Moody’s Investors Service has downgraded its outlook for global asset managers from stable to negative as a result of the “broad and growing scope of economic and market upheavals unleashed by the coronavirus pandemic.”
That upheaval, including a drop of more than 30% in major stock markets before Tuesday’s 9% bounce-back, as well as declines in corporate bonds, “will strain revenues and cash flows” of asset managers as well as their earnings, according to Moody’s.
Asset managers with high concentrations of equity assets and with leverage are most at risk for a downgrade, and firms with current low ratings tend to have more leverage. Among the latter firms are Edelman Financial Engines, rated B2 by Moody’s (equivalent to B rating by S&P), and Focus Financial Partners (Ba3, equivalent to BB-).
Firms with the highest current ratings include BlackRock (Aa3, equivalent to AA-) and Fidelity (A1, or A+).
Asset managers are suffering from outflows as a result of excessive market volatility fueled by the coronavirus pandemic, which has closed down all but essential activity in whole countries, cities and states.
According to Bank of America’s fund flow report for the week ended March 18, $108.9 billion left bond funds, including record withdrawals from investment-grade, TIPS, mortgage-backed and municipal bond funds.