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Alternative Market Briefing

Moody's downgrades global asset managers outlook to negative amid coronavirus pandemic

Tuesday, March 24, 2020

Laxman Pai, Opalesque Asia:

The spread of COVID-19 has led to a negative outlook for global asset managers by rating agency Moody's. The outlook was downgraded from stable.

The rating agency said it shifted its sector overview from stable following the "precipitous drop" in assets under management endured by the industry over the past 30 days.

Revenue and cash flow for money managers, which are highly correlated to financial market moves, will come under strain by the economic impacts of the coronavirus, the firm said in the report.

"Given the precipitous drop of assets under management during the past four weeks, asset managers' profitability and liquidity will be impaired," the report said.

"Our base case assumes that economic and financial market conditions will weaken in the first half of 2020, followed by some recovery in the second half. But even if the central bank and policymaker responses to the coronavirus pandemic mitigate recessionary forces and ease liquidity stress, asset managers will be forced to rapidly adjust their cost structure and conserve liquidity," it said.

In the event, public health measures are unable to curtail the pandemic, a deeper more prolonged economic slowdown in the US and Europe will result, and the credit negative implications for asset managers will intensify.

AUM declines will lower revenue and reduce cash flow in 2020

Asset manager revenue is highly correlated to market beta a......................

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