Asset Management confidence remains strong

A survey released by EY today, indicates that confidence in the asset management industry remained strong in the third quarter of 2013, despite weaker growth economic prospects.

 

This is the 43rd quarterly survey conducted to measure confidence in the asset management industry, and the research is conducted by the Bureau for Economic Research in Stellenbosch.

 

Overall confidence rose marginally, from 85 to 92 index points, its strongest level since the first quarter of 2010. This marginal increase in confidence was predominantly due to the stronger sentiment of large managers. Confidence levels remain well above long-term average levels.

 

EY Asset Management Confidence JSE ALSI Index

Chris Sickle, Asset Management Lead Director at EY says that asset management fundamentals remain strong, despite weaker economic prospects. "The recent turmoil across emerging markets has not resulted in a weaker local stock market. If anything, it has provided some upside for the JSE.”

 

The survey results indicate that overall inflows remain buoyant, with all three segments reporting continued gains, with institutional unit trust inflows being the strongest.

The stronger inflows supported further income growth, from already strong first half 2013 levels.

 

Chris Sickle comments, "Fundamentals remain strong, and this quarter also saw a positive turnaround in performance fees. The turnaround in performance fees no doubt plays a major role in asset managers’ confidence levels, as rising performance fees boost earnings flows, even if it simultaneously pushes costs upwards, as fund managers are incentivised accordingly.”

 

Other survey findings include:

 

- Upward pressure on the cost base, driven by higher employee numbers and a rise in almost all cost categories.

- Management fee income in line with that experienced over the last year.

- A strong rise in operating margins, driven by the improved fee income, and despite the higher cost base.

- Continued weak demand for general equity index and tracker funds, with investors becoming more interested in balanced and fixed income products.

 

Regarding costs, Sickle points out that asset managers are no different to other financial services companies in that they face ongoing regulatory demands, which in turn requires in-house investments, particularly in technology platforms, so that compliance targets around these requirements can be met. "Asset managers really cannot avoid certain cost increases, and it is therefore no surprise that the survey results show that IT costs consistently rise the sharpest across the industry.”

 

Sickle concludes that asset managers have bucked the general trend of weakening confidence across financial services due solely to sustained equity market strength. Whilst volatility remains high, the overall direction of the JSE All Share index has been upwards.