A rising U.S. equity market helped buoy earnings for a number of money management firms in the final quarter of 2010 and has many executives predicting better times ahead this year.
With the Standard & Poor's 500 index's 11% gain for the quarter providing a tailwind, a number of firms — including T. Rowe Price Group Inc., Franklin Resources Inc., Invesco Ltd. and J.P. Morgan Asset Management — reported record assets under management and double-digit gains in net income from the prior quarter.
The rise in average assets under management, the return of performance fees and a shift in the asset mix toward equities helped almost all money managers report earnings that exceeded expectations for the latest quarter, said Chris Spahr, a New York-based research analyst with Credit Lyonnais Securities Asia.
While the industry enjoys positive operating leverage in a rapidly rising market, managers capable of garnering net inflows, such as Baltimore-based T. Rowe Price, are in an especially strong position, he said.
For the latest quarter, such managers were few and far between. If earnings mostly came in above expectations, net new flow numbers were, for the most part, “a bit disappointing,” deflating sentiment toward some managers, noted Michael Kim, a New York-based research analyst with Sandler O'Neill & Partners.
Legg Mason Inc., Invesco, BlackRock Inc. and State Street Global Advisors reported net outflows for the quarter of between $12 billion and $17 billion apiece. Janus Capital Group Inc. and J.P. Morgan Asset Management saw net outflows of $4.7 billion and $2 billion, respectively.
Franklin Resources, San Mateo, Calif., reported net inflows of $3.2 billion, down from $19.4 billion for the prior quarter. T. Rowe proved among the most resilient, with net inflows of $6.9 billion, down from $8 billion for the prior quarter.
Even so, in earnings conference calls in January, a chorus of top money management executives insisted that growing investor interest in higher-risk, higher-margin investment products — including equities, alternatives and specialized fixed-income strategies — makes it necessary to look beyond those headline flow numbers.
Speaking with analysts about New York-based BlackRock's latest results, Laurence D. Fink, chairman and CEO, said the absolute flow number “is less of a focus for me than the composition of the business, and the revenues associated with the composition.” Taking on smaller mandates for higher-fee investment strategies is a trade-off “I'm perfectly happy with,” he said.