-- T. Rowe Price Group Inc. is reeling from a $127 billion exodus over just two years. At Franklin Resources Inc., the latest member of a billionaire family to run the firm is trying to reverse a nearly uninterrupted 20-quarter losing streak. Across the Atlantic, the chief of Abrdn Plc has reached a blunt conclusion: merely managing mutual funds isn’t enough of a business any more.
And with geopolitical tensions and higher interest rates becoming the status quo, even the $9.1 trillion behemoth BlackRock is feeling some of the pain. In the three months through September, clients pulled a net $13 billion from its long-term investment funds, the first such outflows since the onset of the pandemic in 2020.
Despite their hope that clients will return to stock and bond pickers when the going gets tough — and pay for it — the downward trajectory seems irreversible. Passive products have been gaining so much traction, regardless of whether markets go up or down, that by midyear they accounted for half of all assets in US mutual funds and ETFs, up from 47% in 2022 and 44% in 2021, according to data compiled by Bloomberg from asset managers. A decade ago, it was just 27%.
“Over the last 10 years, more than 100% of revenue increase was market-performance driven — just markets going up,” said Stefan Hoops, CEO of DWS, the $900 billion asset-management arm of Deutsche Bank AG, who took over last year and has been throwing cash into ETFs and alternatives to deal with the pressure. “Now imagine you have markets going sideways, but the same quantum of margin compression, then all of a sudden you’re potentially faced with a decade of shrinking revenues.
In an emailed statement, a Janus Henderson spokesperson acknowledged the challenges and said that executives changed the fund’s portfolio early last year with the goal of improving performance. It has outperformed the benchmark in the 12 months through October 16, the spokesperson said. Invesco and Franklin declined to comment for this story or make their CEOs available for interviews. T. Rowe acknowledged the challenges in a statement, said it expects flows to equity and bond strategies to increase in the future and is working to offer a broader range of products. T. Rowe’s CEO declined to be interviewed for this story.
To many consultants and industry executives, this latest attempt to stay in the game — and save ever-squeezed margins — may juice revenues in the short term but won’t be the Hail Mary they’re looking for.