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Asset Managers Are Employing a Risky Strategy, Ratings Agency Warns
Managers that have best weathered fee pressures are those moving into less liquid alternatives. But Fitch says this approach brings increased risks.
Low-cost index funds, which continue to squeeze traditional active asset managers, work best in markets that are transparent and efficient. That’s why managers that have moved into the kinds of complex alternative investments and private markets that have so far been resistant to passive strategies have weathered fee pressures better than most.
但这一策略有手术的增加ional risks and a potential hit to an asset manager’s reputation if things go wrong, according to a Fitch report on the industry, released Thursday.
There’s a reason asset managers can charge more to oversee less-liquid strategies. Alternatives are often complex and require specialized expertise.
Regulators and others are focusing on the risks that may arise when traditional firms expand into alternatives to increase assets and fees, according to Fitch’s report.
Fitch is concerned about the potential for problems when it comes to liquidity, a problem that has engulfed some high-profile funds in the U.K. and Europe this year. Woodford Funds, for example, prevented investors from accessing their money after the manager had trouble selling some illiquid securities.
“In particular, the recent gating of the LF Woodford Equity Income Fund in the UK has highlighted the need for fund structures to be aligned to the underlying investments held in order to limit liquidity risks,” according to the Fitch report. “This could be a particular concern for traditional IMs [investment managers] investing in less liquid assets but adopting an open-ended fund structure which can leave these funds prone to ‘runs’ when risk aversion sets in.”
但福奇非银行金融机构的董事Evgeny Konovalov表示，在接受采访时表示，当涉及美国的大型资产管理人员时，他不太关注这个问题。
“From the U.S, standpoint, we have traditional big guys investing into alternative funds like Invesco. But Invesco has been in those strategies for years,” said Konovalov. “They have quite a bit of experience.”
Smaller managers moving into new areas such as emerging markets and alternatives may face more constraints than their larger peers, he explained. “These [assets] require unique expertise that they may not have,” he said.
Azadeh Sharif, also a director in non-bank financial institutions at Fitch, added in the interview that liquidity is not a risk to managers’ solvency or to the markets in the U.S. right now.
[IIDeep Dive:There Could Be Another Woodford-Like Liquidity Crisis, MSCI Warns]
“这更像是一种操作风险，”她说。“如果他们必须大门，它会影响他们的声誉。这将影响资产流动及其费用。“
According to the ratings agency, asset managers have been looking for ways to handle redemption risks by increasing their liquidity with credit lines and other measures and by targeting institutional clients.
“However, the larger institutional mandates do come with their own risks. They are typically more fee-sensitive and, if switched to other managers or internalized, can cause significant AUM effects as was seen at several IMs in 2018,” the report stated. Amundi and Schroder had significant institutional outflows in 2018, according to Fitch.
Asset managers rated by Fitch had mixed performance results last year. For the most part, “Net inflows were below recent historical levels as investors appeared wary of committing new capital,” according to the report.
Between the sell off in the fourth quarter of last year, and now trade wars and Brexit, “everything is very volatile,” said Sharif, adding that investors remain skittish on allocating more to asset managers.