Global uncertainty and need for cash make for disappointing quarter
Money managers reported flat and, in many cases, declining assets under management for the quarter ended June 30.
Clients' need for cash, the continuing trend of institutional investors moving away from active equity strategies and asset owners' apprehension about Greece and China were among factors cited by asset management firms that experienced net outflows during the quarter.
Of the 16 publicly traded money managers that had released their quarterly earnings as of Aug. 4, four firms — Milwaukee-based Artisan Partners (APAM) Asset Management Inc., Atlanta-based Invesco (IVZ) Ltd., New York-based J.P. Morgan Asset Management (JPM) and Baltimore-based Legg Mason (LM) Inc. (LM) — saw assets grow by 1% or less during the second quarter. Nine firms experienced declines.
Goldman Sachs Asset Management, New York, experienced no change in asset volume.
“We didn't see a lot of appreciation,” Robert Lee, a managing director and analyst at Keefe, Bruyette & Woods Inc. in New York, told Pensions & Investments. “What we generally saw was the impact of lackluster asset returns.”
“A lot of the weak asset growth was predominantly a function of returns in the quarter being not great — depending on the asset class, of course,” Mr. Lee said.
Six managers saw net outflows during the quarter. State Street Global Advisors, Boston, had a double jolt in the quarter, with both the biggest drop (assets down 2.8%) and the largest net outflows ($65 billion) of managers that released earnings.
“Toward the end of second quarter 2015, we saw a number of significant market disruptions, which reduced risk appetite,” Joseph L. Hooley, chairman and CEO of parent State Street Corp. (STT), said during the firm's July 24 earning call.
“Our asset management business experienced net outflows of $65 billion during the second quarter of 2015, driven primarily by net outflows of $36 billion from institutional passive equity, $17 billion from ETFs, primarily institutionally oriented market index funds, and $17 billion from cash products,” Mr. Hooley added.
He noted that “the significant drivers of passive equity outflows included rebalancing and cash needs by some of (SSgA's) clients due to lower commodity prices.”
BlackRock (BLK) Inc. (BLK), New York, the world's largest money manager, also experienced net outflows. That firm saw $7.3 billion in net outflows during the quarter ended June 30, driven primarily by $27.26 billion in net outflows from equities.
“Second-quarter long-term net outflows ... reflected elevated market volatility,” said Gary S. Shedlin, BlackRock chief financial officer, in the firm's earnings call to investors on July 15.
Laurence D. Fink, BlackRock chairman and CEO, added in that earnings call that much of the outflow was driven by clients needing cash “for rainy day issues, and it's raining in some of the commodity-based economies, and so they're utilizing some of that.”
Despite the net outflows, BlackRock saw inflows of $12.85 billion in fixed income; $5.05 billion in multiasset strategies; and net inflows of $2.06 billion in core alternatives.
BlackRock's AUM was $4.721 trillion as of June 30, down 1% from March 31.
BNY Mellon Investment Management also was affected by net outflows. The bank-owned money manager's AUM dropped 1% at the end of the quarter, and it saw net outflows of $15 billion during the quarter.
Mitchell Harris, president of investment management for BNY Mellon, New York, attributed the outflows to several factors. “The trend of active equity outflows continues on an industrywide basis,” Mr. Harris said in a phone interview.
Mr. Lee added: “Actively managed U.S. domestic equities strategies had outflows for a long time now. There was nothing in the short term that changed that, so that continued.”
Mr. Harris also said: “Some of the bigger (pension) funds have a need for cash. There's derisking going on. We're also seeing a shift to passive strategies and (clients) moving to alternatives.”
Greece and China
Recent events in Greece and China also caused investors to get nervous. “They are trying to navigate such complex issues as a potential Greece default, China's slowdown and market volatility, as well as terrorism,” said Joseph A. Sullivan, CEO of Legg Mason (LM), during the manager's July 31 earnings call.
“Such consternation has caused investors to pause, which is evidenced by quarterly industry flow data, most notably the $49 billion in outflows in active U.S. equity funds and $6 billion in active U.S. bond fund outflows during the quarter,” Mr. Sullivan added.
Legg Mason reported $699.2 billion in AUM as of June 30, down 0.5% from three months earlier. The firm experienced $3.6 billion in net inflows for the quarter, compared with net outflows of $9.1 billion for the previous quarter.
Although AllianceBernstein (AB) LP (AB), New York, experienced net inflows of $2.2 billion during the quarter, Chairman and CEO Peter S. Kraus noted in the firm's July 30 earnings call that Greece and China impacted quarterly results.
“In many respects, fixed-income investors reacted to the events in China and Greece, and talk of rising U.S. rates, in much the same way they did during the volatility taper tantrum in May of 2013,” Mr. Kraus said. “That affected our flows and performance during that quarter.”
AllianceBernstein's AUM was $485 billion as of June 30, down 0.2% from March 31.
Looking forward to the third quarter, Mr. Lee said he's expecting “more of the same ... I wouldn't expect things to look too much different from the prior quarter,” he said.
This article originally appeared in the August 10, 2015 print issue as, "Managers not seeing asset growth".