Market depreciation hits big money managers

As asset managers began issuing first-quarter reports earlier this month, it was clear that volatility in the markets took a heavy toll. Many managers saw assets under management decline from the prior quarter due to market depreciation even as they enjoyed net inflows. Some managers experienced a flight to money market and similar type of strategies, away from equities.

BlackRock Inc. on April 16 reported first-quarter assets under management of $1.364 trillion, up 1% from the prior quarter and 18% from the year before.

On a conference call, executives at New York-based BlackRock, said net inflows of $35.2 billion for the quarter, largely into cash management products, offset the $32 billion drop in equity assets resulting from market depreciation.

Chairman and CEO Laurence D. Fink said his firm’s diversified lineup of fixed-income, equity, money market and alternatives products continued to attract new business, with $20 billion of additional liquidity wins so far this month and $23 billion of long-dated mandate wins not yet funded. “Our RFP pipeline has never been stronger,” Mr. Fink said. He noted that some very large institutional clients are pursuing major reallocations, with at least two fixed-income assignments of more than $10 billion currently in play. BlackRock is well positioned to win new business when calmer capital markets allow the money pouring into liquidity and Treasury-focused products to begin moving again into credit instruments, such as mortgages, he said.

BlackRock reported net income of $241.7 million for the quarter, down 25% from the prior quarter but up 24% from the year before. The sharp drop from the previous quarter was largely due to a $111 million decline in performance fees, which are mostly paid out in the third and fourth quarters of the year, according to the company. The same performance fee issue affected revenue, which fell 10% from the prior quarter to $1.3 billion, but rose 29% from the year before.

Northern Trust, Chicago, reported $778.6 billion in assets under management as of March 31, up 2.8% from the prior quarter and 3% from the year before. Of that total, the firm’s institutional assets under management came to $632.6 billion, up 3.9% from the prior quarter and up 3% from the previous year, said spokesman John O’Connell.

The broader company, including its global custody business, reported net income of $385.2 million for the quarter, more than triple the prior quarter’s $125 million total and more than double its year-earlier income, buoyed by a $167.9 million gain from the company’s restricted stock holdings in Visa USA Inc., San Francisco, which went public in March. Even without the Visa gains, Northern Trust Corp.’s net income would have been up 23% from the year before, Mr. O’Connell noted. The parent company’s consolidated revenue, meanwhile, came to $1.15 billion, up 13% from the prior quarter and up 39% from the year before.

Federated Investors Inc. , Pittsburgh, had record assets under management of $338.5 billion as of March 31, up 12% from Dec. 31 and up 35% from the year before. A $40.9 billion jump in money market assets, to $277.5 billion, more than offset a $4.6 billion decline in equity assets to $37.5 billion mainly caused by market depreciation, according to a news release from Federated.

Federated reported net income of $55.8 million, or 55 cents per diluted share, up 5.8% from the prior quarter and up 7.7% from the year before. The consensus first-quarter forecast of analysts, tallied by Thomson Financial Network, had been 62 cents.

Federated reported first-quarter revenue of $305.7 million, up 1.8% from the prior quarter and 16% higher than the year before.

Federated had issued preliminary numbers on April 14, ahead of its official announcement on April 24, because analysts’ consensus earnings estimates appeared out of line with its actual earnings, said spokeswoman Meghan McAndrew.

State Street Global Advisors on April 15 reported $1.955 trillion in assets under management as of March 31, down about 1.3% from the prior quarter but up 6% from the year before. Amid declining equity markets, the quarter-on-quarter decline would have been steeper if SSgA hadn’t enjoyed net inflows.

On a conference call announcing parent company State Street Corp.’s latest financial results, State Street Chairman and CEO Ronald E. Logue said SSgA had $69 billion of net inflows during the first quarter. Slightly more than 50% of that new business flowed to the money manager’s active strategies, which Mr. Logue called a continuing focus for the Boston-based firm. On the same conference call, State Street CFO Edward J. Resch said SSgA’s management fee revenue for the quarter came to $278 million, down 6.4% from the prior quarter but up 6.5% from the year before. Mr. Resch tied the quarter-on-quarter decline in fee revenue to the 10% drop in equity markets over the same three-month period, as well as to lower performance fees.

The parent company, meanwhile, reported record revenue of $2.577 billion for the latest quarter, up 4% from the prior quarter and up 52% from the year before, buoyed by $220 million from State Street’s July 2007 acquisition of Investors Financial Services Corp. Net income for the quarter came to $530 million, up 138% from the prior quarter, when State Street took a $279 million after-tax charge related to losses suffered by some of SSgA’s active fixed-income strategies. The parent company’s net income was up 69% from the year before.

Bank of New York Mellon Corp., New York, had assets under management of $1.11 trillion as of March 31, down 1.4% from the prior quarter but up 8%, on a pro forma basis from the combined totals of The Bank of New York and Mellon Financial Corp., which merged in July 2007. In a news release, the New York-based custody and asset management giant said it had net inflows of $23 billion for the quarter, attributing the overall quarterly asset decline to broader declines in equity markets.

Spokesman Kevin Heine said the bulk of inflows for the latest quarter went into liquidity products. The firm reported asset and wealth management fees of $842 million for the latest quarter, down 5.1% from the prior quarter but up 5%, on a pro forma basis, from the year before. For the company, net income for the latest quarter came to $746 million, up 43% from the prior quarter when the company posted an extraordinary $180 million loss on the consolidation of a commercial paper conduit, and up 8.7% on a pro forma basis from the year before. Revenue came to $3.745 billion, down 1.3% from the prior quarter but up 14% from the year before.

AllianceBernstein, New York, reported $735 billion in assets under management in the first quarter, 8% below the previous quarter and a decline of 1% from a year earlier. Institutional assets were $471 billion, retail assets were $163 billion and private client assets were $101 billion, according to an earnings statement.

Net outflows for the quarter were $1.5 billion. Retail investors yanked $4.4 billion from the company during the first quarter while institutional investors and private clients poured in a combined $2.9 billion. Net inflows for the past 12 months were $17.3 billion.

Weak markets hurt returns and depreciated assets under management, CEO Lewis Sanders said in a news release. “Turbulent capital market conditions negatively impacted first-quarter results for our clients and the firm. Absolute investment returns were weak across our entire equity and hedge fund service suite. With few exceptions, returns in these services trailed benchmarks,” he said. “Fixed income portfolios generally produced positive returns, providing important ballast to client portfolios,” Mr. Sanders added.

Net income for the quarter was $247 million, down 8% from the first quarter of 2007.

Bank of America Corp.’s global wealth and investment management division, which includes Columbia Management, April 21 reported $607.5 billion in assets under management as of March 31, down 5.5% from the prior quarter but up 11% from the year before. For the latest quarter, BoA suffered net client outflows of $6.3 billion, with market depreciation accounting for an additional $29.7 billion decline in assets under management.

For Boston-based Columbia Management alone, assets under management came to $409.1 billion, down 6.8% from the prior quarter and down 6.7% from the year before. During the latest period, Columbia’s revenue came to $179 million, up from $16 million for the prior quarter but down 44% from the year before, in part because of steps taken to support the firm’s cash funds. For the quarter, Columbia had a net loss of $79 million, compared to a net loss of $178 million for the prior quarter and a net profit of $54 million for the year-earlier quarter.

Franklin Resources Inc., San Mateo, Calif., reported assets under management of $591.1 billion as of March 31, down 8.9% from the prior quarter but up 2.6% from the year before. For the latest quarter, Franklin reported net income of $366.1 million, down 41.6% from the prior quarter and 20.4% lower than the year-earlier quarter. Revenue came to $1.5 million, down 12.1% from the prior quarter and down 0.4% from the year before, according to a news release.

Invesco Ltd. reported $470.3 billion in assets under management as of March 31, down 6% from the prior quarter and a scant 0.2% lower than the year before. In a news release, the Atlanta-based firm reported net inflows of $1.2 billion for the quarter, with money market gains of $9.6 billion offsetting outflows of $8.4 billion for long-term equity and bond products. The fourth quarter saw net outflows of $1.5 billion, with money market inflows of $3.5 billion and long-term outflows of $5 billion. For the latest quarter, market-related losses shaved another $33.5 billion from the firm’s AUM, up sharply from $5 billion for the prior quarter. Net income for the latest quarter came to $155.2 million, down 12% from the prior quarter but unchanged from the year before. Operating revenue, meanwhile, came to $910.4 million, down 11% from the prior quarter but up 1.1% from the year before.

T. Rowe Price Associates Inc., Baltimore, reported $378.6 billion in assets under management as of March 31, down 5.4% from Dec. 31 but up 8.2% from the year before. Market-related declines of $31.1 billion for the quarter more than offset record net inflows of $9.7 billion, the company said in a news release. By client category, mutual funds saw net inflows of $3.7 billion and market-related declines of $19.2 billion, while managed accounts, including institutional separate accounts, saw net inflows of $6 billion and market-related declines of $11.9 billion. Net income for the latest quarter came to $151.5 million, down 26% from the prior quarter but up 6% from the year before. Revenue, meanwhile, came to $559.1 million, down 6.5% from the prior quarter but up 10% from the year before.

Affiliated Managers Group Inc. reported $243.6 billion in combined assets under management for its money management subsidiaries as of March 31, down 11% from the prior quarter and 2.6% less than the year before. Net client outflows for the quarter came to $8.4 billion, while declines in market valuations shaved another $19.2 billion from the totals, AMG said in a news release. Sean M. Healey, AMG president and CEO, said in the release that the outflows were concentrated in “certain quantitative products managed by First Quadrant, AQR and Chicago Equity Partners,” but overall the firm’s subsidiaries enjoyed strong relative performance.

For the latest quarter, net income came to $32.8 million, down 46% from the prior quarter, when income was buoyed by performance fees, and down 10% from the year before. Revenue came to $335 million, down 13% from the prior quarter but up 8% from the year before.

Janus Capital Group, Denver, reported $187.6 billion in assets under management as of March 31, down 9.2% from Dec. 31 but up 6.5% from the first quarter of 2007. The first-quarter drop was mainly attributed to $17 billion in market depreciation; long-term and money-market net outflows were $1.5 billion and $600 million, respectively, confirmed Janus spokeswoman Shelley Peterson.

Janus’ long-term net outflows were driven mostly by a $1.1 billion fixed-income mandate redemption in the first quarter at subsidiary INTECH. Excluding INTECH, Janus’ outflows were $400 million. INTECH saw inflows of $100 million in the fourth quarter.

Net income for Janus was $39 million, down 24% from the previous quarter but up 3% from the previous year.

JPMorgan Chase, New York, announced assets under management of $1.2 trillion as of March 31, basically unchanged from the fourth quarter 2007 but up 13% from the previous year. Of the total, $652 billion was institutional assets, $196 billion came from private banks, $279 billion was retail assets and $60 billion was managed for private clients. Net inflows were $47 billion for the first quarter and $143 billion for the past 12 months.

Net income was $356 million, down 32.4% from the previous quarter and down 16% from the prior year. The decrease was driven by higher non-interest expense, lower performance fees and lower market valuations for seed capital investments in JPMorgan funds, according to a JPMorgan Chase & Co. news release.

“Our expectation is for the economic environment to continue to be weak and for the capital markets to remain under stress,” Jamie Dimon, chairman and CEO, said in a statement. “These factors have affected, and are likely to continue to negatively impact, our firm’s credit losses, overall business volumes and earnings — possibly through the remainder of the year or longer. However, we are prepared to manage through this down part of the economic cycle, given the strength of our liquidity, credit reserves, capital and operating margins, and to successfully position our company well for the future.”