Managers hold steady in Q1 despite virus-sparked sell-off – study

Despite the steep sell-off in global equities and fixed-income markets amid the COVID-19 pandemic in the first quarter, traditional publicly traded asset managers remained resilient, according to analysis from asset management strategy consultant Casey Quirk, a Deloitte business.

The analysis of 19 firms with some $16 trillion assets under management showed median revenue at traditional publicly traded asset managers fell 6.7% over the three months ended March 31, while operating expense slid 3.9%.

While AUM slumped 16.7% from Dec. 31, average AUM fell only 2% as the severe market decline occurred late in March. Fees were stable, net flows declined less than 1%, and operating margins for the median manager slipped 1.9% in the first quarter.

Asset managers profited from resilient capital markets for most of the 12 months ending March 31. Median revenue for publicly traded managers went up 3.9% during the period, while operating expenses fell 5%. Meanwhile, operating margins climbed 5.5%, and average AUM gained 4.1% in the first quarter of 2020 compared with the first quarter of 2019.

"Investors reacted to the steep March sell-off by moving to safer havens from riskier assets and that was reflected in the first-quarter results," said Amanda Walters, a principal at Casey Quirk, in a news release. "With stocks and bonds on the rebound since March, a key indicator for asset manager financial results this year will be the market levels and investor flows for the remainder of 2020."

Overall, Ms. Walters added, publicly traded asset managers have done a decent job weathering the storm in the short-term despite market turbulence and uncertainty surrounding the coronavirus crisis. For the most part, they've managed to effectively meet client needs after transitioning staff to working remotely.

Yet, the industry still faces significant challenges, such as anemic organic growth, rising costs, and continued fee and margin pressure.

"Now that near-term financial concerns seem to be less acute, asset managers will prioritize longer-term business strategies," she said.

These include changing how the workforce operates, navigating in a world with more restrictive borders, potentially participating as mergers and acquisitions ramp up, and rationalizing and distributing investment strategies in a post-pandemic environment.