Asset managers reported mixed success in attracting inflows for the second quarter, as a pickup in market volatility during the period weighed on investors' appetite for riskier assets.
Flows were a particularly important determinant of gains in assets under management for the period, as equity markets at home and abroad posted little or no gains. For the quarter, the broad-based Russell 3000 domestic equity benchmark ended little changed while the Morgan Stanley Capital International All Country World index added a scant two-fifths of a percentage point.
When it came to flows, the latest quarter saw a continued widening in the dispersion between winners — boasting strong performance, superior distribution muscle or both — and losers, noted Michael Kim, a New York-based analyst covering money managers for Sandler O'Neill & Partners.
Mr. Kim cited Affiliated Managers Group Inc., Franklin Resources Inc. and Waddell & Reed Financial Inc. as among the quarter's winners, while pointing to AllianceBernstein Holding LP, Janus Capital Group Inc. and Artio Global Investors Inc. as examples of firms that continued to struggle with sizable redemptions.
With retail investors leading the pullback from equities during the quarter, institutionally focused firms enjoyed relatively strong inflows, helped by continued demand for alternative and international products, noted Daniel T. Fannon, a San Francisco-based analyst covering money managers for Jefferies & Co.
For example, AMG reported record inflows of $7.5 billion, with Sean M. Healey, the firm's chairman and CEO, citing strong demand for both alternative strategies as well as global and emerging markets equities return-oriented strategies. BNY Mellon likewise reported record net inflows of $31 billion.
Roger A. Freeman, a New York-based analyst with Barclays Capital, likewise noted that institutional inflows for a number of companies — including T. Rowe Price Associates Inc. and Franklin Resources — exceeded market expectations. While the impact of the current bout of market volatility on those flows remains an open question, the latest reports lend credence to reports from money manager executives of a growing number of active discussions with institutional clients, he said.
Firms reporting record AUM at the June 30 end of the quarter included AMG, up 2.5% at $348.4 billion; Invesco Ltd., up 1.8% to $653.7 billion; T. Rowe Price, up 2.2% to $520.9 billion; and J.P. Morgan Asset Management, up 0.9% to $1.342 trillion.
BlackRock Inc., the world's biggest manager, reported $3.659 trillion in AUM as of June 30, up 0.3% from the prior quarter.
According to the firm's quarterly data, $9.9 billion in outflows related to the company's December 2009 acquisition of Barclays Global Investors and $8.9 billion in outflows from the firm's quantitative equity strategies offset inflows for other business segments, led by $20.7 billion into BlackRock's multiasset-class offerings. On balance, the company reported net inflows of $8.5 billion.
On a conference call discussing the firm's latest results, Laurence D. Fink, chairman and CEO, said the main drags on BlackRock's net inflows, such as mergers, are poised to recede.
Meanwhile, a strong performance turnaround by BlackRock's active quantitative strategies this year should result, within six to 12 months, in net inflows for a business segment that had been struggling for more than three years, he predicted.
On the call, Mr. Fink noted that a considerable number of investors had trimmed their holdings of riskier assets in recent months, amid a flurry of news about economic and political uncertainties. He urged them not to “capitulate” in the face of short-term fears.
Continued drawdowns of huge distressed asset mandates awarded by the U.S. government to firms such as BlackRock and State Street Global Advisors further weighed on net flow reports.
Joseph L. Hooley, the chairman, president and CEO of SSgA parent State Street Corp., said $27 billion of such outflows in the second quarter left SSgA's assets under management down marginally at $2.116 trillion from $2.12 trillion for the prior quarter. Without that outflow, SSgA would have reported net inflows of $10 billion, he said.
Like Mr. Fink, Mr. Hooley said an apparent decline in investor confidence short-circuited the pickup in demand for riskier assets that became evident from mid-2010 — boosting demand for SSgA's passive, cash and exchange-traded fund offerings.
That growing caution about risk left investors favoring fixed income at the expense of equities during the latest quarter.
For example, Franklin Resources saw $20.5 billion in net inflows for taxable global and international bond strategies, and another $500 million for taxable U.S. bonds, contributing to record inflows for a quarter of $21.7 billion. The company's equity strategies, which account for more than 40% of the firm's overall AUM, saw a net outflow of $300 million.