Pressure will not let up on the European asset management industry, at least for the remainder of 2010 and beyond, warns Fitch Ratings, largely due to the need to restructure and financial market conditions.

Fund management industry profits are unlikely to return to pre-crisis levels in the short-term, said Fitch, due to lower growth in assets under management and reduced cost saving opportunities. The financial standings of weaker asset management firms will therefore be left vulnerable to any renewed market downturn, the firm warned.

The European asset management industry has seen profitability decline overall, although operating margins remain healthy on average at 27 per cent, compared to 35 per cent in 2007.

Further uncertainty in the industry over regulatory changes is not helping either - on the investment management side, the UCITS IV framework, due for implementation in 2011, should improve the efficiency of the industry and aid greater cross-border competition.

However, the Alternative Investment Fund Management directive, which is still under discussion, is seen as more of a challenge for some investment managers.

"Longer-term changes, including regulations such as Basle 3 or Solvency 2, represent a more significant challenge to the industry which could see big investors like banks, insurance companies and pension funds moving outside certain higher risk asset classes," said Aymeric Poizot, head of Fitch's fund and asset manager rating group in EMEA. "In this context, demand is more likely to focus on fixed income such as government bonds and riskier alternative products at the expense of equities."

Ongoing issues with macro-economic trends will likely weigh on asset performance and inflows in 2010, added Fitch, something else to challenge the industry in the shorter-term.

The restructuring of business models remains work in progress, with many product ranges still to be streamlined to achieve critical mass in core markets.

However, opportunities are still out there for managers who are able to exploit changing market trends though active asset allocation and relative value strategies in the short-term. Changing demographic trends and new market growth through genuine product innovation in the longer-term will also present new opportunities.

The report, European Asset Management: An Industry Under Pressure is available here.

Share Story: