Investment Managers Well-Positioned to Weather Financial Volatility Amid Sector Pressures

Investment managers (IMs) with well-established and diversified franchises are poised to withstand market pressures stemming from heightened financial market volatility and slower economic growth, according to Fitch Ratings. These managers are focusing on growth areas such as private assets, active exchange-traded funds, and wealth management, which should aid business stability but introduce execution risks. Fitch's review of seven global IMs highlighted the sector's challenges, including decreased net new money flows and investment valuations due to increased market volatility and weaker economic growth prospects.

Key Takeaways:

• Rated IMs have robust financial metrics, well-established franchises, and diversified businesses, which enable them to withstand sector-wide pressures.
• IMs are countering sector-wide challenges by focusing on strategic growth areas, such as private assets, active exchange-traded funds, and wealth management.
• Fitch's review of seven global IMs highlighted decreased net new money flows and investment valuations due to increased market volatility and weaker economic growth prospects.
• The importance of franchise diversification in volatile conditions was underlined in 2024 and 1Q25, when robust flows into passive, wealth management, and private asset funds mitigated weaker, more transient flows.
• Amundi and Schroders are subject to prudential capital requirements, and where debt has been incurred for M&A purposes, it is within rating tolerance levels.
• IMs with specialised niches have been better able to defend margins as they can scale effective strategies.
• Business mixes are evolving, with a shift away from higher-margin equity funds and into lower-margin fixed-income products.
• Fitch expects continued margin contraction for mass retail products as IMs launch their own low-fee active exchange-traded funds to compete in this growing sector.

Statistics:

• Four-year average fee-related EBITDA/fee revenue margins for rated IMs is above 20%.
• The market sell-off in April 2025 was followed by a sharp rebound, with assets under management benefiting from market appreciation in 2024.
• Leverage is generally low for rated IMs, with balance-sheet use typically to fund seed investments or co-investments in private asset businesses.
• Fitch revised its sector outlook for global IMs to 'deteriorating' in mid-year 2025 to reflect sector-wide pressures.

Sources:

• Fitch Ratings, Recent Commentary (no date provided)