Fitch Ratings projects a negative outlook for its traditional money manager subsector in 2019, a Fitch Ratings monthly report said.
While long-term, active domestic equity funds saw $614 billion in net outflows from January 2016 to October 2018, passive domestic equity funds saw $598 billion in net inflows during that same period, the report said. Despite those outflows for active funds, assets under management are expected to show growth for 2018 due to overall stock market appreciation, although the report notes the fourth-quarter market correction will result in a slower AUM growth for the full calendar year.
"We expect that slower AUM expansion could impact profitability margins for traditional (money managers), particularly as management fee rates are pressured," said Evgeny Konovalov, director, in a news release. "However, there is some potential opportunity for active managers in a downturn if they are able to outperform their passive benchmarks as they have generally done historically."
Fitch also projects that regulatory costs for money managers will remain elevated in 2019 despite the Department of Labor's fiduciary rule being vacated by the 5th U.S. Circuit Court of Appeals in New Orleans earlier this year due to new regulations in the works by the Securities and Exchange Commission on a best-interest standard.
The report also projected more industry consolidation is expected as well.