Key Takeaways:
- Several active asset managers might not survive the next bear market.
- Many of these firms have crypto exposure.
- Their downfall could bleed into the crypto sector, especially Bitcoin.
NEW DELHI (CoinChapter.com) — The $100 trillion asset management industry is bleeding cash as investors turn to cheaper and more passive strategies instead of risk assets. Eventually, their clients may withdraw nearly $600 billion from the funds, according to Bloomberg.
The agency notes that investment funds, including T. Rowe Price, Franklin Resources, Abrdn, Janus Henderson Group Plc, and Invesco Ltd., secured revenues in the past years because of a bullish stock market — not by acquiring new clients.
Since 2018, these firms have failed to attract new investors, recording nearly continuous outflows every quarter.
Furthermore, investors’ departure from the asset management sector has impacted the firms’ stock prices. Notably, the shares of nearly all five firms mentioned above have “lost at least a third of their value” since 2018.
The firms tried cutting fees and mergers to shore up revenue but failed. Additionally, since most of the firm’s revenue was due to market performance, any sideways movement would expose the weakness in their balance sheets.
Crypto Expansions Underway
Most affected asset managers in Bloomberg’s report have attempted to gain exposure in the crypto sector.
For instance, Abrdn purchased a stake in a London-based digital securities exchange, Archax, in late 2022. In June 2023, the firm tokenized a $16.7 billion money market fund using Hedera Hashgraph distributed ledger technology.
However, René Buehlmann, chief executive of Abrdn’s investments business, stated that the firm had no plans to launch crypto investment products. Yet, the firm claims to be the “vanguard of the asset management industry” in “understanding and embracing digital assets.”
Despite its claims, Abrdn held no crypto tokens, per its 2022 annual report.
On the other hand, Franklin Resources has openly adopted a more crypto-centric approach, filing for ‘The Franklin Bitcoin ETF‘ in September 2023.
Bitcoin held by the Coinbase Custody Trust Company would back the ETF’s shares. Investment behemoth Blackrock is another firm that has filed for a spot Bitcoin ETF with the SEC.
T. Rowe Price was one of the firms that tested Avalanche’s Evergreen subnet ‘Spruce.’
The firm released a report in July 2021 claiming that cryptocurrencies can potentially transform capital markets. Furthermore, the report noted that T. Rowe Price speculated on exposing select portfolios to crypto assets.
Invesco, with $1.4 trillion in AUM, reapplied for a spot Bitcoin ETF in June 2023.
What If The Firms Fail?
The asset management firms are on the cusp of failing if the market becomes bearish. If the firms fail, their exposure to digital assets could result in the bearish sentiment leeching into the sector.
If the asset managers change their business models or manage to attract investors, the firms might avoid a sudden meltdown. Additionally, with Bitcoin being the most prominent crypto asset, BTC price would likely be most impacted if the asset managers fail.
