Moody's has updated its outlook on global asset managers from stable to negative, due to a "broad and growing scope of economic and market upheavals unleashed by the coronavirus".
The report assumed a base case in which the economic and financial market conditions continue to weaken in the first half of 2020, with "some recovery" following in the second half.
In the event of a inability to "curtail the pandemic", the report anticipates a "deeper, more prolonged economic slowdown in the US and Europe".
Its previous stable outlook was based on "manageable debt burdens, investor appetite for higher risk and higher fee products along with continued, but only slowing global economic growth", assumptions which have been rendered untenable due to the coronavirus pandemic.
Due to its high correlation to market beta and investment performance, asset manager revenue will be materially impacted by the "extreme market volatility" seen globally throughout March 2020, according to Moody's.
It is also anticipated that performance fee revenue will fall "sharply" in 2020 compared to the previous year, while the largest cost item of asset managers', compensation, will also be cut, helping to "soften the impact" on cash flow.
Despite the recent market volatility, redemption rates have yet to match that extremity, with Moody's anticipating an assets under management (AUM) shift to "safer, lower fee investment strategies".
The current market also presents an opportunity for active managers to deliver on the value proposition, which, if successful, will "slow the shift of industry AUM" from active to passive strategies.
A sharp decline in AUM will bring with it a drop in EBITDA, as those with "relatively high" concentrations of equity AUM experience the steepest decline.