Asset Management confidence shows a marginal decline

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survey (pdf, 772.3kb) released by Ernst & Young today, indicates that confidence in the asset management industry declined marginally in the first quarter of 2013.

This is the 41st quarterly survey conducted to measure confidence in the asset management industry, and the research is conducted by the Bureau for Economic Research in Stellenbosch.

The marginal decline in confidence was led entirely by large managers, who reported a moderate fall in confidence, from 82 index points in the fourth quarter to 73. Small manager confidence on the other hand, rose four index points, from 87 index points to 91. For the sector as a whole, confidence levels fell from 84 to 79 index points in the first quarter.

Asset Manager: Confidence Levels

Key for asset management graph Q1 2013

   Asset management confidence levels graph for Q1 2013

Chris Sickle, Asset Management Lead Director at Ernst & Young points out that: “Confidence levels are very much in line with equity markets. The JSE hit new record territory towards the end of the year, and this was particularly noteworthy because of the general weaker economic growth we have recently seen.”

‘Despite this weaker macro environment’, he adds, “Asset managers maintained solid profits during the first quarter, although inflows were somewhat lower than the previous quarter. Sustained equity markets have allowed asset managers to benefit from higher income levels.”

The survey results highlight very different experiences between the large and small fund managers, in line with the direction of their confidence levels. Large managers, facing much slower institutional inflows during the quarter, reported weaker confidence, whilst in the case of small managers, stronger inflows resulted in stronger confidence. Sickle comments, “Large managers reported a sharp turnaround in institutional inflows, and it appears that the small managers benefited from that. Small managers also enjoyed stronger inflows across other segments too, namely retail and private client funds.”

He adds, “Quite often, we find that small and large managers have different experiences in the same time period. For example, in the first half of 2012, large managers saw strong rises in their institutional fund inflows, whilst small managers experienced outflows. The second half of the year saw a reversal in that trend, and in the first quarter of 2013, it was small managers benefiting from institutional inflows.”

Other survey findings include:

  • A noticeable fall in expenses growth, after sharply rising expenses in the second half of 2012.
  • Moderately rising income levels, despite continued shrinking performance fees, which pressured average management fees.
  • Slightly higher bonus payments made than in the previous year and a half, and entirely attributable to small managers.
  • Continued demand for fixed income and balanced products.

Sickle further comments on the divergence between small and large managers during the quarter, “Given that slower expenses growth was only evidenced at large managers, whilst small managers saw continued strong cost rises in the first quarter. Small managers did not recover from the global financial crisis as quickly as their larger peers had. As a result, their inflows tended to lag those of the large managers, which in turn resulted in a much stronger focus on cost control. More recently, their inflows and income levels are in much stronger growth territory, and we think this may now be providing them with the opportunity to spend on much needed projects and initiatives that they would have previously shied away from. So in a sense they appear to be catching up, and investing for growth, not to mention the increasing regulatory compliance needs.”

Sickle concludes by pointing out that: “Expectations for the second quarter of 2013 remain upbeat. Large managers are confident that the weaker inflows reported in the first quarter will be short lived, and that profits growth will remain steady. Small managers, on the other hand, expect continued inflows growth, which will support continued profits growth.”

About the Ernst & Young Financial Services Index

The Ernst & Young Financial Services Index Survey measures the performance of the banking; investment management and life assurance sectors on a quarterly and consistent basis and releases the information timeously. The survey is designed to assist in analysing trends in the banking sector over the short run. Results reveal current and expected changes in banks' income, expenses, profitability, credit standards and investment.

This is the 45th survey of banks 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 first quarter survey results, please consult the reports that are posted on Ernst & Young's website at the following address:

About Ernst & Young

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