Fund managers confronting rationalisations

Australian fund managers are facing both product and business rationalisations in the face of a downturn that is proving to be more protracted than originally envisaged, according to ratings house Standard and Poor’s.

In an analysis released this week, Standard and Poor’s said falling asset values and waning investor sentiment were putting pressure on the volume of funds under management — a key driver of revenue and, therefore, profitability for funds managers.

The analysis, contained in the company’s inaugural business sustainability report, suggested that in the current circumstances the focus of fund managers was shifting towards cost control as a means of combating reduced revenues.

Commenting on the report, Standard and Poor’s head of research Leanne Milton said many fund managers subjected their product offerings to close scrutiny on a regular basis and products needed to demonstrate a compelling business case to ensure their future.

“But while it might be expected that ‘quick wins’ could be achieved from withdrawing support from some products, fund managers are willing to grant exceptions for strategically important and recently-launched products,” Milton said.

She said the research suggested that fund managers would operate an investment product at a loss if it had a strategic benefit, met client need and was an integral part of a wider product suite.

Milton said fund managers also appeared reluctant to withdraw support for products with short track records, even poor performers.

“In fact, new products are expected to be unprofitable until they gain traction,” she said. “A factor which would have been anticipated at an early planning stage.”