Traditional asset management firms are expected to lose around a third of their assets under management as a result of the coronavirus pandemic, according to Fitch Ratings.
The ratings agency projected an average decline in assets of between 29.9 percent and 36.9 percent for large, publicly traded U.S. firms, due to a combination of declining asset prices, fee pressures, and outflows. AllianceBernstein was projected to be the worst hit of the peer group analyzed by Fitch, with an expected AUM decline of 33.8 percent in the ratings agency’s best-case scenario, based on historical 2008 level outflows.
In the worst-case scenario envisioned by Fitch — a set of circumstances including an additional 10 percent market sell-off, plus a sharper decline in manager revenue — AllianceBernstein would lose 40.4 percent of its assets, the ratings agency said.
Even BlackRock, which Fitch expected to fare the best out of the U.S. managers in its sample, was projected to experience a drop in assets under management of between 25.7 percent and 33.1 percent.
A spokesperson for AllianceBernstein declined to comment.
Other U.S. firms analyzed by Fitch included Affiliated Managers Group, Franklin Templeton, Legg Mason, T. Rowe Price, and Invesco. AMG, Franklin Templeton, and Legg Mason were all projected to suffer a decline in assets of at least 31 percent. T. Rowe Price was given an estimated AUM drop of between 27.9 percent and 35.1 percent, and Invesco was expected to lose between 26.4 percent and 33.8 percent of its assets.
“Traditional investment managers with elevated leverage and outsized exposure to equity-oriented strategies face the most pressure to assets under management, EBITDA, and cash flow leverage in the face of increased volatility and global market selloffs caused by the coronavirus pandemic,” the ratings agency said in a report Tuesday evening. “While most traditional investment managers continue to generate positive cash flows under stress, those with higher leverage are likely to have less flexibility in the event of a broad market selloff.”
[II Deep Dive: Here’s How Vulnerable Asset Managers Really Are]
According to Fitch, Legg Mason was the most highly levered of the firms in its sample, followed by Invesco. The ratings agency said that it had already taken a negative rating action against Invesco, affirming its credit rating of “A-“ but revising its outlook from positive to stable.
Other firms that received downward revisions included Lazard Group — downgraded to “BBB+” — and European asset managers Anima Holding and Aziumut Holding, each placed on “watch negative.”
A spokesperson for Invesco did not respond to a request for comment. A spokesperson for Lazard declined to comment.
“Large investment managers with more diversified business models and investment strategies will be better able to withstand the shock of falling fee revenues,” Fitch said, citing short-selling as an example of a strategy that could offset downside risk.
The ratings agency projected an average decrease in margins of between 38 percent and 22 percent for large, publicly-traded asset managers. However, Fitch suggested that declining revenues would be offset by cost-cutting measures.
“Investment managers should be able to reduce costs such as bonus payments and distribution expenses over time to offset margin compression,” the report concluded.
