U.S. asset managers faced several challenges during the third quarter of 2018 (Q3 2018) as assets under management (AUM) growth weakened and results modestly declined, despite robust performance in the equity markets, Moody’s Investors Service says in a report published Tuesday.
Average AUM was up 6.5% year-over-year, “the weakest in over two years and significantly weaker than in the second quarter,” the report says.
This weakness may reflect investors anticipating slowing growth, and the impact of ongoing trade wars, it suggests.
A continuation of U.S. domestic mutual fund outflows drove negative net flows for the second consecutive quarter. This reflects “both continuing dissatisfaction with active management performance along with concern about the market outlook,” the report says.
Industry revenues are also under pressure too, the repor says. U.S. asset manager revenues were up 5.3% year-over-year in the quarter, lagging the weaker AUM growth. The report cites lower performance fees as the reason. “Competition in pricing of passive products downwardly pressured fee rates, which were down 6% year-over-year,” it says.
Looking ahead, the pressures facing the industry are likely to intensify. “So far in the fourth quarter, equity and bond markets are down meaningfully, corporate spreads have widened and volatility has increased dramatically, which only increases the industry’s challenges,” says the report.
Despite these challenges, Moody’s rating outlook for U.S. asset managers remains stable. “Asset managers are resilient under our stress scenarios. Therefore, we do not expect to see significant downgrades in the short-to-intermediate term. The stable outlook also reflects consistent stability in margins and fees in recent months, although these have been achieved during a period of generally strong market performance,” the report says.
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