Global asset management outlook is negative for 2021, driven by ongoing risks in financial markets and investor flows owing to uneven global economic recovery from the Covid-19 pandemic, according to Moody’s.
In a recent report, Moody’s said that its negative outlook is also based on increased financial market volatility and the conservative strategies that assets management adopted because of the pandemic, which dampens revenue.
In this regard, the report said that although debt burdens are manageable, lower cash flows elevate financial leverage. It also said that global economic recovery is underway, but is challenged by the fight to contain the virus.
“In addition, clients’ desire for one-stop shopping encourages the consolidation of flows to the largest, most diversified asset managers, further accelerating the edge big companies have over smaller ones,” reads the report.
The report proposes a number of actions that could help stabilise this negative outlook, including returning global economic activity to pre-pandemic levels and expanding real GDP further than that achieved in recent years. It also recommended adopting a lower for longer interest rate environment that will sustain investor appetite for higher risks and adopting higher-fee investment products.
The report also calls for digitalisation of product and service offerings, creating direct relationships with clients and driving faster revenue growth, adding that adopting improved active management performance can drive asset flows into higher-fee products.
On the other hand, the report said that financial markets recovery is threatened by the second wave of Covid-19, adding that low interest rates and adopting accommodative monetary policies that aim at supporting financial markets are important for these markets to recover from the pandemic.
Moody’s also expects in its report that Covid-19 will reshape business models globally, saying that the pandemic will likely accelerate the adoption of digital solutions and services by both consumers and businesses.
In this respect, the report said that investors want the same level of transparency, customer focus, and ease of transacting that digital solutions are securing, in addition, expecting that the sale of funds through online payment platforms, which is very successful in China, is likely to be replicated by players in developed markets.
“According to McKinsey, a growing number of companies have accelerated automation and digitisation since the onset of the pandemic,” noted the report. However, digital transformation raises cyber risks that will require increased cyber defences, according to the report.