The 2021 outlook for global money managers is negative, with the uneven economic recovery, increasing cases of COVID-19, financial markets volatility and wavering investor risk appetite weighing on the sector.
Ratings agency Moody's Investors Service said in its annual outlook report that, on top of these issues, longer-term trends that were already pressuring the money management industry "may have intensified with the coronavirus crisis." Challenges include that active management remains out of favor with investors and that fee pressures are accelerating in commodity-type products.
Other pressures include a deteriorating operating environment and that "scale has become a necessity to offset fee compression and clients/distribution partners wanting to have fewer, deeper relationships will drive further industry consolidation," the report said.
"The industry is ripe for consolidation as it is fragmented with top 10 firms having 35% of global market share and oversupply of mutual funds in benchmarked disciplines," Rokhaya Cisse, assistant vice president, said in a comment accompanying the report.
Regarding consolidation, Ms. Cisse said: "Especially in the U.S., larger banks and insurance companies will be formidable bidders for asset managers that can increase their own competitive edge."
Looking further ahead, alternatives, ESG and outcome-oriented products and services — including managed retirement accounts — will attract asset flows, the report said. During the first-quarter sell-off, when total outflows were €148 billion ($177 billion) in Europe, sustainable strategies pulled in €26 billion, the report said. In the U.S., total fund outflows were $267 billion in the first quarter, but sustainable strategies recorded net inflows of $10 billion.
Moody's subscribers can download the report on the website.