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Money Management

Moody’s: European manager AUM, fees rise in second half of 2017 on M&A, markets

Mergers and acquisitions helped bolster European money managers' assets under management 6.6% in the second half of last year, Moody's Investors Service said.

The rating agency's latest analysis of 21 European money managers said total AUM grew to €9.5 trillion ($11.4 trillion) at the end of 2017.

Net inflows also helped drive AUM growth, at €135 billion in the second half of 2017, compared with net inflows of €30 billion in the second half of 2016. Total net inflows in 2017 were €211 billion for the managers.

Moody's estimates that low-cost strategies, such as exchange-traded funds, gathered about 25% of net inflows, and that "a large portion of the net new money was channeled into fixed-income strategies," a report on the analysis said.

Only three of the 21 managers reported net outflows in the six-month period — Janus Henderson Investments, Standard Life Aberdeen and Mondrian Investment Partners. Moody's highlighted that Amundi attracted €44 billion in net inflows in the period, the largest amount of the 21 managers. It also cited Standard Life Aberdeen's 16.9 billion ($22.8 billion) in net outflows over the period, which Moody's said, "reflected withdrawals from the company's Asia and emerging market equity" strategies, and from the Global Absolute Return Strategies fund, "all of which are going through a period of weaker investment performance. The impact on revenue generation was limited, as the outflows were broadly offset by favorable markets and foreign-exchange fluctuations."

Total management fee revenues grew 12.7% in the six-month period across the firms, with mergers and acquisitions accounting for half of this increase, Moody's said. Moody's also estimated that overall fee revenue increased 6% over the half-year, "helped by inflows and strong markets." Revenue and comparative figures were not available by press time.

"About half of the increase in fees we recorded was due to the acquisition of asset managers previously outside of Moody's surveyed group, for example, the Janus-Henderson merger and the acquisition of Pioneer (Investments) by Amundi," said Marina Cremonese, a vice president and senior analyst at Moody's, in a statement accompanying the report. "However, the other half is down to market appreciation, higher performance fees, as well as positive net flows."

Moody's highlighted a number of recent industry developments. It said money management is an area of focus for banks and insurance companies, citing Deutsche Bank's partial initial public offering of 22.25% of its money management unit, DWS. It also noted Prudential's plans to split its U.K. division Prudential Assurance Co. and the M&G money management arm under a new holding company, M&G Prudential. "The parent companies in these transactions all aim to optimize the growth of their asset management operations, either by enhancing their strategic flexibility, or by unlocking synergies, or both. In the case of DWS, the move is also intended to help the parent strengthen its capital position," Moody's said in the report.

Consolidation is also set to remain an important theme, with Moody's citing the announcement this month that Federated Investors (FII) had entered an agreement to acquire a 60% stake in Hermes Investment Management.

"We expect that industry consolidation will remain an important theme going forward as persistent pressure on active management fees encourages asset managers to increase their scale and operational efficiency," Moody's said.