Poor markets push down manager assets in quarter

Weak markets in the third quarter led to a decline in appetite by investors for risk assets, which in turn led to most public money managers experiencing slumps in their assets under management.

Of the 14 public money managers whose earnings Pensions & Investments tracked as of Oct. 29, 12 saw declines in their assets under management for the quarter. The remaining two — Morgan Stanley Investment Management and Federated Investors Inc. — had AUM that stayed flat.

Also of the 14, seven experienced slumps in AUM for the year ended Sept. 30, with four — BNY Mellon Investment Management, Federated, J.P. Morgan Asset Management and BlackRock Inc., all based in New York — having no substantial change year-over-year.

JPMAM's assets under management totaled $1.71 trillion as of Sept. 30, down 4% from three months earlier and unchanged from a year before. Net outflows for the quarter were $9 billion.

“We were not immune to the impact of interest rate uncertainty in equity markets,” said Marianne Lake, chief financial officer at JPMAM parent J.P. Morgan Chase & Co., in the firm's earnings call to investors Oct. 13. “And while we did experience overall modest net outflows, we had positive flows in our less-market-sensitive multiasset class and alternative platforms.”

Denver-based Janus Capital Group, and MSIM and Goldman Sachs Asset Management, both based in New York, actually saw their AUM rise year over year in the third quarter.

Michael Kim, managing director, equity research at Sandler O'Neill & Partners LP, New York, said the market definitely created headwinds during the quarter. “We see risk appetites muted in light of ongoing uncertainty toward the macroenvironmental backdrop, and that's causing investors to sit on their hands and not make any meaningful moves as it relates to asset allocations,” Mr. Kim said.

“The public equity markets around the world had a very bad third quarter,” said Craig Siegenthaler, an analyst with Credit Suisse Group, New York, in a phone interview. “The market was the major reason that AUM balances declined in the third quarter.”

Mr. Siegenthaler added that the poor equity markets were modestly offset by positive inflows. He also cited BlackRock as a manager that “had pretty strong net flows despite such a poor macro backdrop.”

Despite seeing their AUM decline, managers such as BlackRock, GSAM and MSIM saw net inflows for the quarter.

“Flows were positive across investment styles and client types, reinforcing the value of our broad-based, diversified business model,” said Gary S. Shedlin, BlackRock CFO, in the firm's earnings call to investors Oct. 14.

Laurence D. Fink, BlackRock chairman and CEO, added in that earnings call that BlackRock is seeing flows in Asian and European equities.

“As the market settles down, we believe the category where many investors will be seeking market exposures (is) going to be in Asian equities,” Mr. Fink said. “And with our performance, I would think over the next few years, we're going to see accelerated flows there.”

BlackRock's long-term strategies experienced net inflows of $35 billion for the third quarter. The money management giant's AUM totaled $4.505 trillion as of Sept. 30, down 4.6% from three months earlier.

GSAM was another manager that experienced healthy inflows during the third quarter. “In the quarter, and in fact year-to-date, we've seen more flows in the institutional and private wealth management spaces,” said Gavin O'Connor, chief operating officer of the investment management division at GSAM, in a phone interview.

Mr. O'Connor added: “In the institutional space, we have a big insurance asset management business and outsourced CIO business, both of which saw significant inflows.”

GSAM's net inflows for the third quarter were $36 billion, including $18 billion from acquisitions.

Brian Margulies, CFO of GSAM's investment management division, said in the same phone interview that the money manager also has seen “a lot of traction in active beta strategies with (our) institutional clients.”

Despite those inflows, AUM was $1.019 trillion as of Sept. 30, down 1% from three months earlier.

Mr. Margulies attributed the decline in AUM and slow growth in assets under supervision to market depreciation. GSAM's assets under supervision totaled $1.188 trillion as of Sept. 30, up 1% from June 30.

“For the quarter, most managers would see market depreciation driven by the decline in equity markets,” Mr. Margulies said.

The S&P 500 returned -6.44% for the quarter, while the MSCI All Country World index had a -12.1% return.

MSIM's net inflows totaled $11 billion for the quarter ended Sept. 30, while its AUM of $404 billion was flat from June 30 but up 1% from a year earlier.

Looking forward, Sandler O'Neill's Mr. Kim added he believes that if markets continue to remain volatile, it will continue to be a challenging environment for money managers in terms of flows and growth.

Also, with management teams putting together their budgets for next year, with assets down, Mr. Kim said the teams are increasingly focusing on expenses “and taking a hard look on where they can dial back on some projects and initiatives.”

Despite the unimpressive markets and decline in AUM, Credit Suisse's Mr. Siegenthaler pointed out that “it's important to stay focused on longer-term trends.”

“We think net flows are a good barometer of the health of the underlying business,” he added. n