Sunday, October 2

2022: Big gap between winners and losers on Wall Street

2021 was a great year for investors on Wall Street, but it is expected that in 2022 expand the gap between winners and losers by favoring those who invested in fast-growing areas according to Harriet Agnew en Financial Times.

“Generally optimistic stock markets and pandemic-related cost savings have provided a significant crutch for asset managers’ gains since the short and sharp market correction in March 2020 at the start of the pandemic,” he said. Tom Mills, Jefferies analyst. “A future and potentially longer reduction would likely be more damaging to operating margins as many managers are now investing for growth.”

The private markets emerged as the hottest area in this year’s trading for top asset managers, who sought to capitalize on the popularity of these strategies with investors seeking returns, while raising longer-term capital that generally demands higher fees than strategies. of public markets.

In December, Schroders, which is listed in London, bought a majority stake in the renewable energy investment firm Greencoat Capital for 358 million pounds.

The move followed two major alternative deals in the US: T Rowe Price announced the acquisition of the credit administrator Oak Hill Advisors for $ 4.2 billion in October, and the following month Franklin Templeton said it would buy the private equity investment specialist Lexington Partners for $ 1.75 billion.

Ju-Hon Kwek, McKinsey Senior Partner in New Yorksaid: “There is likely to be massive variability in the performance of individual asset managers next year. Groups offering exposure to private markets are likely to see very healthy growth and profitability in the face of strong demand for the clients”.

Traditional asset management groups have been trying to protect their profit margins as the conditions that drove the markets to record highs are about to be reversed.

The fiscal stimulus It is retracting after nearly two years and central banks are controlling asset purchases, just as fund houses are faced with the perennial challenges of rate squeezing and the rise of passive giants like BlackRock y Vanguard.

“The old traditional stock picking business, particularly companies with poor performance records, are likely to continue to struggle,” Kwek said. “Not only are you facing growth and cost pressure from the continued march of passive managers, you are also heavily exposed to the performance of the stock market. These groups are caught in the middle and this is where you will see a little squeeze. “

Added that another vulnerable group in a recession are managers who have opportunistically expanded to “hot” areas such as multi-asset, risk parity or international investment in recent years. “There are a handful of companies that have dabbled and spread their investments on a small scale on non-scalable subscale platforms; the result is high fixed costs and operational complexity, “said Kwek.

The environmental, social and governance-focused strategies continue to gain popularity with investors. In August, Goldman Sachs Asset Management bought the investment arm of the Dutch insurer NN Group for about 1,600 million euros, attracted by its strong position in this part of the market.

But Mills at Jefferies cautioned: “The exposure of ESG funds to growth names is quite high.”

“If the promise of an interest rate hike is fulfilled next year and we see a shift to a more value-oriented market, there could be performance concerns around some of these ESG funds,” Mills said.

Meanwhile, managers have been trying to cut costs by outsourcing. In November, JPMorgan Asset Management It outsourced its middle office to the parent bank’s securities services division.

“Asset managers will continue to outsource non-essential activities because it is a way to reduce costs and increase the ability to invest in areas of greater differentiation, such as China, ESG and customization at scale,” he says George Gatch, CEO of JPMorgan Asset. Management.

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