Blackrock AUM fall signals a bumpy road for the investment industry

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The first half of the year was a torrid time for investors, with markets becoming increasingly volatile. Stocks and bonds suffered sharp declines, while inflation continued its upward trajectory, eroding any income investors might have earned.

Now that earnings season is underway, it is clear that the UK investment management industry is not immune to investor jitters. Wealth management firm Brooks Macdonald recently announced that its funds under management (FUM) had taken a hit, while fund group Polar Capital saw profits plummet in its latest trading statement.

Weathering the Approaching Storm

More bad news may be in store from other investment firms as they report financial results in 2022. Since Blackrock is something of a bellwether for the financial services industry, the news that its assets under management fell to $8.5bn (£7.1bn) in the second quarter of 2022, a 15% decline from the end of 2021, suggests a longer-term trend in Game.

Emma Wall (pictured), head of investment research and analytics at investment platform Hargreaves Lansdown, says: ‘It’s fair to assume that while the world’s largest asset manager sees the impact of market volatility, then the expectation is the rest of the financial services – wealth managers and asset managers – are going to have a tougher time.

Negative market movements drove FUM down at Brooks Macdonald, despite net inflows of £280m in the fourth quarter to June 30, 2022. The wealth manager saw FUM fall 5.9% from compared to the £16.7 billion recorded at the end of March 2022, and was 4.8%. lower than the £16.5bn reported a year earlier. One bright spot is that the company has had five consecutive quarters of inflows.

Retain assets and customers

Wall observes that wealth managers whose products perform well over the long term are likely to be more “sticky” when it comes to clients and assets.

“Yes, you will feel the impact of lower fee revenue due to less AUM due to a market crash. It doesn’t necessarily mean your business is permanently hampered,” she says. .

“What’s important is asset retention and customer retention. Having cash flow is essential, and there are some asset managers where we are starting to see volatile cash flow, as well as volatile markets. »

Notably, Blackrock still managed to attract $90 billion in net inflows during its last quarterly reporting period, with iShares ETF activity generating a large portion of it.

However, Chris Beauchamp, chief market analyst at trading platform IG Group, explains that there is “ever less appetite to put money to work when markets fall”.

“Potential flows are blocked as money sits in accounts awaiting a market turn. This time around, the picture is complicated by the squeeze on consumer spending, due to inflation and rising interest rates. of interest.

“Overall, this seems like a tough time for the industry,” he notes.

Build longer relationships

Polar Capital’s fortunes have been rather mixed, given its exposure and specialization in tech stocks, many of which have fallen this year.

The company’s pre-tax profit was £62.1m for the year ended March 31, 2022, down 18% from £75.9m in 2021, commissions performance dropped by 68%.

While net inflows remained “resilient” throughout the year, Polar Capital suffered its first quarter of net outflows, totaling £400m, in the last three months of this period.

Sophie Lund-Yates, principal equity analyst at Hargreaves Lansdown, says that as an asset management company, Polar’s fortunes “tend to rise and fall in line with the market”, and therefore a “year less than stellar was to be expected”.

The group has particular expertise in technology and healthcare, which represent 42% and 17% of assets under management respectively. “It served him well, until this year when the tech sector sold off in response to rising interest rates. The downturn hit performance fee earnings, or those that the group wins by outperforming benchmarks,” says Lund-Yates.

However, Polar said its total assets were boosted by seven separate term wins during the year, which added £769million. It now manages £1.1bn in separate mandates for clients, representing 5% of AUM, an area of ​​growth that Lund-Yates describes as “encouraging”.

“Segregated mandates – funds managed exclusively for an individual client – ​​accounted for the lion’s share of net inflows. This is a key growth area for Polar because [these mandates] tend to have a longer relationship,” she adds.

The road ahead

With some wealth managers yet to report and others seemingly unaffected by market moves, it may be too early to make predictions.

However, further market consolidation looks likely as share prices of some major wealth brands are reduced to eye-catching levels.

As such, IG Group’s Beauchamp says he expects the sector to weather this period, “although times like this tend to make mergers more attractive in a bid to cut costs. “.

Wall agrees: “Yes, we could see other acquisitions, but these could be among the most stressed assets. It’s not going to be of the same nature as what’s happened over the past two years – it’s going to be quite opportunistic and it’s only going to be by companies that have the money to do it.

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