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Money Management

Moody’s: Flows into active result in positive quarter for asset managers

Strong global equity markets, combined with positive net flows into actively managed strategies for the first time in years, resulted in a positive third quarter for asset managers, according to a new report from Moody's Investors Service.

In its quarterly report released Thursday that tracks the earnings trends of 14 public money managers, Moody's revealed that for the first time in two years, net flows for the surveyed group (excluding BlackRock (BLK), whose numbers tend to skew the results) were positive, indicating that strong operating results were driven not only by strong markets, but also positive organic growth.

Long-term net inflows for the surveyed group were $86.6 billion. Excluding BlackRock, net flows were positive for the first time since the third quarter of 2015. Non-BlackRock long-term net inflows were $10.8 billion in the third quarter, up from net outflows of $2.9 billion in the second.

Jordan Schoenberg, associate analyst at Moody's and lead author of the report, said in a telephone interview that although organic growth for asset managers aside from BlackRock has historically been negative, for this quarter, net flows into traditional actively managed strategies were positive.

"Given the low volatility, we're seeing an expanding risk appetite from investors," said Mr. Schoenberg.

This expansion of risk appetite from asset owners has been a boon to such equity managers as BlackRock, AllianceBernstein (AB) and Eaton Vance (EV), the report said.

"These equity managers that offer exposure to global equities are benefiting not just in terms of flows but also in terms of fees," explained Mr. Schoenberg.

The group of managers Moody's surveyed saw its long-term average assets under management grow by 4% over the quarter, led by BlackRock and T. Rowe Price. Base advisory fees increased 4.1% as blended fee rates were supported by the strong performance of many high-fee specialty asset classes, including emerging markets equity, global equity and floating rate income, the report said.

Despite signs that active management may not be completely dead yet, the report said the traditional long-only active management business model still faces serious long-term risks and fee pressures will continue to mount. Outflows expected to persist for active strategies for the foreseeable future.

Still, many of the managers that Moody's covers have been effective at strategically responding to headwinds. Mr. Schoenberg cited Invesco (IVZ) acquiring Guggenheim Investment's exchange-traded fund business as a prime example.

"Asset managers either strategically or though fund reorganization or changing their fee structures, have been able to provide stable results. It's not just markets," Mr. Schoenberg said.