COVID-19: 10 ways it may change asset management - part 2

Posted by Macquarie Asset Management

May 27, 2020

As businesses across all industries adapt to the new normal, Daniel McCormack MIRA’s Economist discusses how he believes the pandemic may change the global asset management industry.

1. Consolidation accelerates

Scale wins (mostly). Prior to the COVID-19 downturn the asset management industry was grappling with weak profitability due to oversupply, increased regulatory requirements, and fee pressure from technology. The current downturn may intensify these pressures, accelerating consolidation. The winners are likely to be the big players with scale, due to both their cost advantage and their broader product offering. In alternatives, the leading small players may also benefit if they can maintain top tier performance and have an attractive, differentiated, or niche strategy.

2. Alternatives are likely to perform relatively well

While some funds and strategies could experience challenges, the Federal Reserve’s decision to buy non-investment grade bonds, and the extensive central bank and government support and guarantee mechanisms put in place in most countries could mean the worst outcomes are avoided, and alternatives emerge from the downturn in relatively good shape.

3. Emerging markets (EMs) may lose their lustre

The COVID-19 downturn could induce crises in EMs, either from the direct economic and social impact of the virus and lockdown measures, or from capital flight as investors lose confidence. Any cooling of relations between the west and China could make this worse, given many are commodity exporters. The capital that shifts out of EMs is likely to go into investments with similar risk-return characteristics in the Developed World.

4. The focus on ESG and sustainability could continue

We believe that there is a structural trend underway here, driven in part by demographics as younger cohorts tend to be more environmentally and socially conscious. The virus experience may also add to investors growing sense that businesses should have sustainable business models that are built to handle not just known unknowns but also unknown unknowns. ESG fund flows should continue to expand rapidly and the pressure on corporates to adopt effective ESG strategies may intensify.

5. The shift into alternatives could continue

The profitability pressure in many listed markets may see many asset managers try to move into the higher fee alternatives universe. Many may struggle though, if they overpay for platforms or underestimate the difficulty of organic growth in the face of incumbents with scale, large balance sheets, and a long track record. In terms of fund flows, the volatility of listed markets and any poor performance in EMs could cause money to flow out of both, with alternatives a possible beneficiary. As interest rates plumb new lows, and the expectation that they are likely to remain very low for a very long time solidifies further, investors with long-dated liabilities they need to match (pension funds and life insurers) could be forced out the risk spectrum even faster. Private credit, real assets, and other alternatives could be beneficiaries of this trend.

“Those active managers that perform well during the downturn and prove their ability to add alpha in challenging times are likely to be rewarded with increased inflows.”

Daniel McCormack, Macquarie Infrastructure and Real Assets Economist

6. Top active and passive win

Those active managers that perform well during the downturn and prove their ability to add alpha in challenging times are likely to be rewarded with increased inflows. But outside of those top players the rest could find it increasingly challenging to justify their high fee levels and passive strategies may continue to grow in popularity.

7. Venture capital survives

Although some business models may be challenged by COVID-19 related disruption, and valuations could  fall due to the market disruption and the removal of the Softbank tailwind, the large amount of dry powder means that good businesses should continue to attract capital. Tech is likely to remain popular with investors. That said, there could be an increased focus on cash generation by investors. The idea that cash generation is ‘irrelevant’ (as it seemed to be when Softbank was such a major player in the sector) may be consigned to the dustbin of questionable investment ideas.

8. Digitalisation accelerates

Investors become more comfortable with online services and virtual meetings, while the preference amongst staff for working from home could increase. These trends could serve to accelerate the digitalisation of the industry. The importance of an effective online service offering could grow and the need for top drawer technology systems and cyber security may become even greater.

9. Customer service and brand becomes more important

Partly as a result of the digitalisation trend, but also due to the increased focus on ESG, corporate brand and customer service may become more important. Offering more than just a competitive risk-adjusted return could become a larger part of the equation for managers trying to attract and retain investors and talented staff.

10. Regulation

The regulatory environment is not likely to change as much as it did in the post-GFC period as the current crisis is not a financially driven one (for now), but certain non-regulated asset classes like US mid-market private credit (where there has been large flows post-GFC as banks retreated) could come into focus if there is material loss of investor capital. Regulators may consider including those credit managers as financial institutions, or at least regulating them in similar ways.

For more information about MIRA, contact us.

This market commentary has been prepared for general informational purposes by the authors who are part of Macquarie Infrastructure and Real Assets (MIRA), a business division of Macquarie Group (Macquarie), and is not a product of the Macquarie Research Department. This market commentary reflects the views of the authors and statements in it may differ from the views of others in MIRA or of other Macquarie divisions or groups, including Macquarie Research. This market commentary has not been prepared to comply with requirements designed to promote the independence of investment research and is accordingly not subject to any prohibition on dealing ahead of the dissemination of investment research. Nothing in this market commentary shall be construed as a solicitation to buy or sell any security or other product, or to engage in or refrain from engaging in any transaction. Macquarie conducts a global full-service, integrated investment banking, asset management, and brokerage business. Macquarie may do, and seek to do, business with any of the companies covered in this market commentary. Macquarie has investment banking and other business relationships with a significant number of companies, which may include companies that are discussed in this commentary, and may have positions in financial instruments or other financial interests in the subject matter of this market commentary. As a result, investors should be aware that Macquarie may have a conflict of interest that could affect the objectivity of this market commentary. In preparing this market commentary, we did not take into account the investment objectives, financial situation or needs of any particular client. You should not make an investment decision on the basis of this market commentary. Before making an investment decision you need to consider, with or without the assistance of an adviser, whether the investment is appropriate in light of your particular investment needs, objectives and financial circumstances. Macquarie salespeople, traders and other professionals may provide oral or written market commentary, analysis, trading strategies or research products to Macquarie’s clients that reflect opinions which are different from or contrary to the opinions expressed in this market commentary. Macquarie’s asset management business (including MIRA), principal trading desks and investing businesses may make investment decisions that are inconsistent with the views expressed in this commentary. There are risks involved in investing. The price of securities and other financial products can and does fluctuate, and an individual security or financial product may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international or local financial, market, economic, tax or regulatory conditions, which may adversely affect the value of the investment. This market commentary is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in this market commentary. Opinions, information, and data in this market commentary are as of the date indicated on the cover and subject to change without notice. No member of the Macquarie Group accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this market commentary and/or further communication in relation to this market commentary. Some of the data in this market commentary may be sourced from information and materials published by government or industry bodies or agencies, however this market commentary is neither endorsed or certified by any such bodies or agencies. This market commentary does not constitute legal, tax accounting or investment advice. Recipients should independently evaluate any specific investment in consultation with their legal, tax, accounting, and investment advisors. Past performance is not indicative of future results.


This market commentary may include forward-looking statements, forecasts, estimates, projections, opinions and investment theses, which may be identified by the use of terminology such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “can”, “plan”, “will”, “would”, “should”, “seek”, “project”, “continue”, “target” and similar expressions. No representation is made or will be made that any forward-looking statements will be achieved or will prove to be correct or that any assumptions on which such statements may be based are reasonable. A number of factors could cause actual future results and operations to vary materially and adversely from the forward-looking statements. Qualitative statements regarding political, regulatory, market and economic environments and opportunities are based on the authors opinion, belief and judgment.


Other than Macquarie Bank Limited ABN 46 008 583 542 (MBL), none of the entities noted in this document is an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia) or banking legislation in other jurisdictions. The obligations of these entities do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities.