Moody's Investors Service has said that the weak performance of global equity markets and the risk of poor asset flows have led to a negative outlook for the asset management industry over the next 12-18 months, according to a Thomson Financial report. “Our negative outlook reflects a presumption that most global equity indexes will remain down between 10 per cent and 20 per cent from levels seen at the end of third quarter of 2007. The market contraction is reducing many firms' assets under management, which is the primary determinant of a company's revenues and earnings,” said Moody's. In addition, widespread general concerns with capital markets, as well as the likelihood of a recessionary economic environment, are weakening flows into equity and bond funds, the firm said. Other challenges for the industry include competition from exchange traded funds, alternative investment funds such as hedge funds, and annuity providers, as well as risks from fee erosion and managing distribution expenses. But the firm also said business prospects should be bolstered by good demand for savings and retirement solutions for the world's aging populations and by a growing need for investment products in developing markets. Sovereign wealth funds may also be a potential source of new mandates for select managers.