Global investment managers will face a challenging investment environment in 2023, and intensifying macro pressure, according to Fitch Ratings.
In a new report, the rating agency said its outlook for the fund management sector overall is “neutral” heading into 2023, but added traditional fund managers are more exposed that alt managers.
“Pressure on asset values, net flows and resulting management fees is likely to intensify due to increasing market volatility and slower economic growth,” Fitch said.
Indeed, the outlook for the traditional investment management segment of the industry is “deteriorating,” the rating agency said, “as we expect competitive pressures to increase as investable wealth diminishes and relative performance is tested.”
“Competition from passive funds, which have outperformed active funds (net of fees) in recent years, is also likely to continue,” it noted.
While larger, more diversified firms are well situated to deal with these kinds of challenges, smaller firms “may find their financial metrics under pressure unless they can deliver investment outperformance,” Fitch said.
Alt managers are also likely to prove more resilient than traditional investment managers, “given the stability of their fees and long-term closed-end fund structures and growing perpetual capital structures,” it said.
The outlook for the alt fund sector is “neutral” for 2023.
Fitch also has a neutral outlook for Canadian pension funds in 2023, “reflecting their long-term investment focus, captive inflows and exceptionally strong asset over collateralisation and liquidity.”
On the regulatory front, Fitch expects a growing focus on emerging investment risks in 2023, “including higher-risk strategies that could lead to outsized investment losses or fund liquidity issues when markets are volatile,” alongside growing concerns about greenwashing.