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Assets Managers’ Financial Picture Continues to Benefit from Market Rally
Equity market performance was easily the story in Q3 2013. The S&P 500 Index returned 5.24% in the most recent quarter, raising the YTD performance to 19.79%, while the NASDAQ Composite climbed 10.82%, for an impressive YTD performance of 24.90%. Third quarter returns for most developed country international equity markets were even higher. As an example, the MSCI EAFE Index rose 11.61% in the third quarter of 2013, raising YTD returns to 16.59%. The end result of these equity returns was meaningfully higher assets under management (AUM) for most firms in the industry. Of the 17 asset management firms in kasina’s composite index, total AUM grew to $9.3 trillion, from $8.9 trillion in the prior quarter and $8.4 trillion in the year ago period. Firms averaged almost a 5% increase in assets from the Q2, with some firms such as Affiliated Managers Group, Artisan Partners and Waddell & Reed recording sequential percentage growth in assets in the high single-digits.
For some firms, growth in assets was also attributable to positive net new money. Almost half of the asset managers in the kasina composite benefitted from positive net new flows across most investment products, although most of the increase was led by flows to global equity, emerging market equity, alternatives, balanced portfolios, and some U.S. equity categories. BlackRock and Affiliated Managers Group in particular both generated strong net flows in the quarter.
The higher market returns and positive flows for most firms led to higher margins for most asset managers in the composite. The average operating and net margins increased to 32.6% and 24.6%, respectively in Q3 2013, up from an operating margin of 31.3% and a net margin of 22.6%. Moreover, thirteen of the 17 firms in the asset manager composite benefitted from a sequential increase in Q3 operating margins, while 12 firms saw an increase in net margins. Blackrock and Waddell & Reed were the leaders among those firms that posted better operating margins, as both firms benefitted by strong market returns, positive investor flows, and reasonable constraints on operating expenses.
For the wirehouse distributors, the quarter was mostly a mixed bag. While Bank of America Merrill Lynch, Morgan Stanley Wealth Management, Wells Fargo Advisors, and UBS Wealth Management each posted higher assets under management and client balances in Q3 2013 (which includes AUM, custody and brokerage assets), only Morgan Stanley Wealth Management generated sequential revenue growth in the period. In addition, advisor productivity for three of the four firms fell during the period, with Wells Fargo as the lone exception. Consequently, with operating expenses flat to slightly higher, operating margins and net margins fell for the group in Q3 2013 to 21.0% and 14.2% respectively, from an operating margin of 21.8% and a net margin of 14.4% in the prior quarter. Given its revenue growth during the period, Morgan Stanley was the sole wirehouse distributor that did not record a decline in operating margin.
kasina’s commitment to innovating distribution in the financial services industry has made it one of the most influential strategy consulting firms in its sector. kasina works with a wide variety of clients from five continents, including firms representing 90% of the U.S.’s total assets under management. An overview of services offered by kasina is available at https://kasina.com.