October 20, 2014 / 7:47 AM / 3 years ago

Fitch: Continued European AM Growth Faces Deflation and Demand Threats

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Flow Dynamics in European Asset Management here LONDON, October 20 (Fitch) Fitch Ratings says that despite strong growth seen over the last five years in assets under management (AUM) in Europe, the outlook is marred by the threat of deflation in the eurozone and by potentially slower growth in the of core institutional investors. We estimate that the total AUM in the European asset management (AM) industry reached EUR17.8trn in 1H14, driven by inflows and performance in approximately equal measure. Compared with end-2013 our 1H14 estimate represents a 6% increase. If the current trend is sustained then full year asset growth in 2014 could exceed the growth in 2013 and the constant annual growth rate over the last five years: 9% in both cases. Fitch's base-case macroeconomic forecast is for the eurozone recovery to gradually strengthen and to avoid deflation, supporting the industry. However, other outcomes are possible and risks are skewed to the downside. Deflation would likely be negative for the industry both in terms of asset prices (and hence, performance) and, potentially, outflows. Continued AUM growth may be stymied by the asset base of core institutional investors - pension funds and insurers - in the industry. Growth of AUM from these investors has lagged that of the European AM industry overall. Pension funds and insurers account for around half of the industry's total AUM. Furthermore, inflows to European mutual funds from non-domestic investors have slowed, stabilising at around one quarter of total mutual fund AUM. As competition intensifies new money entering the industry may be increasingly "hot" and subject to rapid withdrawal. We believe solutions capabilities will be a key competitive differentiator for AMs. However, competition in this segment will be intense as asset managers strengthen or acquire solutions capabilities and increasingly compete against institutional investors' direct investment teams. In a potentially tougher operating environment it will also be important for AMs to maintain low leverage to protect their creditworthiness The report, "Flow Dynamics in European Asset Management", is now available at www.fitchratings.com. Contacts: Alastair Sewell, CFA Senior Director +44 20 3530 1147 Fitch Ratings Limited 30 North Colonnade London E14 5GN Erwin van Lumich, CFA Managing Director +34 93 323 8403 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available at www.fitchratings.com. Related Research: Fitch Completes Traditional Investment Manager Peer Review: Upgrades AMG (June 2014) Applicable Criteria and Related Research: Fund Quality Rating Criteria here FW+: The Risk of Eurozone Deflation - Peripheral Banks Hit First here US Monetary Policy: Implications of an Interest Rate Shock here 'Front Office' Best Practices in Investment Management here The Credit Outlook here European Insurance: The Search for Investment Yield here Asset Manager Rating Criteria here Investment Manager and Alternative Funds Criteria here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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