The Markets May 18, 2011

Asset Management Margins Down Slightly

Based on the earnings results of publicly-traded asset managers, kasina found that the first quarter of 2011 witnessed a slight drop in asset manager margins despite growth in the broad equity market.
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Quarter over quarter, industry operating margins decreased from 31.4% to 30.5%, and net margins decreased from 23.4% to 22.1%.Large firms, such as Franklin Templeton, Blackrock, and T. Rowe Price, showed strong margins, while Pzena and Calamos continue to lead the smaller firms.   

The key concern for asset managers is how to sustain strong margins if asset flows eventually reverse course, kasina said. Asset managers will not be able to count on robust markets for asset growth forever. Key indicators like price-to-earnings (P/E) ratios are at historical fair market values. Boomer decumulation heralds the retirement of 79 million retirees with over $8.5 trillion in investible assets.  As the operating environment becomes more challenging for asset managers, figuring out how to do more with less is paramount to success moving forward.  

kasina maintains that firms should continue to analyze their cost structures to operate efficiently by: 

  • Focusing attention on new product opportunities created by Boomer decumulation
  • Leveraging the power of the Web, social media, and mobile to distribute cost-effectively
  • Segmenting distribution efforts to focus the firm’s most valuable resources on high value advisers

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