Fitch Ratings Says Managers Must Urge Active Management

(September 22, 2010) — According to a new report by Fitch Ratings, European asset managers need to restore investors’ interest in active strategies to meet heightened global competition from other managers and substitution products like ETFs, more volatile markets and more demanding clients.

The ratings agency said in a report that asset managers must offer investors greater transparency in regards to products, processes, and communication in order to restore investors’ commitment to actively-managed products. The report, titled “European Asset Management: An Industry Under Pressure,” concluded that managers must offer “all-weather” strategies and the ability to customize products and services to institutional clients, offering tailor-made and off-the-shelf products adapted to investors’ needs. According to Pensions & Investments, the report revealed that more than half of inflows in 2009 went to asset classes for which investors were making tactical bets as opposed to long-term allocations. The authors of the study added that managers must involve investors more in investment decision-making or risk management.

The study concluded that in order to improve the resilience of their business models, specialist managers need to require more flexible cost structures, which could be gained through outsourcing, and lower break-even points. “Generalist managers will need to increase critical mass on core or growing markets, diversifying the investors’ base and developing product mixes around all-weather products,” the report stated.

“Asset managers continue to battle with more volatile capital markets, more demanding and cautious investors, increasing competitive pressures fueled by the globalization of the industry and the advent of substitution products,” Fitch EMEA fund and asset manager rating group head Aymeric Poizot said in the research.