‘Dark clouds’ over London’s asset managers here to stay, analysts warn
London’s beleaguered asset managers may be battling lingering “dark clouds” for years to come as investors shift their cash into so-called alternative assets and hunt for lower cost funds, analysts have warned.
In a note to investors today, analysts at investment bank Numis said troubles plaguing traditional money managers, including a flow of cash into private markets and a shift towards lower-cost passive investment funds, will continue to trouble the industry as “structural” issues.
The warning comes after a torrid two years for Britain’s traditional money managers, who have faced a drop-off in flows as skittish investors look to avoid volatility on the markets. Rising interest rates have also boosted the appeal of cash to investors and allowed them to reap a risk-free return on their cash.
“We think the challenges facing the traditional part of the industry look set to remain in place as structural problems,” Numis analyst David McCann wrote.
“Notwithstanding that a more risk-on market would likely ‘lift all ships’ on a shorter term basis and the very real prospect of [takeovers] for many of these companies as the industry consolidates, we would still be wary of making any long term investments in this space and our recommendations reflect that.”
The comments point to a trend of firms snapping up rivals over the past year as bosses hunt for safety in scale amid the downturn. Nearly three quarters of asset managers were considering a deal with a rival in July last year, according to PwC.
The attractiveness of the sector for investors has also been dampened by a “higher regulatory cost burden” as the FCA beefs up its oversight of the industry, McCann added.
Some of London’s top listed money managers have been rocked by tumbling assets in the past year. A drop-off in investor confidence over the summer also choked off flows into the firms and has triggered slumps in value across the industry.
Schroders has dipped around five per cent in value of the past 12 months, while Liontrust has shed nearly half of its value and Jupiter over 32 per cent. Abrdn has fallen over eight per cent over the past year.
In its note today, Numis said there was “no strong case for ownership” across the list of the UK’s top listed managers including Schroders, Jupiter, Liontrust and Abrdn.
The warning against the industry follows a similar missive from investment bank Peel Hunt in November, in which analysts slashed their outlook for total managed assets in the industry by an average of 15 per cent from the full year figure in 2022.
While the Financial Conduct Authority has ramped up scrutiny of the consumer facing segment of the industry under its Consumer Duty rules, Numis said the area of the market offered more long term value for investors.
“We continue to believe Wealth is a structurally more attractive place to be than (traditional) Asset, given the closer proximity to the customer (good for fee margin retention) and lesser active performance risks,” Numis’s McCann wrote.
St James’s Place, Britain’s biggest wealth manager, has been hit by regulatory hurdles over the final months in the year and slumped over 40 per cent in value across the year. However, McCann argued the firm may offer some long term value after an “uncomfortably long transition period”, as it adapts to changes under consumer duty.