Asset managers offering "innovative", "nimble" and outperforming, capacity-constrained funds will emerge as winners during a challenging year ahead in 2017, according to analysts.
In response to ratings agency Moody's downgrade of its outlook for the global asset management sector to ‘negative' late last year, sector commentators said there will still be success stories, despite numerous headwinds such as tightened regulation, pressure on fees and global macro divergences.
In particular, Moody's said active management continues to "underwhelm" as the level of flows moving into passive and low-fee products gathers pace, although the agency also highlighted a number of challenges for the passives industry.
In its report, Asset Managers - Global: 2017 Outlook - Active Managers' Struggles Persist, Moody's said active fund managers had become more dependent on market appreciation to drive AUM growth, while organic growth remains a challenge. It noted distribution for sub-scale managers is coming under further pressure, particularly if performance is not up to scratch.
However, even if firms are increasing investment in areas where growth prospects are brighter (for example, multi-asset and alternatives), their efforts are "insufficient", according to Moody's.
Commenting on the report, Kurt Harrison, global asset and wealth management practice leader at Russell Reynolds Associates, said: "Overall, we agree with Moody's assessment the industry will be challenged in 2017, in large part due to margin erosion caused by the shift to passive investing, as well as the need to invest significantly in technology and new business models in order to produce and distribute more solutions-oriented products.
"Traditional active management has not created enough value for investors, and the low interest rate environment we are in is putting even more pressure on fees and returns."
Moody's also highlighted the regulatory hurdles faced by active managers, including MiFID II, product governance rules, and the suitability of ‘complex' products, including UCITS, being reassessed.
It said those with "cheaper, simpler and more transparent products" will be able to gain ground, while larger players that are able to absorb regulatory costs are better positioned.
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