The financial market volatility experienced in 2016 has added to the longer-term challenges facing traditional investment managers, says a new report from New York-based Fitch Ratings Inc.
The volatility experienced in markets so far this year, including the turmoil following the Brexit vote, has “introduced modest performance challenges” for traditional investment managers, according to the credit-rating agency.
In addition, central banks’ response to the Brexit vote may also impact firms, Fitch’s report says: “Interest rates being lower for longer could reduce asset price sensitivity for longer duration fixed-income products in the near-term, but create more market volatility in the long term if interest rates ultimately move unexpectedly.”
Looking further out, the Fitch report says that weaker investment performance over the past six months adds to the longer-term issues facing the industry, including the shift from active to passive investment strategies, reduced market liquidity and ongoing regulatory reforms.
Investor appetite “continues to shift toward passive fund products,” Fitch notes, saying that, in the U.S., the Department of Labor’s forthcoming fiduciary rule “could contribute to further outflows from actively managed funds.”
Despite these issues, Fitch’s existing credit ratings for investment managers “remain supported by [assets under management] diversity by product and geography, low leverage and strong margins as a result of scale benefits and variable cost structures.”
Photo copyright: ashdesign/123RF