European asset managers lose ground in first half as slow recovery weakens fees and margins

Choppy waters

European asset managers’ average assets fell by 1.5 per cent over the first half of the year, as government and central bank intervention helped offset most of the damage inflicted in the coronavirus sell-off. 

According to a survey of asset managers in Europe by ratings agency Moody’s, average profit margins (EBITDA) dropped to 27 per cent, from 30 per cent in the second half of 2019, due to lower management fees. 

Fees shrank by 9 per cent over the six months, going against the grain as assets under management and fund flows began to recover. Italian asset manager Azimut’s gross fees saw a steep 19 per cent fall during the period, caused by a drop in performance fees during the coronavirus crisis. 

Senior analyst at Moody’s, Marina Cremonese, says: “A positive market performance since Q1 means management fees and margins could recover in the second half of the year. However, we remain cautious as market risk is still high given a slower than anticipated economic recovery from the initial coronavirus shock, and a strong resurgence of Covid-19 cases.”

The ratings agency sees hope for asset managers that can “take advantage of the coronavirus crisis to reconfigure their businesses”, as the transition to remote working leads to lower office-related costs and travel expenses.

“We therefore expect EBITDA margins to remain near current levels, despite our expectations of more volatile market conditions in 2020,” continues Cremonese.

UK-based emerging markets specialist Ashmore suffered high redemptions by retail and institutional investors in the first half of the year, leading to a 15 per cent drop in assets under management to USD84 billion. Low distribution expenses and tight cost controls led it to increase profitability, pushing margins up to 67 per cent, from 66 per cent by the end of June.

The asset managers surveyed attracted net inflows of EUR65 billion in the first half of the year, as investors poured money into money market and fixed income products in the second quarter of the year, reflecting their caution.

UK-based asset manager Schroders enjoyed inflows of GBP38.1 billion, equivalent to 7.6 per cent of its AUM at the beginning of the period, as client demand for its Solutions strategies continued. 

Cremonese concludes: “While markets have performed well in Q2 and into Q3, largely thanks to aggressive action by the US Federal Reserve and other central banks, the economic outlook remains weak, with risks to the downside. As AUM, revenue, cashflow and earnings are all highly correlated to the performance of financial markets, asset managers’ financial profile will remain at risk for the rest of 2020.”