The UK’s asset management houses are expected to cut down their fund ranges in the coming years as they strive to improve efficiency, according to forecasts by Ernst & Young ITEM Club.
The group’s latest Outlook for financial services report highlights a number of challenges that could hold back growth in assets under management in spite of the recent rise in equity markets.
EY ITEM Club asset management partner Gill Lofts notes that the stock market recovery has helped asset managers offset the downward pressure on fees coming from sources such as rivalry from passive funds, regulatory demands and investor pressure.
However, she argues the likelihood of flatter equity markets going forward and persistently low interest rates will impact fund managers’ ability to grow their assets under management and cause them to rethink business models to preserve their profitability.
Lofts adds many of her firm’s clients are look at reducing the number of funds they manage, as closing underperforming funds can have a “material impact” on an asset manager’s cost base and can help improve focus and efficiency.
“Fund closures are not a novel idea, but asset managers are showing a new willingness to rationalise their product range. This attitude not only reflects the threats to profitability but also the limited availability of seed capital,” she says.
“Firms are increasingly dividing mid-tier funds into those that should be wound down and those with the scope to grow. Funds with the potential to achieve greater scale can then receive targeted marketing and distribution effort. Managers are taking a much more holistic, continuous and wholesale approach to managing the whole product portfolio than we have seen in the past.”
Elsewhere in the report, EY ITEM Club says equity funds should become more popular with investors during 2013 as their focus shifts from capital preservation to the search for higher returns. It tips equity funds to see a 15 per cent increase in AUM this year, while funds of funds are expected to benefit from double-digit growth.