Asset management companies prepare for turbulent markets after the pandemic

Analysts said that the rise in the stock market boom in 2021 has almost boosted all listed asset management companies, but as investors favor groups in fast-growing areas such as private assets, the gap between winners and losers is expected to widen next year.

“The generally active stock market and the cost savings associated with the pandemic provide important support for the income of asset management companies. [since the] Jefferies analyst Tom Mills stated that “a brief, sharp market adjustment will occur in March 2020 when the pandemic begins.” “Given that many managers are now investing in growth, future and possibly longer drawdowns may cause greater damage to operating margins.”

The private market becomes the hottest area In transaction For mainstream asset management companies this year, they are trying to take advantage of Popularity Use these strategies among investors seeking income while raising long-term capital, which usually charges higher fees than open market strategies.

Schroder, listed in London this month, Bought a majority stake Acquired Greencoat Capital, a renewable energy investment company, for 358 million pounds.

This move follows two major alternative transactions in the United States: T Rowe Price announced $4.2 billion acquisition Credit manager Oak Hill Advisors said in October and the following month that Franklin Templeton would acquire Lexington Partners, a private equity investment expert $1.75 billion.

Ju-Hon Kwek, a senior partner at McKinsey in New York, said: “The performance of individual asset management companies may fluctuate significantly next year,” said. Groups that provide private market exposure “may see very healthy growth and profitability in the face of strong customer demand.”

Traditional asset management groups have been working hard to protect their profit margins because the conditions that pushed the market to record highs are about to be reversed.

In the past two years, fiscal stimulus measures are being withdrawn, and the central bank is controlling asset purchases, just as fund companies are struggling to cope with the long-term challenge of cost compression and the rise of passive giants such as BlackRock and Vanguard.

Valuation multiples have improved, and the premiums of traditional leaders and alternative experts are getting higher and higher

“The old traditional stock picking business, especially the underperforming companies, may continue to be in trouble,” Kwek said. “Not only does it face the growth and cost pressures brought about by the continued march of passive managers, but it is also very vulnerable to the performance of the stock market. These groups are trapped in the middle, and this is where you will see some squeeze.”

He added that another disadvantaged group in the downturn is managers who have speculatively expanded into “hot” areas in the past few years, such as multi-asset, risk parity or international investment. “There are a few companies that have stepped in and spread their investments on small-scale, non-scalable platforms; the result is high fixed costs and operational complexity.”

Strategies focusing on the environment, society and governance continue to be welcomed by investors. In August, Goldman Sachs Asset Management Acquired the investment arm of the Dutch insurance company NN Group About 1.6 billion euros, attracted by its strong position in this part of the market.

But Jefferies’ Mills warned: “ESG funds have fairly high exposure to growth companies.”

“If the promise to raise interest rates next year is fulfilled, and we see the market shift to a more value-oriented market, then some of these ESG funds may have performance problems.”

At the same time, managers have been trying to cut costs through outsourcing. In November, JP Morgan Asset Management outsourced its middle office to the securities service department of the parent bank.

“Asset management companies will continue to outsource non-core businesses because this is a way to reduce costs and increase the ability to invest in more differentiated areas, such as China, ESG, and large-scale personalization,” said George, CEO of JPMorgan Asset Management Gatch said. manage. “Anything related to managing the funds or clients I want to own. Any other things I want to outsource.”

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