Listed fund managers face 'fundamental challenges': Morningstar
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The news: Morningstar expects earnings growth to improve for Australia's major asset managers during the 2025 financial year, but said growth is likely to moderate moving into FY26, as "fundamental challenges" outweigh macro improvements.
The context: Morningstar equity analyst Shaun Ler said that average earnings growth for Challenger, GQG, Insignia, Magellan, Perpetual, Pinnacle and Platinum are likely to improve during FY25, driven by better fund flows compared with FY22 to FY23.
However, he expects earnings growth to moderate at the start of FY26, with Insignia, Perpetual, Magellan and Platinum likely to continue experiencing net outflows over the medium term.
Ler said that external conditions remain favourable for flows into risk assets, with the prospect of lower interest rates in FY25, reduced volatility, and conducive sentiments compared with the past two-and-a-half years.
However, he flagged that most of the asset managers in Morningstar's coverage "lack the strong performance needed" to attract significant inflows. As a result, Ler expects them to continue losing market share to exchange-traded funds and industry super funds, which are continuing to capture the majority of new flows into traditional asset classes such as equities and fixed income.
Morningstar's fair value estimates for the seven asset manager firms under its coverage remains unchanged, though Ler flagged that "there is still value to be found" pointing to Insignia and Perpetual as his top picks.
What they said: "Insignia and Perpetual offer the greatest upside to our intrinsic assessments, with an average price/fair value ratio of 0.84," Ler said.
"For these firms, we think the market underestimates flows, the potential value from cost cuts, and their likely greater focus on capital returns rather than growth, which we view as appropriate given their mature growth profile."
The source: Morningstar research
