PIMCO’s Mohammed El-Erian forecasts the demise of the asset-management business as we know it…from his perch atop PIMCO’s $750 billion of assets:
FT: The alternative sector faces a perfect storm. These once prominent pools of capital are finding it harder to secure financing lines from banks. It is also proving harder for them to raise longer-term funds through bond issuance and initial public offerings.
The alternative sector’s reputation has been harmed by the restrictions (or “gates”) that some have placed on investors seeking to pull money out. Meanwhile, poor investment performance for some, and asset value erosion for many more, have shrunk collections from management and incentive fees. It would come as no surprise if at least half of the entities in this space were to disappear in the next two years, either through mergers or failures.
Traditional investment managers are not immune to this rash of institutional shrinkage and consolidation. For some, the collapse in worldwide equity prices over the last 15 months has already shaved off about half of their operating revenues, rendering their current cost structure overwhelming and threatening the retention of talented staff. They are also seeing assets walk out the door as some investors try to counter the gates in the alternative space by using traditional investment managers as a cash machine. Moreover, some firms with weak institutional parents now find themselves regarded as “non-core” and subject to disposition.