under the microscope
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.
The rush by traditional asset managers to embrace absolute return products has failed to impress investors, who are now switching to cheaper, passive investing. But what will fill the revenue hole left by these high margin products is far from clear.
Aymeric Poizot, a senior director at Fitch Ratings, points out that many of the alternative offerings developed by traditional managers in the boom years have been quietly wound up, or had their resources reduced. For example, Fortis Investments has closed some of its internal hedge funds, whilst heavy redemptions have hit alternative offerings at Credit Agricole. SSgA also wound up its own hedge fund unit at the end of 2007.
We perhaps know already that 2008 was the worst year ever for FoHFs, and that cumulative losses reached an all-time high as the year ended with a Madoff-shaped bang. Fitch also raises a fear that managers have shared after imposing redemption restrictions on clients wanting to stash their cash under the proverbial mattress: