With the market up and volatility down in the third quarter, a number of public money managers saw their assets under management grow. But because of asset owners shifting assets to passive — and therefore, less expensive — strategies, many managers struggled with revenue growth.
Of the 25 public investment firms (which include private equity managers) that disclosed their third-quarter earnings as of Nov. 3, 17 saw an increase in AUM in the quarter while only four — Legg Mason Inc., Och-Ziff Capital Management Group LLC, Carlyle Group LP and Federated Investors Inc. — reported a decline.
Four firms — KKR & Co. LP, Franklin Resources Inc., AllianceBernstein LP and Fortress Investment Group LLC — experienced no change in AUM.
Robert Lee, an analyst and managing director with Keefe Bruyette & Woods Inc. in New York, said that because the market was up in 2016's third quarter, positive returns helped raise AUM.
Still, many money managers — including Northern Trust Corp., Apollo Global Management LLC and Affiliated Managers Group Inc. — struggled with generating organic revenue growth in the third quarter. Nine firms of that group of 25 reported flat or pullback in revenue on a quarterly basis.
“Firms with fixed-income or ETF businesses, and in some cases alternatives and global equities tended to do better,” said Mr. Lee. “But domestic equities dragged things down.”
The KBW analyst said the continued movement from active management means that even though AUM might be growing, revenue is being pinched.
“Even though they may have grown their assets under management they may not necessarily have grown revenues as much because their mix of assets has been toward things that may have lower fee structures,” Mr. Lee said. He added the lower fees are something that is worrying those who invest in money management firms.