The good times for European investment firms — which saw assets under management (AUM) hit record heights in the second half of 2024, boosting firms’ bottom lines — are in peril, as those gains could now be wiped out by the turmoil in financial markets, Moody’s Ratings says.
In a new report, the rating agency reported that firms’ AUM hit record levels of €13 trillion by the end of 2024, as assets rose 6.6% year-over-year, driven by a combination of stronger markets and growing net flows from investors.
This, in turn, boosted revenues for the asset management industry, and margins rose too, as revenues grew amid still-strong cost controls.
“However, the sector’s gains could be reversed if recent financial market volatility related to U.S. trade tariffs persists, forcing investors to shift to safer assets,” Moody’s said.
Both AUM and revenues could be adversely affected if the sort of market sell-off that took place in the face of shifting U.S. trade policy in recent weeks continues, it noted.
Last year’s increase in net flows was powered by positive investor sentiment, it said, as fixed income funds and index funds enjoyed strong inflows, which were partly offset by outflows from active equity strategies.
“Sustained market volatility would accelerate outflows from active equity funds toward safer assets, such as money market funds and cash,” it said — noting that market volatility metrics have reached levels that were last hit with the onset of the pandemic, as a result, “investors are braced for more uncertainty.”
In particular, active managers, “will likely remain under pressure,” the report said, as investors continue to shift toward lower-margin passive products.