Asset managers face weaker demand and lower fees in 2019 according to an outlook report published today by ratings agency Moody’s.
Total fund flows weakened in late 2018 and asset growth in the year ahead will be vulnerable to market headwinds, the report said.
Nevertheless, the outlook is stable and “resilient overall”, reflecting the sector’s ability to “integrate technology, address cost structure issues and adapt to a new service model”.
"Several years’ pressure on revenue margins has arisen from passive product substitution and competition in a crowded market," said Moody's vice-president Neal Epstein.
"We're seeing asset managers shift – along with their advisory channel distributors – to service-centred relationships that are portfolio and fee-based."
Profit margins have withstood several years of pressure from the shift to passive management while cost management and technology substitution have preserved operating profit margins per dollar of assets under management.
Asset managers are expected to employ mergers and acquisitions to redirect their businesses to areas of greater growth and profitability, the report concluded.
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