Asset Management confidence remains strong
A survey (pdf, 177.1kb) released by EY today, indicates that confidence in the asset management industry remained strong in the second quarter of 2013.
This is the 42nd 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 83 to 85 index points, led by large managers, whose confidence levels rose strongly. Small manager confidence on the other hand, fell back somewhat. Confidence levels remain above long-term average levels.
Asset Managers: Confidence Levels
Chris Sickle, Asset Management Lead Director at EY says that asset management fundamentals remain sound. ‘Nothing much has changed in the second quarter. The Rand remains under pressure, and this drives demand for rand hedge stocks. As a result, the JSE ALSI index, although volatile, has been supported by investors seeking returns from companies that have significant offshore earnings, to cushion the impact of a weakening currency.’
He continues, ‘this has kept inflow levels high – across both institutional and retail investor groups, with private client inflows slightly up from the previous quarter, although not rising at nearly the same pace.’
The survey also found that buoyant inflows kept revenue growth in line with the previous quarter’s levels, driven primarily by base management fees. Performance fees, by contrast, continued shrinking. Overall management fees rose at similar levels in the second quarter.
Sickle comments that ‘Performance fees have been difficult to achieve through the last year. This is largely symptomatic of a strong JSE, which started hitting record levels in the second half of 2012. Although the stock exchange has been volatile more recently, the fact is that strong stock markets make it very difficult for asset managers to out-perform their benchmarks. Even so, asset managers expect the performance fees outlook to improve in the second half of the year.’
Other survey findings include:
Expenses growth slowed moderately in the second quarter,driven by curtailment across all cost categories, with marketing and distribution costs slowing most visibly.
Operating margins (relative to funds under management) remain volatile, with very little clear evidence of a trend emerging.
Net profits rose in line with the previous quarters experience, with local profit growth ahead of foreign based operations.
Demand for fixed interest and balanced products remains strong.
Sickle concludes that asset managers are still experiencing strong inflows, despite weaker economic growth. ‘Stock markets are a key driver of asset management fundamentals. Many market commentators have pointed out that the JSE has not moved in tandem with the weaker growth outlook, with investors reacting to other factors in driving their investment preferences.’ He adds, ‘of course, over the longer term, weaker GDP growth will undoubtedly hurt the JSE, as companies earnings prospects weaken. This is turn will have a knock-on impact on asset managers’ fundamentals.’
About the EY Financial Services Index
The EY Financial Services Index Survey measures the performance of the banking; asset management and life insurance sectors on a quarterly and consistent basis and releases the information timeously. The survey is designed to assist in analysing trends in the asset management sector over the short run. Results reveal current and expected changes in asset managers’ business confidence, net inflows, fees and income, costs, profits and future outlook.
This is the 42nd survey of asset managers conducted in South Africa. The Bureau for Economic Research (BER) at Stellenbosch University conducts the research and analysis. For a more detailed discussion of the second quarter survey results, please consult the reports that are posted on EY's website at the following address: www.ey.com/za
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