Johannesburg — THE business confidence of both small and large managers bounced back in the second quarter of the year due largely to improved profits and the resumption of net inflows.

Investment managers experienced flat inflows (after six successive quarters of contractions), and improved income growth. These are the findings of the Ernst & Young investment management index, released yesterday.

This was the 26th quarterly survey carried out to measure confidence in the investment management industry by the Bureau for Economic Research in Stellenbosch.

Chris Sickle, investment management director at Ernst & Young, said: "For the first time since the onset of global recession in the middle of 2008, there are signs that the first 'green shoots' of economic recovery may be visible."

Sickle said this confidence had been seen in rebounding commodity prices, coupled with faster corporate profit growth than initially expected.

"Some of the major US banks, which had faced collapse prior to government intervention, are in the process of returning some of the borrowed funds back to government. This is in itself a sign of greater risk appetite on the part of investors, who are taking up additional share offers by the banks concerned."

Sickle said this had a positive effect on asset managers across the globe, as confidence returned to the market.

The confidence of small managers increased from a revised 51 in the first quarter to 62 during the second quarter, and those of large managers from 42 to 67. Overall confidence rose from 45 to 66 index points.

"It appears that the worst of the recession may be over for the asset management industry.

"The basic fundamentals are all trending in an upward direction, although they remain, nevertheless, for the most part negative."

He said income growth, while still negative, had significantly improved from the previous few quarters.

Regarding income, there was a strong improvement in average management fee charges, with improvements too in both base and performance fees.

"Although this is the sixth consecutive quarter that investment managers have faced declining average fees, the trend appears to have troughed, and there was a considerable turnaround in the last quarter," Sickle said.

A major area where investment managers had seen a reduction in expenditure was in bonus payments. Given the weak state of equity markets, fewer professionals had attained their benchmarks.

"The lower bonus payments probably helps offset the additional costs of continued hiring of professionals," Sickle said.

Although asset managers continued to experience lower levels of profitability than there were during the boom years, they were more optimistic than they had been for a while. This was no doubt buoyed by the promising signs of a revived global economy, Sickle said.