The asset management sector faces “fundamental” challenges in the near future, despite the industry’s outlook stabilising, according to Moody’s.
The credit rating agency revised its outlook for the industry from ‘negative’ to ‘stable’ on a 12-18 month basis. In a report it said that most providers were adapting to shifts in investor sentiment.
Managers have been blending elements of active and passive management into smart beta and multi-asset products, and broadening the use and coverage of exchange-traded funds (ETFs).
In addition, providers had managed to avoid extensive fee compression by introducing new charging structures.
However, Neal Epstein, a vice president at Moody’s, cautioned that there were still actively managed products “susceptible to passive substitution”, while managers also still faced strong competition on cost.
Mutual funds were starting to be seen as outdated and expensive structures by investors, Moody’s reported.
Moody’s also cited the effects of MiFID II, which comes into effect on 3 January 2018. The agency said the regulation was “likely to draw investors to use lower-cost funds”.
The rating agency indicated that current market conditions – an equity bull market and declining bond yields – had supported asset managers’ revenues and helped to finance mergers, acquisitions and expansions.
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