Market throws up pleasant surprise

Isaac Moledi

Isaac Moledi

Investment managers have shrugged off the effects of the turmoil in the equity market in May. In fact they report a higher inflow in the collective investment and private client sectors.

Despite the rising interest rates, coupled with the volatility in our markets, investment managers believe these factors have not had much of an effect on their confidence regardingbusiness conditions.

These are the findings of the Ernst & Young Investment Management survey, done in conjunction with the Bureau for Economic Research at Stellenbosch University.

The survey monitors both small and large investment managers.

According to the research, the threat of market turmoil, expected to dampen the industry's inflows and profitability in the long term, did not materialise.

Instead, the market correction helped the industry in shifting product demand towards some higher margin products, such as absolute return funds and alternative investments.

"Higher interest rates and a lessened market certainty have not thus far had a noticeable effect on business conditions in the industry," says Lesley Harvey, lead spokesman for Ernst & Young's Investment Management practice.

"If anything, profit margins have remained high because of a shift in product demand towards higher margin products."

Though net inflow growth into the industry has declined for two consecutive quarters, Harvey says these declines are largely attributable to the volatile institutional flows, which are not usually correlated to market movements.

"Net profits after tax have remained strong in the current quarter," she says.

Interest rate rises have also had little affect on retail client inflows, and collective investment inflows have been boosted by a shift from long-term insurance products to other forms of savings.

According to Harvey, managers of small listed companies saw increased growth in areas such as collective investments, private clients and institutional business.

Managers of large listed companies, on the other hand, saw declining growth in collective investment inflows, coupled with continued net outflows from their institutional portfolios.

Institutional funds in Ernst & Young Investment Management Index include long-term insurance and retirement funds as well as medical schemes.

"When markets appear more volatile and less certain, investment managers can be expected to slow their marketing and distribution expenditure, given that retail clients get nervous about investing when the investment performance outlook appears less certain," says Harvey.