Moody's Investors Services is maintaining the negative credit outlook for the money management industry it adopted in April 2008, according to its annual report on the asset management industry released today.
Among the trends threatening to hurt profitability: rising demand for lower-fee products such as fixed income and ETFs; the growing influence wielded by distribution platforms; and regulatory uncertainties, said Dagmar Silva, a vice president and senior analyst who worked on the report.
While equity markets rebounded strongly in 2009, the report noted that a number of “new headwinds” have materialized, among them a reluctance of volatility-scarred investors to embrace high-margin active equity strategies. These strategies suffered $9 billion in net outflows for the year. By contrast, fixed-income and ETF strategies had inflows of $375 billion and $116 billion, respectively.
While a significant improvement from the $234 billion in outflows from equity strategies in 2008, the report concluded there's no assurance that inflows in the next two years can recover to $50 billion, let alone the average of roughly $137 billion a year for the 10 years through 2007.
For the latest quarter, earnings before taxes, interest, depreciation and amortization — a key measure of profitability — recovered to 74% of the level seen at the market's peak during the fourth quarter of 2007.
The Moody's report called a further rebound to 90% “a key hurdle” in assessing the industry's financial strength.