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Asset managers to suffer first decline in assets for a decade

Cerulli Associate expects a rise in conservative thinking, and the onus will be on companies to improve technology and education to navigate future crises.

Asset managers to suffer first decline in assets for a decade

Asset management companies are set to go through their first contraction in assets since the global financial crisis, and will have to put greater emphasis on technology and education to remain relevant in an increasingly conservative environment.

According to a report by Cerulli Associates, entitled Global Markets 2020: A Sharper View of the Asset Management Sector, the industry will rebound post-pandemic, with the developing world being the main driver.

One of the main impediments, however, will be investors scarred by the impact of the Covid-19 outbreak and the subsequent market collapse. This creates a need to better inform investors about their choices and potential losses.

André Schnurrenberger, managing director, Europe at Cerulli Associates, said: ‘As the coronavirus pandemic continues to impact the global economy in the second half of 2020 and beyond, asset managers will need to find ways to keep investors in their products and prevent a widespread flight to cash.’

Schnurrenberger said managers should dedicate resources to investor education on how to handle a market correction, implementing scenario analysis from the last significant global drawdown in 2008. He said this would be particularly useful in countries where emerging middle-class investors have entered the market within the past decade and haven’t experienced a correction.

Allocations

Cerulli said it expects mutual fund allocations to be more conservative over the next five years or so. This will see investors switch primarily from equity funds into money market products, the company said, which will negate the normal rotation into fixed income.

This is because the continued low-rate environment means fixed income funds lack the appeal of previous cycles. In fact, Cerulli said, managers across all asset classes are likely to experience performance losses, incurred by the sharp downturn in March and April, from which it will take time to recover.

Losing the help of market appreciation will be a substantial challenge for managers already facing numerous hurdles, including fee compression, the rise of passives, and an increasing view of asset management as a commodity.

Cerulli said there is , which was largely paused in the first six months of the year as pandemic spread.

‘Underperforming managers present a ripe target for acquisition by multinational investment giants,’ Cerulli added.

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