Asset Management confidence remains strong going into 2011
A survey released by Ernst & Young today, indicates that confidence in the asset management industry slipped in the first quarter of 2011, in line with a slightly weaker local equity market. The fall in confidence levels was marginal, and confidence remains nevertheless strong by historical measures.
Asset manager confidence fell from 89 index points in Q4 to 83 points in the first quarter of 2011.
This is the 33rd quarterly survey conducted to measure confidence in the asset management industry, and the research is conducted by the Bureau for Economic Research in Stellenbosch.
A breakdown between large and small managers indicates that large managers (those with assets in excess of R20 billion in funds under management) reported weaker confidence, at 84 index points. Small manager confidence continued to rise, from 77 index points to 81, indicating that just more than eight out of ten small managers are satisfied with current business conditions.
Comments Chris Sickle, the lead Asset Management director at Ernst & Young, ‘ Despite the slightly weaker confidence amongst large asset managers, levels are nevertheless strong, and in line with the long term average reading of 85.’
He continues, ‘Asset management confidence remains in sync with equity markets in the first quarter, with a strong correlation between the JSE ALSI index.
However, there was again difference in experiences between small and large managers, with small manager confidence levels rising for the third consecutive quarter to 81 index points. Small manager’ confidence is more closely in line with that of large managers, for the first time since the middle of 2010.
Sickle comments, ‘Typically small managers take longer to feel the benefit of an uptick in economic conditions. They also typically do not quite reach the same peak levels in confidence that the large mangers do, unless there is a protracted period of strong GDP growth, as was the case in 2007. By the same token, small managers did not trough quite as severely as the large managers did through the crisis in 2008.’
In addition, he says, ‘cost pressures for asset managers remained strong in the first quarter. Although the rate of cost increases slowed, income growth also slowed during the quarter. However, in the case of small managers, costs continued to be pressured upwards, offsetting the lower rate of cost increase across large managers. Once again, he adds, ‘asset managers are in the same boat that other financial services companies find themselves in. There is no short term solution to lowering the cost base in light of continued regulatory changes. In 2011, the Consumer Protection Act and the new Companies Act are among some of the new requirements that come into effect. This undoubtedly impacts on costs for companies across the board. Asset managers are by no means immune from these cost implications.’
Sickle also comments on the strong sustained inflows, particularly those in the retail market. ‘Retail investors are currently very bullish, and this is evidenced by strong unit trust inflows, excluding money market funds. Unit trust inflows are at a three year high for small managers, and nearly four years in the case of large asset managers. Survey data shows that product demand is leaning toward absolute funds and balanced funds, with an increased appetite for foreign exposure.’
Sickle concludes; ‘Despite the weaker confidence registered in the first quarter of 2011, overall confidence levels remain in line with long-term averages. Prospects remain sound, despite weaker profits growth. Looking forwards, asset managers remain confident that the 2nd quarter of 2011 will remain favourable.’
