Moody's Investors Service's outlook on the global asset management industry is negative for 2017, due to money flowing into low-fee passive strategies from actively managed funds and because of regulatory initiatives constraining sales.
“The last time we had a negative outlook on the asset management industry we were in the teeth of the global financial crisis,” said Neal M. Epstein, vice president and senior credit officer at Moody's, at an outlook briefing Tuesday at the company's New York office.
Active management performance after fees continues to underwhelm, according to Moody's. Investors are remaining cost-conscious as skepticism increases of how much active management adds to returns.
Another concern is that global regulation has added to fee pressures. The U.S. Department of Labor's new fiduciary standard promotes fee transparency while reducing conflicts of interest by ensuring advice is in clients' best interest, thereby rooting out excessive fees and steering more money toward passive investments. In the European Union, Markets in Financial Instruments Directive II also seeks to increase investor protection via regulatory oversight.
To adapt to the shifting environment, the active management industry is expanding efforts to develop products in areas such as smart beta, multiasset and global alternatives. Competitors are heightening efforts in mergers and acquisitions to increase scale and diversification, Moody's said.
“Market conditions are at an all-time high. But business conditions are at an all-time low,” said Marc Pinto, managing director of Moody's global managed investments practice, at the briefing. “Longer term, we're very positive on the industry. There's a very big demand.”
Mr. Pinto added, though, that while Moody's is confident that in the long term the industry will sort out these issues, for now, the firm is negative on its outlook for the next year.
