Call it one more holiday discount ignored.
Shares of publicly traded money managers are down as much as 87% year to date through Dec. 1. And while most of these stocks are now trading at bargain-basement prices, investors — fearful of more market turmoil and continued industry weakness — have little appetite to pick up these one-time Wall Street darlings.
“Investors have too much apprehension about the market,” said Darlene T. DeRemer, partner and executive committee member of Grail Partners LLC, Boston.
Analysts and other investment bankers agreed, saying that would-be buyers are shying away from all high-beta stocks, including asset managers.
As capital markets reeled from crisis to chaos and back again this year, asset managers of all stripes suffered, even though historical measures of their health — such as assets under management — held up relatively well through the summer months. But as the federal government's efforts to bail out the banking system largely failed to thaw frozen credit markets and assuage equity investors' fears, shares of money managers fell apart. The aggregate market capitalization of U.S. publicly traded asset managers fell $131 billion, or 67.7%, year to date as of Dec. 1, according to the data from Grail. “It's not necessarily rational,” said D.J. Neiman, associate analyst of William Blair & Co. LLC, Chicago. He said investors don't want to differentiate asset manager stocks from other financial stocks.
“I don't think any of us is up this year,” said Bill Miller, chairman and chief investment officer of Legg Mason Capital Management, Baltimore, in an interview at the company's annual symposium last week in New York. The veteran money manager described the market decline and fund redemptions as “a double whammy” that has hit the industry hard.
Aaron Dorr, managing director of Jefferies Putnam Lovell, a division of Jefferies & Co. Inc., New York, said he believes shares of money management firms have been stung more by the broad market selloff than by the deteriorating industry fundamentals.
Benjamin F. Phillips, a partner at Darien, Conn.-based Casey Quirk & Associates LLC, called money management firms “the most dramatic kid in the room,” extremely outperforming or underperforming. “They cheer the loudest when the market works well and cry the loudest when the market goes down,” he said, adding the rebound will be much higher and faster once the market stabilizes.
Investors are punishing the stocks so harshly that many are trading well under their initial public offering prices. “The public expects the firms to generate steady earnings,” said Mr. Phillips, “but they can't.”