European money managers need to restore investors’ interest in active strategies to meet increasing global competition from other managers and substitution products like ETFs, more volatile markets and more demanding clients, according to a new report by Fitch Ratings.
Managers need to offer “all-weather” strategies, which don’t rely on market direction to gain inflows, and to be able to customize products and services to institutional clients, according to the report.
More than half of inflows in 2009 went to asset classes for which investors were making tactical bets, rather than to long-term allocations, said Aymeric Poizot, senior director at Fitch and one of the authors of “European Asset Management: An Industry Under Pressure.” “Because it’s opportunistic, (the assets are) not there to last,” and managers can easily be replaced by exchange-traded funds, he said.
ETFs are “like the nuclear bomb” in how they affect the relationships between institutional investors and managers, Mr. Poizot said in a telephone interview. The effect is that managers need to find ways to provide advisory services to clients, and investment products that “are genuinely designed to meet investors’ needs,” according to the report.
The most vulnerable managers in Europe are those specializing in single-asset class strategies; those in markets that continue to suffer, such as Italy; and those that haven’t lowered cost structures, Mr. Poizot said.