June changed everything.
Several of the largest publicly traded money managers saw assets under management slip in the second quarter because of poor market performance at the tail end, particularly in fixed income. Yet earnings and revenue were up.
The general increase in revenue and net income is “a timing issue,” said Robert Lee, equity research analyst at Keefe, Bruyette & Woods, New York.
“The key thing isn't where assets under management started or finished in the quarter, but what the average assets under management were,” Mr. Lee said. The average better reflects what fees, particularly for mutual funds, were based on, he said.
“Average second-quarter assets under management were better than the ending value.
“That's a one-quarter effect,” Mr. Lee added. “The effects will be felt in the third quarter since (AUM) will be starting off at a lower base. In a purely static world, they're starting off behind the 8-ball a little bit. A lot depends on how markets progress in the third quarter.”
William Katz, analyst at Citigroup Global Markets, New York, agreed. “Over time, average assets finished higher in the second quarter. The challenge will be what's the average in the third quarter. It's encouraging that July has been strong so far.”
Managers that filed earnings statements for the three months ended June 30 generally saw percentage asset declines in the low single digits, although Morgan Stanley Investment Management, Bank of New York Mellon Corp. and Affiliated Managers Group Inc. eked out AUM increases around 1%. However, several other firms saw big percentage jumps in net income for the second quarter — notably Legg Mason Inc., with a 63% boost, and BlackRock Inc., with 15%.
Those increases came despite market-related losses reported by most money managers, tied to a 3.3% decline in the Barclays Capital Investment Grade Bond index and the rising yield on the U.S. Treasury 10-year note, to 2.49% on June 30 from 1.84% on April 1. The Standard & Poor's 500 stock index returned 2.4% in the quarter, but that paled in comparison to its 10.61% return in the first quarter.
In percentage revenue gain, AMG led for the second quarter with a 7.7% jump, to $541 million. Only Federated Investors Inc. saw a revenue decline, down 1.8% to $223 million.
Legg Mason's and BlackRock's percentage increases in net income came despite asset declines in the quarter of 3.1% for Legg Mason, to $644.5 billion, and 2% for BlackRock, to $3.86 trillion. BlackRock remains the largest money manager, followed by State Street Global Advisors, reporting $2.146 trillion as of June 30, down 1.4%. Parent State Street Corp. reported overall net income of $571 million, up 25.5% for the quarter.