European asset managers are bracing themselves for a “risky” second half after this yr’s huge fall in markets has left them racing to guard their profitability and pivot in direction of faster-growing areas.
Nearly all listed asset managers benefited from a rising tide of fairness markets in 2021. Nevertheless this yr, their working margins have come under pressure as markets have pulled again as international central banks have sought to tame inflation with sharp fee rises.
“The financial outlook is extremely powerful,” stated Peter Harrison, chief government of London-listed Schroders, which oversees £773.4bn in property underneath administration. “There are inflationary pressures that aren’t going to abate rapidly and a warfare in Ukraine which isn’t going to finish for a substantial whereas.”
Financial headwinds ought to lead to markets remaining tough, he added: “I believe we’re in for a risky second half.”
Valérie Baudson, chief government of Amundi, Europe’s largest asset supervisor with €1.93tn in property underneath administration, stated that since Russia invaded Ukraine in February “we’ve got seen the next threat aversion from shoppers”. She anticipated this pattern to proceed for the remainder of the yr.
Funding managers’ revenues are underpinned by the charges they cost on property underneath administration, which in flip are pushed by market strikes, foreign money swings and internet flows from shoppers. Through the first half of the yr, each fairness and bond markets offered off and a few shoppers pulled cash from funds because the unsure macroeconomic outlook diminished their threat urge for food.
Falling property is placing cost-to-income ratios — a key measure of funding supervisor profitability — underneath strain, particularly for much less worthwhile gamers.
Analysts say that that is prone to lead to widening dispersion within the business. Bigger, diversified teams with publicity to faster-growing areas equivalent to personal property, accountable investing and wealth administration will in all probability fare higher and have the firepower to proceed to take a position. Their extra narrowly targeted rivals might want to discover to methods to chop prices and switch spherical struggling efficiency, in accordance with analysts.
This dispersion was evident in half-year outcomes reported this week. Schroders stated that working revenue elevated by 2 per cent to £406.9mn in the course of the first half and it generated internet new enterprise of £8.4bn, boosted by strategic investments in private assets, wealth and pension fund options.
Amundi additionally benefited from the broad attain of its enterprise. The Paris-based group garnered €5bn of recent consumer cash within the first half, as internet inflows to its retail enterprise and Asian joint ventures offset internet outflows from treasury merchandise and institutional shoppers.
On the different finish of the spectrum, some teams confronted explicit headwinds, exacerbating difficult market situations. Janus Henderson, the results of a merger between asset managers Janus Capital Group and Henderson Group 5 years in the past, stated that its property underneath administration dropped by 17 per cent within the second quarter to $299.7bn, decrease than the $331bn the 2 mixed oversaw following the merger. The group misplaced market share as a result of poor fund efficiency.
“We’re diversifying the enterprise into faster-growing areas like rising markets and alternate options,” stated Ali Dibadj, who joined Janus Henderson as chief government final month. “Asset managers really feel strain when the markets are down, however that doesn’t take away the necessity to make investments for the long run.”
In the meantime London-listed Jupiter stated on Friday that property underneath administration dropped by a fifth within the first half of the yr, to £48.8bn, pushed by poor funding efficiency and £3.6bn in internet outflows. Jupiter stated it had paused hiring and non-essential investments till markets enhance.
European asset managers’ share costs have come underneath broad strain this yr, however the teams with extra diversified companies have fared comparatively higher. Schroders has fallen 17 per cent this yr, whereas Amundi has dropped 27 per cent. Janus, in the meantime has tumbled 40 per cent whereas Jupiter has shed half its worth.
In the meantime teams face a pressure between managing prices whereas supporting workers who’re feeling the strain from the rising value of residing. St James’s Place, the UK’s largest wealth supervisor, stated on Thursday it will pay staff who earn lower than £32,500 a one-off bonus to assist them by means of the remainder of this yr. Given increased inflation, it warned that it will in all probability miss its targets for retaining controllable value will increase at 5 per cent subsequent yr.
Regardless of the present market volatility, asset managers have been extra optimistic concerning the future. “The long-term progress tendencies of the asset administration business haven’t modified in any respect, they continue to be completely in tact,” stated Amundi’s Baudson. She pointed to structural themes, together with funding the retirement of an ageing inhabitants, a rising center class in Asia and the necessity to finance the power transition away from fossil fuels to renewables.
Further reporting by Adrienne Klasa and Joshua Oliver in London, and Lydia Tomkiw in New York