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Global asset managers’ outlook changes from negative to stable, says Moody’s

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The outlook for global asset managers has been revised to stable from negative, reflecting an industry adapting to industry challenges alongside rising demand which is supported by broader economic expansion, Moody’s Investors Service says in a new report.

Key drivers of the stable outlook are the emergence of new products that blend features of active and passive management and the use of passive instruments as inputs in active disciplines. There are greater opportunities as well for alternative managers.
 
“Fundamental challenges remain, however,” Neal Epstein, a Moody’s Vice President says. “Actively managed products that are most susceptible to passive substitution look increasingly redundant, and competition with cheaper passive products is driving fees lower across the industry.” In the European Union, MiFID II, which comes into effect in January 2018, pushes for greater transparency of fees and is likely to draw investors to use lower cost funds.
 
Asset managers have responded to these challenges by launching new products. With greater focus on outcomes for investors, products are being designed to address risks across multiple asset classes. Products such as “smart beta” and multi-asset portfolios are designed to balance risk and return opportunities for investors.
 
Intermediaries increasingly employ an advice for fee model, taking holistic approaches towards the management of clients’ wealth, and asset managers’ distribution efforts are becoming more consultative and institutional in character. As a result, asset managers are making new investments in distribution technology and human capital. Technology has also been implemented to capture growth of “roboadvice” and to more closely partner with distributors.
 
Competitive forces have not uniformly translated to financial stress. Fee models have become more adaptive, and cost initiatives have limited margin pressure.
 
Mergers and acquisitions also reflect an industry in flux. Deals between large complementary organisations have fortified their market position. Acquisitions of products in either more defensible or more dynamic industry segments allow acquirers to adapt to change, with potentially less financial risk.
 

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