Research by Morningstar of seven major active asset managers has found they are expected to see client redemptions averaging 3.1 per cent of their FUM each year through to FY29, with one forecast to lose more than 20 per cent.
In its Australian Asset Manager report for Q2 FY2024–25, the research house surveyed seven active asset managers in Challenger, GQG, Insignia, Magellan, Perpetual, Pinnacle and Platinum.
This stated active managers are likely to continue losing market share in traditional equity and fixed income strategies to low-cost ETFs.
On average, active managers are expected to lose 3.1 per cent of their FUM per annum between FY25 and FY29, thanks to client redemptions.
However, this figure is significantly worse for Magellan and Platinum, with Magellan forecast to lose 11 per cent of its FUM and Platinum to lose 20.1 per cent. Magellan currently has $38.6 billion in FUM, while Platinum has $11 billion.
For Platinum, it forecast a rapid loss of institutional mandates to persist and said a significant business reset is needed. Shares in Platinum are down 40 per cent over the past year, and its FUM has declined from $15.4 billion in December 2023 to $11 billion in December 2024.
“Platinum was the weakest performer, with subpar returns, sluggish flows, and an aborted acquisition by Regal Partners.
“The projected increase in Platinum’s fee margins reflects a mix shift to retail funds with a rapid loss of institutional mandates, which we expect to persist. However, we project fees for Platinum’s underlying strategies to compress, with a significant business reset needed to stay competitive amid weak performance and the aborted acquisition attempt by Regal.”
Over at Magellan, it anticipated continued fee compression due to its relatively higher fees and said the valuation of the company is looking overvalued. However, shares are performing better than Platinum and are up 35 per cent over the past year while outflows have moderated which has caused FUM to increase from $35.8 billion in December 2023 to $38.6 billion at the end of 2024.
The final asset manager expected to see client redemptions is Insignia, but this is a smaller volume than the average at 0.7 per cent per annum.
At the other end of the spectrum, FUM is expected to increase by 6.4 per cent per annum at Pinnacle, by 4 per cent at Challenger, and 2.6 per cent at GQG Partners, thanks to net inflows.
Shaun Ler, equity analyst at Morningstar, said: “Fund flows for our covered firms generally improved throughout 2024, supported by expectations of falling interest rates in 2025 and relatively low market volatility. But these tailwinds are transient. We expect them to focus on product expansion through partnerships or potential acquisitions, alongside cost management strategies such as aligning remuneration with business size, in 2025.”
Challenger and GQG Partners are both identified by the research house as offering the greatest value, alongside Perpetual.
Shares in GQG are up by 8.5 per cent over one year, despite backlash around its relation to Adani Group, but Challenger is down by 5 per cent and Perpetual is down 16 per cent versus returns of 10 per cent by the ASX 200.
“Challenger, Perpetual, and GQG offer the greatest value out of our covered firms. We think the market underestimates several of their merits. For Perpetual, these include the potential value from cost reductions and likely flow improvements. For Challenger, we see strong demand for its products and likely gross margin expansion.
“For GQG, these are its strong long-term track record, below peer average fees, widespread presence on recommended product lists, and good team stability.”
