<\/p>\n
Markets drive industry AUM higher, net flows positive for large firms.<\/p>\n
Strong markets powered assets under management (AUM) for the U.S. fund industry to near-record levels in the first quarter, but the sector\u2019s rating outlook remains negative, according to Moody\u2019s Ratings.<\/p>\n
In a new report, the rating agency said industry AUM returned to its recent highs in the first quarter, as markets shook off expectations that interest rates may stay higher for longer than previously expected.<\/p>\n
For the firms tracked by Moody\u2019s, long-term AUM was up by 5.8% in the first quarter to US$16.6 trillion, and assets were up 14.3% on a year-over-year basis.<\/p>\n
\u201cDuring the quarter, market appreciation drove over 85% of the increase in assets, while net inflows contributed modestly to higher asset levels,\u201d it said.<\/p>\n
Excluding the largest fund managers (firms with over US$1 trillion in AUM), organic AUM growth remained negative in the first quarter, Moody\u2019s noted, marking the 10th consecutive quarter of net outflows for small and mid-sized fund managers.<\/p>\n
Net inflows went into fixed income, alternatives and multi-asset strategies, it reported, while listed equities saw net outflows, \u201csuggesting that investors may still hold a partially risk-off sentiment.\u201d<\/p>\n
The rise in assets also drove growth in firms\u2019 management fees, even as \u201cseasonal declines in performance fees and higher payroll expenses drove sequential decay\u201d in fund managers\u2019 pre-tax earnings and margins, the report said.<\/p>\n
While the growth in AUM has the industry poised for a positive performance in the second quarter, Moody\u2019s said its outlook for the asset management industry remains negative.<\/p>\n
\u201cAlthough financial markets and asset managers\u2019 AUM levels have experienced strong growth through the first quarter, there remains a risk that the operating environment will weaken, driven by slowed economic growth and persistently high interest rates,\u201d it said.<\/p>\n
\u201cShifts in the AUM mix will continue to weigh on revenue as investors have moved toward lower-fee vehicles and asset classes,\u201d it noted. Further, \u201cOrganic growth continues to be a headwind for the industry, particularly in the higher fee paying active strategies,\u201d it said.<\/p>\n
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