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Alternative Market Briefing

Investment managers face fierce competition

Monday, May 10, 2021

Laxman Pai, Opalesque Asia:

The traditional asset managers around the world face pressure on margins "in 2021 and beyond due to fee compression driven by fierce competition," revealed a study.

According to a new report from Fitch Ratings, the traditional stock and bond investment firms can weather the pressure with scale and caution with leverage.

Though investment managers brace for more pressure on their operating margins this year, the report claims that Fitch-rated investment managers can withstand the pressures given their strong franchises, generally moderate leverage, and large scale.

According to the report, the customer preference for lower-cost passively managed funds is likely to continue as passive funds continued to outperform the majority of active strategies in 2020 despite market volatility. We expect the pressures to continue to encourage traditional investment managers to seek scale with mergers or acquisitions.

The sector's sensitivity to financial markets was highlighted in 1Q20 when equity markets fell sharply at the onset of the pandemic. This triggered steep declines in the value of assets under management (AUM) at all Fitch-rated traditional investment managers, resulting in lower management fees, which are generally calculated based on the net asset value of AUM.

Financial markets bounced back quickly, helped by monetary and fiscal stimulus measures in the majority of G7 economies and since supported by the prospect of economic r......................

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