The ability of European fund managers to attract new clients and keep old ones is to become harder if they are out of step with demand and unable to invest in change.
For example, the ability to offer low volatility products will see high demand in the next couple of years – but managers must also demonstrate they have critical mass and are well resourced in key strategies like this, says Fitch Ratings, a ratings agency, in a report.
Fitch says European asset managers need to strategically review their product offerings and re-shape their activities by strengthening key areas of expertise.
They may also need to scale down or outsource other areas, and expand in neighbouring activities while investing in new areas.
An example of expanding into a neighbouring area includes loan expertise, which may be expanded into high yield. Also equity may be expanded into diversified income.
Fitch says the background to this comprises disaffected investors who are turning their backs on managed products, a shifting focus in the retail sector to bank deposits, and institutional investors who are increasingly internalising their asset management operations.
"European asset managers will have to focus on the areas where they are credible, demand is sustained and performance expectations are high. In the next couple of years, investor demand will focus on income generation with credit or real assets, global products and moderate volatility products such as flexible multi-asset, fixed income multi-strategy or low volatility equity," says Aymeric Poizot, managing director in Fitch's fund and asset manager rating group.
Conversely, Fitch anticipates limited growth in core assets (domestic equity and government bonds). While investors will maintain a reasonable allocation to such assets, they will become more receptive to switching to passive strategies, or to managers with stronger track records, an active management style and diversifying profiles. Competition for such assets will be intense, said Poizot.
Fitch says there has been no growth in European assets under management, both funds and mandates, in the past five years. In the past three years, only 40% of managers experienced fund inflows and 75% to 80% of inflows concentrated with only the top ten houses across asset classes.
©2012 funds europe