Money managers are set for a stable 2019 thanks to their ability to integrate technology, address cost structure issues and adapt to a new service model, according to a report from Moody's Investors Service.
The rating agency's annual outlook said money managers might face weaker demand and falling fees but overall are resilient. Managers have been able to preserve operating profit margins per dollar of assets under management thanks to cost management, supported by "technology substitution," the outlook report said.
Moody's expects revenue growth to continue into 2019, albeit at a more moderate pace than previous years. Weaker demand, fees and market weakness will slow revenue gains, the report warned, while higher interest rates and rising volatility are set to challenge the aging bull market and business cycle, as well as drive portfolio repositioning and outflows.
Also keeping the outlook stable is the use of mergers and acquisitions, which the report said supports scale, distribution and diversification, and growing environmental, social and governance and alternatives opportunities.
Moody's also outlined issues that could affect money managers and turn the outlook to positive or negative. Improved active performance, positive organic growth across a broad group of competitors, moderation of rotation into passive strategies and expanding margins thanks to top-line growth and technology-driven cost reductions could all turn the outlook to positive.
On the flip side intensifying fee pressure, continued outflows from higher margin strategies, a re-rating of asset and revenue bases due to market disruption, or regulatory disclosures putting a spotlight on fees and performance — leading to reduced demand — could turn the outlook negative.
The outlook considers the forward-looking assessment of fundamental credit conditions, which will have an impact on the creditworthiness of money managers, over the next 12 to 18 months.
The report is available to subscribers on the Moody's website.