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Money Management

Moody’s: Managers seeing drop in fees despite 8% rise in AUM in 2016

European money managers saw a 2% fall in advisory fee revenues in 2016, despite a 7.9% increase in combined assets under management, said Moody's Investors Service.

In a report published Thursday, the ratings agency said it surveyed 22 money management firms and found fee revenues from advisory services fell due to "product mix changes."

Moody's outlook for global money managers is negative, which the agency said was driven by the accelerated rotation of assets into low-fee passive strategies; fee pressure across almost all industry segments; and high asset valuations and global macro divergences, increasing tail risks. Regulation is also putting pressure on money management firms, constraining sales and increasing compliance costs, the report said.

"Despite financial market turbulence, the group of companies we surveyed managed to increase total assets under management in 2016," said Marina Cremonese, a Moody's vice president – senior analyst and co-author of the report, in a news release accompanying the report. "However, organic growth, as measured by net fund inflows, was flat and many managers, particularly independent and bank-owned operators, experienced net outflows."

The group recorded €32.9 billion ($36.8 billion) in net inflows for 2016, compared with €242 billion in 2015. Of the 22 money managers, 11 reported net outflows.

Money managers owned by insurers recorded the strongest assets under management growth, with a 10.1% compound annual growth rate over the two-year period. The release said regulatory changes have encouraged U.K. life insurers to expand their money management units, and many have drawn on their retirement expertise to attract new assets. Independent managers achieved a 5.4% CAGR, and bank-owned firms, 3.8%.

For U.K.-based managers, time is being spent on assessing how their business will be impacted by Brexit and are putting contingency plans in place, said Moody's. The agency said the operational and business impact will be manageable for most rated managers, although they will face an incremental increase in costs.

The report is available on Moody's website.