After years of underwhelming returns in a low-interest rate environment, savers are dumping high-fee funds in favour of cheaper investment products, forcing asset managers to look more closely at the balance between income and costs.
Increased regulation after the global financial crisis is pushing up the cost of doing business for the established players while nimble technology-driven rivals are springing up to offer alternative investment products at a lower price.
“Strong inflows over a number of years have mitigated the need to make hard, cost-cutting decisions,” said Alastair Sewell, regional head for Europe, the Middle East, Africa and Asia-Pacific in the fund and asset manager group at Fitch.
While the first signs of pressure are already being felt, Sewell said the biggest hits would likely come if an economic downturn prompted more investors to move their money.
“When the cycle turns, and we start to see a trend towards outflows — that is when the cost-cutting question will start to bite,” he added.
Firms could respond by cutting jobs, particularly among back-office staff, streamlining product ranges and making greater use of technology. More takeovers of the thousands of small firms operating globally could be another consequence.
A Reuters analysis of the annual reports of the world’s biggest listed, standalone asset managers between 2005/6 and 2015 showed the strain is already being felt. While some operations have been trimmed, more cuts may be on the way.
The average firm analysed increased assets by more than 200 percent in the decade to end-2015 but just five out of the 11 firms managed last year to grow their assets under management — the primary driver of revenues.