Updated with correction
Positive inflows, higher fees and expanding operating margins marked fourth-quarter results for most publicly traded money managers, capping a year of recovery from the dark days of 2008.
“It was generally a good quarter, and business trends were relatively better compared to a year earlier, by any stretch of the imagination,'' said Robert Lee, an analyst with Keefe, Bruyette & Woods Inc. in New York.
Major firms such as BlackRock Inc., New York; T Rowe Price Inc., Baltimore; Franklin Resources Inc., San Mateo, Calif.; and Invesco Ltd., Atlanta, finished 2009 with continued earnings gains and inflows.
But some companies were still struggling, including Legg Mason Inc., Baltimore, which saw outflows increase in the quarter ended Dec. 31. Outflows were particularly severe at Legg's fixed-income subsidiary, Western Asset Management Co. While Legg Mason posted a profit, it was less than what Wall Street analysts had anticipated.
Analysts, though, expect the upward trend for most firms will continue through 2010, assuming financial markets continue their push to normalcy. In particular, institutional investors that sat on the sidelines during 2009 are ready to take risk again, Mr. Lee noted, moving from fixed-income assets into equities and other higher-return strategies.
“The key thing is there is going to be more investors reinvesting,'' he explained.
Analyst Michael Kim at Sandler O'Neill + Partners LP, New York, said from a margin standpoint, publicly traded money managers on average were doing well in 2009, with operating margins of roughly 30%.
Mr. Kim said margins were up 500 basis points from a year earlier. But the results are still below the 35% average profit margin peak the firms experienced at the end of 2007, he said.
Another plus is that strengthening demand for higher-return strategies among pension funds is also driving higher fees, said Goldman Sachs & Co. analyst Marc Irizarry in New York.
He said Goldman's survey of nine publicly traded large and midsize money managers found the average management fee expanded six basis points between the third and fourth quarters of 2009.
Assets under management also were up at the nine firms, he said.