The strength of US and European stock markets helped European asset managers grow their AUM in 2016, but they could not halt a decline in advisory fee revenues, according to Moody’s.
The report from Moody’s Investors Service surveyed 22 asset management firms and found that they grew their combined assets under management by 7.9 per cent last year.
But, over the same period, advisory fees fell 2 per cent due to product mix changes.
Schroders was the stand-out performer in terms of AUM growth, posting a 23 per cent increase in 2016, the best in the peer group.
Moody’s said the weak pound helped the group, which is a net exporter of financial services with substantial operations on the Continent. This has helped to limit its Brexit-related operational costs and risks.
“Most UK asset managers have been assessing how their business will be affected by Brexit and putting in place contingency plans,” the report said. “Moody's believes that the operational and business impact will be manageable for most of rated asset managers, although there will be an incremental increase in costs.”
Meanwhile, insurer-owned asset managers recorded the strongest growth in AUM, with a compound annual growth rate of more than 10%.
Regulatory changes have encouraged UK life insurers to expand their asset management divisions, with many drawing on their pensions expertise to attract new assets, said Moody’s.
Deutsche Asset Management's total AUM dropped 5 per cent, with total outflows of €41 billion, due to negative market perceptions concerning its parent, Deutsche Bank, and changes in Deutsche AM's own management.
Aggregated gross debt levels fell 14% year-on-year in 2016, mainly due to a £150 million repayment by Henderson in March 2016, and to a decrease in short-term debt across the group as a whole.
Net flows for the asset managers surveyed were positive overall at €32.9bn, equivalent to 0.4% of AUM, sharply lower than the €242bn collected in 2015. Eleven of the 21 managers surveyed reported net outflows.
Moody’s research has relied on public data for many companies, with the data on AUM and advisory fees coming from group information for 22 companies. Flows data comes from 21 companies.
Moody’s overall outlook for global asset managers is negative due to fee pressures being felt across the industry, and the rotation into low-cost passive products.
High asset valuations and the global macro backdrop also increased risk, Moody’s said, while regulatory pressures are constraining sales and ramping up compliance costs.
It pointed to the competition-enhancing measures announced in the FCA’s asset management market study released earlier this week as a prime example.
"Despite financial market turbulence, the group of companies we surveyed managed to increase total assets under management in 2016," said Marina Cremonese, a Moody's vice president, senior analyst and co-author of the report.
"However, organic growth, as measured by net fund inflows, was flat and many managers, particularly independent and bank-owned operators, experienced net outflows."