Moody’s: European asset management firms increased total assets in 2016; advisory fees fell

A Moody’s survey of 22 asset management firms found that they expanded their combined assets under management by 7.9% during 2016. However, advisory fees fell by 2% due to product mix changes.

Moody’s outlook for Global Asset Managers is negative, driven by the accelerated rotation of assets into low-fee passive products, fee pressure across nearly all industry segments, and high asset valuations and global macro divergences, which increase tail risks. The sector is also under pressure from regulatory developments that constrain sales and increase compliance costs, such as the proposed competition-enhancing measures announced on 28 June by the UK’s Financial Conduct Authority.

The report, " 2016 Update: Resilient markets counterbalance weak organic growth", is now available on www.moodys.com. Moody’s subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

"Despite financial market turbulence, the group of companies we surveyed managed to increase total assets under management in 2016," said Marina Cremonese, a Moody’s Vice President — Senior Analyst and co-author of the report. "However, organic growth, as measured by net fund inflows, was flat and many managers, particularly independent and bank-owned operators, experienced net outflows."

Net flows for the surveyed group were positive overall at EUR 32.9 billion, equivalent to 0.4% of AUM at the beginning of the period, sharply lower than the EUR 242 billion collected in 2015. Eleven of the 21 managers surveyed reported net outflows.

Insurer-owned asset managers recorded the strongest growth in AUM, with CAGR of 10.1% over the two-year period. This compares with 5.4% and 3.8% for independent and bank-owned asset managers respectively.

Regulatory changes have encouraged UK life insurers to expand their asset management divisions, with many drawing on their pensions expertise to attract new assets.

Schroders’ AUM increased by 23% in 2016, the best of the peer group. The devaluation of the pound benefited the group, which is a net exporter of financial services. Schroders’ substantial operations in continental Europe also limit the operational costs and risks associated with Brexit.

Deutsche Asset Management’s total AUM dropped 5%, with total outflows of EUR 41 billion, due to negative market perceptions concerning its parent, Deutsche Bank, and changes in Deutsche AM’s own management.

Aggregated gross debt levels fell 14% year-on-year in 2016, mainly due to a GBP 150 million repayment by Henderson in March 2016, and to a decrease in short-term debt across the group as a whole.

Most UK asset managers have been assessing how their business will be affected by Brexit and putting in place contingency plans. Moody’s believes that the operational and business impact will be manageable for most of rated asset managers, although there will be an incremental increase in costs.