Markets, competition pressure fundcos’ AUM: Fitch

Traditional asset managers will be challenged to retain assets amid heightened market volatility and intensified competition for those assets in the higher interest rate environment, says Fitch Ratings.

In a new report, the rating agency noted that traditional fund managers had a “tough year” in 2022, with assets under management (AUM) “falling significantly” on a year-over-year basis.

“Declines were driven by falls in fixed-income and equity markets, while net new money flows were muted across institutional and mass retail channels due to investor risk aversion,” it said.

If market volatility remains high, investment performance, asset flows and fee income could all come under increased pressure in the year ahead, Fitch noted.

Pressure on fee-related margins, related to earnings before interest, taxes, depreciation, and amortization (EBITDA), “is likely to continue, driven by fee competition, cost inflation and lower AUM,” it said.

This pressure on margins “could intensify if [fund managers] adopt a more defensive stance, focusing on lower-margin institutional mandates to improve AUM stability,” it noted.

“Fund liquidity mismatches could pose operational and reputational challenges should investor redemptions unexpectedly increase,” the report said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.