Asset managers should grit their teeth for a painful year ahead. Banks and hedge funds may have been taken to the extremes of their pain thresholds already but it’s yet to happen to active managers.
According to Watson Wyatt’s Thinking Ahead Group which takes a look at the future of the asset management industry, active managers are starting the year with revenues 30 to 50 per cent below those a year earlier. And if the market stays flat then earnings for this year will be even worse.
Since their business model centres on charging a proportion of the value of assets under management each year (ad valorem fees), the outlook is hardly cheerful.
So how to get through the year? According to the research, pressure on profits can be helped by adding new assets to the cost base through carefully considered deals. Aberdeen Asset Management’s acquisition of Credit Suisse’s asset management operation in return for an equity stake is an example of such a deal.
So expect to see firms change nameplates this year says Watson Wyatt’s Paul Trickett, as it may just be the answer to survival.
More jobs cuts are likely too, with staff costs making up over 50 per cent of total costs. Some firms may be cutting back on headcount and compensation.
And as if that’s not enough the consultancy is also predicting the industry this year may get caught up in new regulation aimed at banks – the financial sector’s equivalent to Sarbanes-Oxley rules.
But before asset managers head for the window, Watson Wyatt soothingly suggests the clean hands of the asset management industry might just mean it will escape any such blows.