The Malaysian Reserve

Outflows rock fund managers as Europe’s US$1t dream fades

Among the worst-hit firms: DWS, the RM3.3t investment unit of Deutsche Bank (Pic: Bloomberg)

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 last Wednesday 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-rate rise and the prospect of trade wars threaten 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.

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-CEO Martin Gilbert called “that US$1 trillion (RM4.06 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 (RM58.06 billion) from long-term funds, followed by another €10.5 billion 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 (RM6.5 billion) for the first half (1H), 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% last Thursday.

Some of the redemptions reflected individual performance. At Jupiter, clients pulled £2.3 billion in the 1H, with outflows concentrated in the firm’s Dynamic Bond fund. That fund has lost 2.9% this year in one share class, trailing most peers.

“The 1H 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 in the 1H, prompting the company to warn that it may not meet a target to attract at least 3% 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% since the initial public offering, more than twice as much as its troubled parent. — Bloomberg