Moody's Cuts Asset Managers' Outlook to Negative

Equity funds saw far fewer withdrawals, just $20.7 billion, because investors apparently chose to “sell the best and keep the rest,” unloading bond funds that had performed relatively better than stocks to pocket smaller losses.

“Our previous stable outlook was premised on manageable debt burdens, investor appetite for higher risk and higher fee products, along with continued but only slowing global economic growth. Those assumptions are no longer tenable in light of the coronavirus pandemic,” according to the Moody’s report. 

“Now we see a very sudden change in the market … With reduced valuations of assets — equity, fixed income and alternatives — and a lot more uncertainty, there will be pressure on earnings and revenues,” Senior Analyst Dean Ungar told Thinkadvisor.

Moodys hasn’t yet downgraded the ratings on most of the individual asset managers whose debt it rates for credit quality. Of its 34 asset manager ratings, only one has been downgraded recently — Tortoise Borrower — whose assets under management are concentrated in the midstream energy sector, which has suffered a “sharp decline,” according to Moody’s. It downgraded Tortoise’s family corporate rating and secured term loan rating (due 2025) from Ba2 to Ba3. 

Moody’s is now in the process of reviewing the credit rating of the other asset managers it rates and expects changes will be forthcoming over next few weeks, Ungar said. The review will look critically at the impact of market volatility on earnings and revenues, looking ahead 12-18 months. 

The agency’s ratings for most asset managers is currently stable except for Virtus Investment Partners, which is positive, and Legg Mason, which is under review for an upgrade following the announcement of its acquisition by Franklin Resources. Of the 34 asset managers Moody’s rates, 19 have debt rated investment grade; 15 have debt rated as high yield.  

— Check out Can Legg Mason Deal Bring Franklin Back to Its ‘Glory Days’? on ThinkAdvisor.