AltFi.com uses cookies on this website. They help us to know a little bit about how you use our website, which improves the browsing experience and marketing - both for you and for others. They are stored locally on your device. By continuing to use this site you accept this use of cookies. Go to the Privacy and Cookies page for more information. You'll see this message only once.
Not signed in. Log in here.
 

Moody's: Outlook for traditional asset managers negative




By Daniel Lanyon on 7th December 2016

https://goo.gl/fXcEsE

The ratings agency has slashed its outlook for traditional active fund managers amid the rise of alternative forms of finance and investing such as robo-advice and ETFs.

 

 

The outlook for global asset managers has been downgraded from ‘stable’ to ‘negative’ due to the acceleration of flows into low-fee passive products from actively managed funds, and regulatory initiatives constraining sales, disrupting the global asset manager industry, according to Moody's Investors Service.

 

"Active management performance after fees continues to underwhelm," says Neal M. Epstein, a Moody's Vice President -- Senior Credit Officer. "Investors are remaining cost-conscious as scepticism of active management's value proposition increases."

 

The growth in passive ETFs has moved in tandem, and partly driven by the soaring demand for ‘robo-advice’ which tends to favour trackers in automated algorithm-driven strategies.

 

Global regulation has added to fee pressures as well, Moody’s notes. The US Department of Labor's new fiduciary standard promotes fee transparency while reducing conflicts of interest by ensuring advice is in consumers' best interest, thereby rooting out excessive fees. In the European Union, MiFID II also seeks to increase investor protection via regulatory oversight.

 

In the UK, the regulator the Financial Conduct Authority recently slammed active managers in a scathing review of the lack of outperformance of many funds against their benchmarks after fees.

 

"Active managers have become more dependent on market appreciation to drive assets under management (AUM) growth," Epstein says. "Organic growth remains a challenge for many active managers, while organic growth for passive managers outpaces the industry."

 

To adapt to this shifting environment, Moody’s says, the active industry is expanding efforts to develop products in areas such as smart beta, multi-asset, and global alternatives. Competitors are heightening efforts in M&A to increase scale and diversification.

Comments

jl@clearwaterprivateinvestment.com

09 Dec 2016 06:56am

I believe the fundamental problem for traditional asset managers is on the fixed income side. Simply, managers charge high fees that cannot be justified when they cannot deliver performance through traditional bonds in a near zero interest rate world. Alternative Credit will eat their lunch in the coming years as it delivers consistent returns for investors not correlated to the stock and bond markets


Enter your name:

Enter a comment in the box below:

More like this:

Fintech should improve as well as disrupt
16th March 2017
James Codling
Goldman Sachs launching robo advice service
21st March 2017
Daniel Lanyon
Nutmeg slams incumbent wealth manager fees
20th March 2017
Daniel Lanyon