Alterative asset managers to be more resilient to downturn

Fitch's assessment of European market reveals a modest decline in net flows in 2023

Alterative asset managers to be more resilient to downturn
Steve Randall

Continuing negative economic conditions are likely to result in a challenging year for asset managers in 2023, although those focused on alternatives will be most resilient.

According to an analysis by Fitch, asset managers in the European market, where inflation, especially energy costs, is squeezing retail investors’ budgets, will see a moderate decline in net flows next year.

However, the outlook notes that most clients have higher levels of disposable income that will not be significantly impacted by the higher cost of living.

Additionally, it highlights the resilience of assets under management (AUM), scale, diversified business, and sound profit margins, which should maintain wealth managers’ credit profiles.

Fitch says that “financial market volatility is likely to continue in 2023 as high inflation, interest rate rises, and the economic slowdown continue to unsettle investors.”

European asset managers rated by the firm reported a 15-20% decline in AUM in the first half of 2022 and declining asset values, and pressure on net inflows and related management fees, have deteriorated the outlook for traditional asset managers.

However, for those in the alternative assets space, Fitch has a neutral outlook: “as they are likely to be more resilient given the stability of their fees, long-term closed-end fund structures and growing perpetual capital structures.”

Top risks

The report highlights regulatory and reputational risks as key vulnerabilities for wealth managers.

Among these are the suitability of products, that are attracting increasing attention from regulators in most developed markets, due to new EU regulation linked to clients’ ESG preferences and high retail appetite for non-traditional financial products in recent years, including illiquid and digital assets.