The 2020 outlook for the global asset management sector is stable, reflecting high profit margins, manageable debt burdens, and sustained risk appetite among investors, Moody’s Investors Service says in its annual outlook.
The outlook is supported by a number of factors including low expectations for a recession in 2020, continued rationalisation of middle and back office functions which will help preserve profitability, and expectations for bolt-on (as opposed to transformational) M&A activity.
“Although under pressure from fee compression, passive product substitution, and low organic asset growth, profit margins remain high for traditional asset managers, which is a source of credit strength,” Moody’s Assistant Vice President Stefan Kahandaliyanage says. “For alternative asset managers, we believe business conditions including low rates, public market volatility, and robust investor demand will continue support very strong profitability and leverage profiles across the sector.”
Key growth opportunities for traditional asset managers include private markets investments, solutions products and services, and Environmental, Social and Governance (ESG) investment strategies. Managers will continue to seek expansion in high-growth emerging markets, particularly China, but meaningful earnings contribution is still some years away.
Moody’s outlooks for 2020 consider fundamental credit conditions that will affect sectors for the next 12-18 months.