A period of extended underperformance in emerging markets has started to hit some money managers where it hurts: their assets under management.
The latest financial reports from emerging markets-heavy managers, such as Ashmore Group PLC and Aberdeen Asset Management PLC, show drops in asset flows and, as a result, assets under management. Other managers, however, reported continued net inflows to emerging markets strategies, including Stone Harbor Investment Partners LP and J.P. Morgan Asset Management.
Ashmore's assets under management dropped 4.1% in the three months ended Dec. 31, to $75.3 billion, according to its second-quarter statement, published Jan. 14. Net outflows were $3.5 billion, compared with net inflows of $600 million in the quarter ended Sept. 30. Equities in particular suffered, with equity assets under management dropping 7% to $5.3 billion in the three months ended Dec. 31.
There was a similar story on Jan. 16 when Aberdeen released its interim management statement for the three months ended Dec. 31. The firm, which has a diversified investment offering but is known for its equities and emerging markets strategies, saw assets under management drop 3.4% to £193.6 billion ($320.6 billion), reflecting “continued negative investor sentiment towards Asia and emerging markets generally,” said Martin Gilbert, CEO of the London-based firm, in a conference call on Jan. 16.
“I'm not surprised that these assets under management have been coming down,” said Maarten-Jan Bakkum, The Hague, Netherlands-based senior emerging markets strategist at ING Investment Management. “If you are heavily overweight in emerging markets, you are struggling.” He said while emerging markets equities flows had been “OK” at ING, things “are going a bit better than expected” in emerging markets debt for the manager.
One senior executive at a U.K. money management firm, who asked not to be named, said it could be that Aberdeen is a “victim of its own success.” Last February, the manager announced that it was introducing a 2% initial charge on three emerging markets funds in an effort to stem inflows. The unnamed person said: “You can't generate net positive inflows if the fund is (soft) closed.” He also referred to First State Investments, another emerging markets-heavy manager, which closed its Global Emerging Market Leaders Fund to new investors in May 2013.
As of April 2011, as many as half of all emerging markets equity managers had shuttered their strategies because of capacity concerns (Pensions & Investments, April 4, 2011).
Market movements have also been a drag on AUM. The MSCI Emerging Markets index returned -2.4% in U.S. dollar terms for 2013, compared with an 18.6% gain the year before. That compared with the MSCI World index, which gained 27.4% in 2013, up from 16.5% in 2012.
“Emerging market equities started to underperform in October 2010, so it was already a difficult environment,” Mr. Bakkum added. “2013 was a particularly bad year, and also the year where a lot of investors got a wake-up call. In other words, emerging market funds lost capital in both equities and debt.”