The global asset management industry is primed for increasing concentration, as market conditions favour growth at the largest firms, says Moody’s Investors Service.
In a new report, the rating agency indicates that both product innovation and distribution favour large asset managers in the year ahead. On the product side, Moody’s says that investors are increasingly discriminating between active and passive products, which is pushing asset managers to invest in a wide range of new products. “Large firms hold a competitive advantage given the capital needs for product development,” it says.
Additionally, it suggests that competition in distribution also favours managers “with the resources to serve global intermediaries”. And, it notes that global distributors have an advantage when it comes to emerging products, such as liquid alternatives funds, private equity and factor-indexed exchange-traded funds (ETFs).
Finally, regulatory oversight is increasing in the asset management industry, Moody’s says. “The largest funds and their managers are the best situated to address these challenges,” it says.
“Ongoing market trends will allow the largest managers to invest capital in new product development, interact with large distribution partners, enter new geographies and address the challenges of progressively restrictive regulations,” says Neal Epstein, a Moody’s vice president and senior credit officer.
Conversely, Moody’s also notes that market disruptions, or unexpected events, such as the departure of key executives, product failures, or regulatory hurdles, could weaken the scale advantages of large asset managers.