Most traditional managers saw their assets under management decline during the fourth quarter, a Pensions & Investments analysis of 24 publicly held money managers found.
The drop in AUM, in part the result of volatile markets, also intensified managers' longer-term concerns about expenses and fees, which may have prompted several firms to cut staff during, or just after, the quarter, industry sources said.
Unlike alternatives firms, which are less impacted by short-term changes in asset values and generally saw AUM gains in the quarter ended Dec. 31, traditional managers "essentially earn their management fees based on the market value of the portfolios they manage," said Robert Lee, an analyst at Keefe, Bruyette & Woods Inc. in New York. "Considering what transpired in the fourth quarter with the equity market, that's why you saw assets under management decline sharply."
The S&P 500 index was down 13.5% in the fourth quarter.
Along with asset declines, managers have continued to face industry fee compression, forcing many to take a hard look at expenses, Mr. Lee explained.
"A lot of managers moved to address or tighten up spending and took steps toward realigning their expense base. … The bigger expense for a lot of managers is people," he added.
Last month, BlackRock Inc., New York, announced it was laying off about 500 employees, or 3% of its workforce, as part of companywide restructuring. The move occurred as "market uncertainty is growing, investor preferences are evolving and the ecosystem in which we operate is becoming increasingly complex," Robert Kapito, co-founder and president, wrote in an internal memo to BlackRock employees obtained by P&I.
BlackRock's AUM dropped 7.3% over the three months ended Dec. 31 to $5.976 trillion and dropped 5% from a year earlier, the company reported in its Jan. 16 earnings statement.
As part of its restructuring plans, the firm will focus on capacity building in four key areas: expanding the firm's technology prowess, shifting to a portfolio construction approach with clients from a product selection focus, increasing distribution capability in high-growth markets worldwide, and meeting client demands in areas such as illiquid alternatives and factor-based strategies, the memo said.
While recent job cuts at money managers are, in part, driven by volatility and uncertainty in the markets, firms are generally examining their organization and looking to outsource certain functions as well as reinvent the business, said Michael Patanella, a New York-based audit partner and asset management sector leader at Grant Thornton LLP.
"What we've seen at Grant Thornton is a lot of right-sizing at organizations, whether that be outsourcing compliance and tax functions or some of their accounting functions. Above and beyond outsourcing, (asset managers) may be using technology (in ways) they didn't previously," to cut costs, he said.
"We are also seeing artificial intelligence and a surge in technology slowly taking away some of these jobs (in asset management)," Mr. Patanella said.