The outlook for the global asset management industry this year remains stable, supported by moderate growth prospects and a return of inflows into equity funds, says Moody’s Investors Service in a new report.
The rating agency says it’s expecting moderate growth this year, after market appreciation drove industry assets last year. “We base our expectation of moderate growth on modest gains in equity markets, continued low interest rates, and a gradual erosion of risk aversion,” says Robert Callagy, a Moody’s vice president and senior analyst. “We’re basing this on our forecast of a sporadic recovery amongst developed economies in 2013, but relatively stronger growth prospects for emerging economies.”
Moody’s also expects a general improvement in asset managers’ financial metrics, supported by managers’ improved cost control and conservative approaches to liquidity and leverage management. However, it says that challenges to the rating outlook remain, with various headwinds, such as fiscal reform, regulation and deleveraging continuing to weigh on recovering economies and keeping volatility elevated.
Moreover, it notes that the volume of regulatory reform initiatives presents serious challenges for the asset management industry over the next two years, it notes. “The reality of complying with increased regulatory oversight and reporting requirements will result in higher operating costs and management distraction for asset management firms,” it says.
Moody’s also notes that return expectations on fixed-income assets will remain low throughout the year, which will impact the composition of industry growth. “With the low-yield environment, we expect industry growth to be driven by two ends of the product spectrum: low-cost, passive investment strategies like ETFs on the one hand, and alternative, niche investment opportunities such as infrastructure debt and senior bank loan funds on the other,” said Michael Eberhardt, vice president and senior analyst at Moody’s.