Chart of the Week: Australian asset managers face structural pressure
Read the latest take from our analysts.
This week’s chart comes from Shaun Ler with insights from the latest industry Pulse for Australian Asset Managers.
Valuations suggest stable near-term industry flows
Near-term flows into the asset management industry are likely to remain solid if investor expectations of market volatility—which correlate inversely with risk asset demand—remain muted as they are presently.
Investors are looking past prior fears of U.S. tariffs or concerns of an artificial intelligence bubble, which bodes well for fund flows. However, any material surprises, such as unforeseen inflation shocks, earnings disappointments, or geopolitical or liquidity events, could dampen investor risk appetite.
Prevailing valuations according to our intrinsic assessments suggest appetite for risk assets remains stable. This in turn indicates relatively solid near-term flows for asset managers in general, absent anomalous events.
Active managers face high performance bar to stem passive shift
Despite this, traditional active managers are facing consolidation, with average or weak performers at risk of losing assets or shutting down. The growth of passive investments, which offer index exposure at low cost, has left active managers who cannot beat their benchmarks in an increasingly difficult position.
To attract and keep client assets, active managers need to consistently outperform, which is challenging to achieve in practice.
Many still charge high fees that are difficult to justify amid underwhelming performance. Active managers have launched their strategies via ETFs in response to growing passive competition, yet passive ETFs still attract stronger flows due to their lower fees.
Competition will likely remain intense, as passive leaders like Vanguard and BlackRock also offer actively managed products, leveraging their scale to compete more aggressively with traditional active managers.
Our coverage
Overall, our covered firms lack the consistent outperformance required to regain market share lost to passive ETFs and industry funds.
Most achieve average returns relative to peers over longer periods, showing how difficult it is for active managers to consistently beat benchmarks. Without lasting and meaningful performance improvements, firms will need to adopt more defensive strategies such as adjusting staff compensation structures or forming external partnerships to protect market share and earnings.
The full report is available to Morningstar Investor subscribers and trialists.
You can find previous editions of Chart of the Week here.
