Asset managers’ inadequate response to the rise of cheap, index-tracking funds has left them vulnerable to a new assault, this time from technology giants such as PayPal Holdings Inc. and Amazon.com Inc., Moody’s Investors Service said in a report.
The industry is “vulnerable to competition from technology-enabled new entrants, particularly with regards to distribution,” Stephen Tu, a senior analyst at the ratings company in New York, wrote in the report published Tuesday.
Relatively low barriers to entry and pressure on fees have left traditional money managers weakened, he wrote.
Traditional stock-pickers have been battered by competition from cheaper passive funds and the rising cost of regulation, including the MiFID II rules that come into force on Jan. 3. These combined threats have already sparked a wave of consolidation in the industry as firms seek to bulk up, with deals such as Standard Life Plc’s recent tie-up with Aberdeen Asset Management Plc and the merger earlier this year that created Janus Henderson Group Plc.
Moody’s report outlines a fresh threat. While offering fund products would directly benefit digital-payment companies such as PayPal, other technology giants such as Amazon and Apple Inc. are unlikely to enter asset management solely to attract management fees, Tu wrote.
Rather, they would see it as an opportunity “to facilitate data collection and to keep clients within their company’s ecosystem.”
Moody’s said some of asset managers’ market share has already been ceded to robo-advisers including Wealthfront Inc. -- which it said has announced its own mutual fund -- Acorns Grow Inc. and Betterment LLC.
An affiliate of China’s Alibaba Group launched a money-market fund for its digital-payment system in 2013 that has since grown to become the largest in the world, Tu wrote.
BlackRock Inc. is among the few companies that has responded to the threat, by investing in technology, making its fundamental investing more quantitative and carrying out acquisitions, the analyst wrote.
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