Moody’s Investor Services has revised up its outlook for the global asset management industry to stable, three months after reporting a negative outlook for the sector.
The firm said the return to stable reflected a clear improvement in the industry’s operating conditions thanks to an improving macroeconomic environment, a sustained rally in financial markets and increasing investor risk appetites.
These factors together have lifted industry assets under management back above pre-pandemic highs and are likely to support asset manager credit strength in the next 12-18
months, it added, despite competitive dynamics that have intensified as a result of the pandemic.
Its latest Outlook report said, “Last year ended surprisingly well for asset managers. The initial, extreme market shock from the pandemic quickly reversed following swift action by central banks and governments across the world.
“The recovery was stronger and faster than we had expected, and broad rollout of vaccines has added strength to the reopening rally, driving further management fee revenue growth in Q1 2021.”
It said a strong market recovery had boosted investor confidence and industry flows, and that sustained improvement in active equity fund performance could help the industry regain its appeal for investors.
Institutional and high net worth flows into alternative strategies in the second half of 2020
and Q1 2021 were strong, it added, while flows into alternatives and into ESG products will likely increase over the next 12 to 18 months as demand widens.
The report added that asset managers are benefiting from operating leverage as revenue growth outpaces growth in expenses, and they will likely sustain improvements in margins and leverage ratios over the outlook period.
Moody’s said, “We could revise the outlook to positive if economic growth outpaces our expectations, if improved active performance moderates rotation into passive strategies, and if there is sustained improvement in industry’s organic AUM growth.
“We could revise the outlook to negative if inflation gets out of control or economic growth
falters, if the winner take-all trend accelerates, further concentrating industry flows, and if fee compression intensifies.”
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