Asset Management confidence remains strong

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survey (pdf, 665.3kb) 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

EY Asset Management graph Q3 2013 

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.

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 43rd 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 third quarter survey results, please consult the reports that are posted on EY's website at the following address: www.ey.com/za

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization and may refer to one or more of the member firms of EY Global Limited, each of which is a separate legal entity. EY Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.

Following on from EY’s successful integration in 2008 of 87 countries into one area from across Europe, Middle East, India and Africa (EMEIA), the firm has launched its Africa Business Center™ (ABC), which aims to enhance the effective and efficient links between its geographic reach and areas of expertise. The firm enjoys representation in 33 countries across Africa.

Web: www.ey.com/za