In the decade since the financial crisis, the banking industry has been subjected to regular stress tests designed to prevent finance from ever again trashing the global economy. But the asset management industry has escaped similar scrutiny. That may be about to change — in Europe, at least.
Recent industry trends have heightened the need to assess the resilience of asset managers to shocks. The sheer size of the industry, as demographic trends make the pool of global savers bigger, older and richer, means assets under management are equal to about one year of total world economic output and have grown by almost 50 percent since the start of the decade.
Growing in Importance
Demographic trends mean the asset management industry is increasing in size
That growth coincides with the current era of record low interest rates on government bonds, which in turn has driven fund managers to seek higher returns available from assets such as private equity, infrastructure and real estate. But funds which offer daily redemptions while owning infrequently traded assets risk amplifying price declines when investors stampede for the exits en masse. The risk was highlighted following the U.K. referendum to leave the European Union. In the weeks after the vote, fund management companies suspended withdrawals from at least seven U.K. property funds with 18 billion pounds ($23.8 billion) of assets, as investors tried to redeem their holdings simultaneously.
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