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Outflows rock fund managers as Europe's US$1 trillion dream fades

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Traders at the German share price index, DAX board, at the stock exchange in Frankfurt. Across Europe, fund flows started to turn negative in May, with investors pulling 12.2 billion euros from long-term funds, followed by another 10.5 billion euros in June 2018.

London

ASSET managers across Europe have long had their work cut out, with margins being squeezed and regulations pushing up costs. Now add this to their headaches: client redemptions.

Among the victims are Jupiter Fund Management, which suffered outflows in a large bond fund, and DWS Group, which warned recently that it probably won't reach its new money target for the year after two straight quarters of redemptions. Firms that managed to pull in money, such as Schroders Plc, fell short of expectations.

The withdrawals highlight how nervous investors remain as volatility returns, interest rates rise and the prospect of trade wars threatens the global economy. Should the bleeding continue, it could further increase pressure to consolidate for Europe's asset managers, which are seeking to expand as competition increases from cheaper passive products.

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"If you get a sustained period of outflows, that creates difficulties for companies," said Laith Khalaf, a senior analyst at Hargreaves Lansdown.

"It's important to take a bit of a longer-term view and not look just at the last quarter, but inevitably there is pressure on asset managers to consolidate."

Amundi SA, Europe's largest money manager, is scheduled to report earnings on Aug 2. The French company attracted record first-quarter inflows, helped by its purchase of Pioneer Investments. But the turmoil in Italy last quarter hit its funds in the region, industry statistics show, and some analysts have questioned how long the firm can keep up the pace of growth.

Standard Life Aberdeen Plc will follow on Aug 7. The company was created through the merger a year ago between Standard Life and Aberdeen Asset Management, with the goal of establishing a firm that could eventually join what co-chief executive officer Martin Gilbert called "that US$1 trillion club".

But his dream suffered a setback when Lloyds Banking Group Plc pulled a large mandate earlier this year.

Across Europe, fund flows started to turn negative in May, with investors pulling 12.2 billion euros (S$19.5 billion) from long-term funds, followed by another 10.5 billion euros in June, according to estimates from Morningstar Inc.

European and emerging market stock funds, and riskier bond funds bore the brunt of the outflows. The turmoil hit firms across the continent. Schroders reported inflows of £1.2 billion (S$2.1 billion) for the first half, but the net new money came into the firm's wealth management business, while asset management was flat.

The inflows were also less than some analysts had expected, sending the shares down more than 4 per cent last Thursday. Some of the redemptions reflected individual performance. At Jupiter, clients pulled £2.3 billion in the first half, with outflows concentrated in the firm's Dynamic Bond fund.

That fund has lost 2.9 per cent this year in one share class, trailing most peers. "The first half of 2018 reflected a more challenging operating environment against a more volatile global geopolitical backdrop," Jupiter CEO Maarten Slendebroek said in a statement.

Among the worst-hit firms: DWS, the US$800 billion investment unit of Deutsche Bank AG that was spun out in part to help it grow and insulate it from the troubles at its parent. Investors pulled almost 13 billion euros in the first half, prompting the company to warn that it may not meet a target to attract at least 3 per cent of new assets this year.

DWS, which had set the ambitious goal to win investors for its initial public offering this year, is still sticking with it over the medium term. Shareholders aren't so sure: The stock is down about 16 per cent since the IPO, more than twice as much as its troubled parent. BLOOMBERG