The EUR19 trillion European asset management industry faces new opportunities for substantial growth in retirement products and alternative lending, says Moody's Investors Service in a special report. However, the rating agency warns that competition and regulation pose challenges for the sector.
"Asset managers are increasingly acting as alternative lenders, filling in the funding gap left by banks, but competition and new regulations have made it vital for asset managers to strengthen control over their distribution. Increased competition will also drive industry consolidation," state the authors of the report, "Opportunities to Grow in Retirement, Alternative Lending, but Regulation, Competition Pose Challenges”.
The rating agency says ICG, Man and Amundi are especially active in the alternative lending space. Increased funding activity is helping European asset managers to diversify earnings and to increase product sophistication.
"Amid these new opportunities, it has become a priority for asset managers to build user-friendly investment solutions that meet individual retail investors' retirement needs. Larger managers with products that have long and successful track records are in the best position to capture market share in this space early on," observe Moody's analysts. As competition heats up, Moody's says FIL, Aberdeen and Schroders are well-positioned to take advantage of the shift toward defined contribution retirement plans.
FIL recently developed a new platform called Retirement Services that provides customised retirement advice, products and services to retail and DC investors. Similarly, Aberdeen has expanded its product range by enhancing solution-type products. Through the Scottish Widows Investment Partnership acquisition, Aberdeen gained additional expertise in customised solutions, with products ranging from traditional to alternative asset classes. In 2014, Schroders launched funds to meet demand from new retirees, and other funds targeting the DC pre-retirement market.
New regulation, designed to reduce systemic risk, comes with a large cost burden that is easier for larger asset managers to absorb. Evolving regulatory regimes such as MIFID, AIFMD, and, in the UK, RDR, will require upgrades to skills and systems, and therefore the costs of compliance will be high. Managers such as Amundi and Aberdeen, which benefit from larger scale, have an advantage in this regard.
Moody's research compares eight asset managers to analyse how opportunities and challenges affect them: Aberdeen Asset Management PLC, Amundi, FIL Limited, Intermediate Capital Group PLC, Man Group, MIPL Group Limited (Mondrian Investment Partners Limited Group Ltd.), SAM Investment Holdings Limited and Schroders PLC.
With the global shift toward defined contribution plans and away from defined benefit plans, assets under management are on track to continue their strong progression, and asset managers with the infrastructure to take advantage of these changes will benefit.