Asset management confidence plunges on emerging market turmoil

A survey released by EY today indicates that asset management confidence fell sharply in the third quarter of 2015. This was driven largely by the large fund managers, who felt the impact of economic pressures more acutely.

Overall asset management confidence halved from 74 index points in the second quarter of 2015, to 37 currently, well below long term average levels.

EY Asset Management Index ______ JSE ALSI

This is the 51st quarterly survey conducted to measure confidence in the banking industry, and the research is conducted by the Bureau for Economic Research in Stellenbosch.

Chris Sickle, Africa Wealth & Asset Management lead partner at EY says, “Confidence levels in asset management are the weakest across the financial services sector, and by quite a margin. Amongst financial services companies, asset managers have borne the brunt of the emerging markets turmoil evidenced through the third quarter. Weak commodity prices and portfolio flows all impact on capital markets, which of course impacts asset managers’ earnings.”

He adds, “As a result, coupled with the increased volatility in the market, we are not surprised that asset management confidence is at one of its lowest levels in the last five years.”

The survey found that net inflows were significantly lower in the third quarter, especially from institutional investors.

Other survey findings include:

o A sharp retraction in profits, on the back of substantially shrinking income growth
o Continued pressure on average management fee charges
o Demand for foreign exposure continues to remain high
o A cutback in marketing costs, and an easing in overall expenses growth.

Weak financial metrics coincided with negative stock market movements through the first three quarters of the year. Sickle adds, “2015 has been far more difficult to navigate, with share prices a lot more volatile, and with global investors largely exiting emerging markets. South Africa is fundamentally caught in this emerging market turmoil and the asset management industry as a result faces a far more difficult cycle to navigate through.”

At a segment level, the survey indicates that all product classes across all market segments felt the impact of the volatility, with unit trusts and private investors also experiencing net outflows, as investors withdrew funds in these uncertain times.

Weaker net inflows, coupled with lower assets-under-management, resulted in profits contracting during the quarter, for the first time in a number of years.

Sickle concludes, “Confidence levels will depend on renewed investor interest, which in turn, will depend on concerns of a weakening Rand and volatile stock market. Therefore the next few quarters are likely to be tough for asset managers.”