Money manager revenue growth down in 2012, report finds
By Kevin Olsen | March 18, 2013
Publicly traded money managers' revenue growth declined significantly in 2012, despite strong returns in the markets, according to Casey, Quirk & Associates LLC.
The median revenue growth in 2012 was 4.4% for the 25 publicly traded independent money managers and 12 subsidiaries of public financial institutions, down from an 8% gain in 2011 and 22% in 2010. The 37 managers had an average 4.9% growth rate in 2012.
“It's difficult to maintain growth rates,” said Benjamin Phillips, partner at Darien, Conn.-based Casey Quirk. “There are fewer organic flows going into the industry.”
Money management subsidiaries' median growth rate of 5% in 2012 actually outpaced that of independent managers, at 4%. That was a large reversal from the previous two years, when independent manager revenue growth was a median 13% and 29% in 2011 and 2010, respectively, compared with 6% and 11%, respectively, for subsidiaries in the same time frame.
However, independent managers had much stronger profit margins in 2012, in line with previous years. The 25 listed managers had a median profit margin of 33% compared with 25% for the 12 subsidiaries.
There might be less of a gap in the future between the independent and subsidiary managers, Mr. Phillips said. Parent institutions are coming up with more creative ways to retain talent and insurance companies want to make their subsidiaries look more like pure-play asset managers, he added.
'Tough to add on'
Noting that the number of defined benefit plans, and subsequently the amount of assets up for grabs, is in decline and sovereign wealth funds are moving more toward internal management, Mr. Phillips said: “It's tough to add on new assets. If you get more (assets), you have to take them from another competitor.”
The data are in line with a Casey Quirk forecast report that was released earlier this year. In that report, “The Complete Firm 2013: Competing for the 21st Century Investor,” the management consulting firm predicted that money managers worldwide would grow less than 1% from net new money annually through 2017, compared with 6% to 7% before the financial crisis.
“It's absolutely consistent with the whole firm's idea,” said Kevin Quirk, partner at Casey Quirk. “The big underpinning is lower levels of growth.”
The earlier report also predicted that 90% of net new revenue over the next five years would go to firms that can develop and enhance capabilities such as uncorrelated and superior active management, cost-efficient indexing and exchange-traded funds, and expertise in areas including multiasset-class solutions, liability-driven investing, target-date funds and outsourcing services.
The current report noted that revenue growth for publicly listed managers was only slightly higher than the 4.21% return for the Barclays Capital U.S. Aggregate Bond index last year and equity markets were in the teens for returns. Mr. Quirk said revenue growth has historically trended toward the direction of the capital markets.
“One year doesn't drive a trend, but we haven't seen it before, so it's pretty interesting,” Mr. Quirk said. “We typically see the capital markets bailing out the industry, but it didn't seem to be happening last year.”
Independent managers have not only had persistently higher profit margins, but also are more likely to experience substantial growth, he said. Seven or eight of the independent managers are growing “at double-digit clips” while the subsidiaries are more compressed toward the median in the zero to 8% growth range, he said.
“There are substantially more firms on the independent side growing with higher rates,” Mr. Quirk said.
The managers with the most growth tend to be alternative managers or active, specialized managers. Mr. Quirk added that the subsidiaries are diversified businesses with a large asset base in the first place, making it more difficult for large gains in any given year.
Growth and margin rates of the public managers are typically in line with private money managers, but Mr. Phillips said it will be interesting to see whether the gap widens between the two as investors are pumping more money into alternative and innovative strategies that are typically run by private managers.
Casey Quirk will release the 2012 analysis on private managers in the second quarter.
This article originally appeared in the March 18, 2013 print issue as, "Revenue growth down in 2012, report finds".