Market Putting Pressure on Asset Manager Profits

Recent market volatility will likely put a damper on asset growth and push investors into more conservative, lower-fee products, according to kasina.

Based on data gathered from the operating results of seventeen publicly-traded asset managers, kasina conducted an analysis to quantify the adverse effect of a 10% market correction during the third quarter. The results show operating margins decreasing from 31.3% to 29.7% as a result of a 10% reversal in the Dow Jones U.S. Total Stock Market Index.  

Firms can mitigate the impact of market gyrations by aligning product development efforts with the needs of broker/dealers and investors who are increasingly looking for alternative, hedge-like products that are non-correlated with domestic equities. “Only eight alternative 40’ Act funds were created last year. Broker/dealers are asking for these products and paying a premium for them, but there just aren’t a lot of products out there that truly mitigate risk,” said Steven Miyao, CEO of kasina.  

In the second quarter of 2011, net margins remained virtually unchanged at 22.2%, while operating margins increased from 30.4% to 31.3%, quarter over quarter. On the expense side of the equation, compensation and benefits increased 1% quarter over quarter, and firms cut their advertising and promotional budgets by 2.1% during the same period.   

Large firms with leading profitability in the second quarter were T. Rowe Price, BlackRock, and Franklin Templeton while Calamos, Pzena Investments, and GAMCO lead as the most profitable small firms.