Despite facing an array of both economic and competitive challenges, the outlook for the global investment management business in 2022 is neutral, says Fitch Ratings.
In a new report, the rating agency said global investment managers are facing competitive pressures and obstacles such as high inflation and elevated valuations. But firms in the sector are prepared to face down these threats through a combination of scale, strategic diversification and robust finances.
“Fitch expects rated global investment managers to be more resilient to continuing competition and potential market volatility given enhanced scale and strong franchises,” said Nalini Kaladeen, director with Fitch, in the report.
“Overall, we believe alternative [managers] are better placed to withstand challenges than traditional [managers], given stronger active flow dynamics and locked-in fee streams that are largely insulated from fair value changes on investments,” she added.
Fitch predicted traditional investment managers would likely use mergers and acquisitions to help fend off competitive threats.
“We expect to see further M&A activity in the sector as traditional [managers] seek additional scale benefits to protect margins and seek strategic diversification, for example into private assets and passive products,” the report said.
Alternative managers’ M&A activity will be more focused on expanding into new product categories and geographies, Fitch suggested.
On the regulatory front, Fitch said it expects regulators to continue their efforts to address issues such as greenwashing as fund firms increasingly compete on environmental, social and governance offerings.
“Separately, regulators may also focus on fund liquidity and suitability of digital asset investments as expansion into private assets and other non-traditional asset classes could give rise to execution risks,” the report said.