A stock market surge in the first quarter of 2012 helped boost assets under management at most publicly traded money managers. But inflows and profits didn't always follow, and top money management executives concede that uncertainty about where the economy is headed is still an issue.
T. Rowe Price Group Inc., Baltimore, had one of the strongest showings among public companies in the three months ended March 31. The company finished the quarter with a record $554.8 billion in assets under management, the result of market gains of $52.9 billion and record net inflows of $12.4 billion. That's up sharply from the previous quarter's market gains of $30.7 billion and net inflows of $1.1 billion.
But CEO James Kennedy said he doesn't expect large positive market returns to continue to build AUM.
“We recognize that the market returns we saw in the first quarter would generally not be repeatable during the balance of the year,” Mr. Kennedy said in a statement issued in connection with the company's earning report.
“Markets remain anxious about continued economic weakness and financial uncertainty in Europe, U.S. budget issues, higher energy prices, political turbulence in the Middle East, and slowing growth in China.”
Another top executive — Laurence D. Fink, chairman and CEO of the world's largest money manager, BlackRock Inc. — said during an April 18 analysts conference call that the markets were “quite fragile.”
“There is a great deal of uncertainty ahead of us,” he said.
BlackRock also benefited from market and currency gains, as its assets under management increased to $3.7 trillion in the quarter, up from $3.5 trillion in the prior quarter.
But the picture wasn't entirely rosy. The company experienced net outflows in the quarter of $10.3 billion for long-term strategies and $14.9 billion for cash management strategies.
BlackRock's institutional long-term AUM grew 5% to $2.285 trillion in the first quarter and reflected long-term net inflows of $6.2 billion, an earnings release said. Those numbers were driven by $9 billion of inflows into lower-fee passive strategies, which were partially offset by outflows of $2.8 billion from active strategies.
Mr. Fink said during the call that while BlackRock has seen some nice long-term flows, investors still are reluctant to make investment decisions.
“It's not a reluctance because they don't want to do something; it's a reluctance overlaying fear: "Will this cost my job? How do I respond?'” Mr. Fink said. BlackRock is trying to demonstrate to investors that doing nothing is an even greater risk, he said.
Mr. Fink said the dialogue BlackRock is having with investors has also changed from several years ago. Instead of talking about core fixed-income or large-cap equity strategies, investors are talking about multiasset solutions or alternatives, he said.
BlackRock reported a $572 million profit in the quarter, up 3.1% from the prior quarter and 0.7% from the same period a year ago.Robert Lee, an analyst with Keefe, Bruyette & Woods Inc., New York, said in an interview that he thought BlackRock had a fine quarter. He added, however, that investors are concerned about the stability of the economy and how it will affect asset management companies in the future.
BlackRock's stock fell 2.87% to $196.01 on April 18 following the earnings release. It fell further, closing at $186.94 on April 23, before recovering slightly to close at $192.50 on April 27.
“Investors don't have confidence that the recovery will sustain itself given what has happened in prior years,” said Mr. Lee. “It's not just enough to have a good quarter; its important, but not enough,” he said. “I think investors want to say, "What it is it about this quarter that I can comfortably extrapolate into other quarters.'”
He said it apparently was easier for investors to conclude that T. Rowe's positive track record will continue. T Rowe Price stock closed at $61.95 on April 24 after its earning release, a 1.5% gain. It closed at $63.23 April 27.
Mac Sykes, an analyst at Gabelli & Co., Rye, N.Y., said the first quarter was a tough one for traditional equity managers, as longer-term trends of assets flowing out of equities and into fixed-income strategies continued.
Mr. Sykes said T Rowe Price blossomed in the first quarter. He said the company gained not just because of market appreciation, but because of strong performance for its mutual funds and target-date offerings to defined contribution plans.
Target-date funds accounted for more than one-third of the company's first-quarter net inflows.