Both the traditional and alternative asset managers will begin reporting 2Q13 earnings the week of July 15, with BlackRock, Inc. (NYSE:BLK) and The Blackstone Group L.P. (NYSE:BX) out of the gate first. Daniel T. Fannon, equity analyst at Jefferies says in a new report that the firm’s estimates revisions vary considerably amongst managers as performance across markets also varied considerably. Fund flow trends generally decelerated throughout the quarter. On a relative basis they believe Affiliated Managers Group, Inc. (NYSE:AMG) remains best positioned among asset managers for growth in the current environment. Further details on the big asset managers via Jefferies below.
Asset Managers Profitability Higher in 2Q
The majority of traditional asset managers will see improved core profitability in 2Q as a result of higher average asset levels and the roll-off of 1Q seasonal expenses. However, earnings growth is likely to vary considerably from one manager to the next due to asset mix as domestic equity market returns were positive (S&P 500: +2.9%), while international equity markets (MSCI EAFE: -1.0%) and domestic fixed income markets (BarCap Aggregate Bond Index: -2.3%) were negative. Our estimates for q/q EPS growth ranges from -7.0% to +7.0%, with 2.3% being the average. Note, this excludes Asset Managers, BlackRock, Inc. (NYSE:BLK) and Legg Mason Inc (NYSE:LM), whose earnings are impacted by one-time items.
Asset Managers Flows Pause, Fixed Income Turns Negative
While aggregate flows for the quarter will still be positive for many Asset Managers, June was a tough month for all as net flows weakened and/or turned negative on commentary from the Fed. The ensuing jump in Treasury yields spooked many investors, resulting in a broad exit from taxable bonds (active and ETF) and a further softening of equity flows. We anticipate Affiliated Managers Group, Inc. (NYSE:AMG) is best positioned in the current environment and will lead the pack in terms of long-term inflows (+7.1% organic growth rate), while Janus Capital Group Inc (NYSE:JNS) is likely to report the largest long-term outflows (-10.2% organic growth rate).
Asset Managers 2H13 Outlook More Clouded
The June events highlighted how sensitive the Asset Managers flow environment is to macro factors and provided a window into how the flow picture may evolve once we do get into a rising rate environment. Industry flows weakened throughout the quarter even prior to the Fed commentary, and as we look ahead we foresee continued movement out of fixed income in the short term. Equity funds are poised to benefit from this shift, however timing is still uncertain. Additionally, with market volatility potentially on the rise, we also have more tempered expectations for asset managers growth as a result of market performance.
June Asset Managers AUM Preview
Enclosed we also preview June 30th AUM for asset managers, Franklin Resources, Inc. (NYSE:BEN), Eaton Vance Corp (NYSE:EV), Invesco Ltd. (NYSE:IVZ), and Legg Mason Inc (NYSE:LM). Offsetting modest domestic market appreciation will be declines in developed, emerging, and fixed income markets. Currency was also a net negative for asset managers with the exception of the Euro.
Overall, we do not anticipate any of these 4 companies reporting inflows this month for asset managers. Refer to Exhibit 1 for specific AUM estimates.
Asset Managers Company Description
Affiliated Managers Group
Affiliated Managers Group, Inc. (NYSE:AMG) is an asset management firm focused on acquiring ownership interests in smaller boutique investment management companies – “affiliates.” AMG allows its affiliates to operate independently while providing the resources necessary to enhance operations, distribution, marketing and other non-core functions. AMG”s three primary distribution channels are mutual fund, institutional and high net worth. AMG has a specific segment called Managers Investment Group, or “Managers,” which distributes the company”s mutual funds and separately managed accounts (SMAs) through direct relationships with end clients as well as third parties such as brokerage and insurance companies.
BlackRock, Inc. (NYSE:BLK), founded in 1988 as a fixed income investment specialist, has quickly grown to become the world’s largest and most diverse independent asset manager. Headquartered in New York City, the company manages $3.7T in assets and employs over 10,000 professionals. The company is best known for its BlackRock branded funds and its iShares branded ETFs. The company has a presence on every major continent and its products can be found in over 100 countries. Investment strategies offered include all major asset classes, traditional and alternative funds, domestic and international funds, as well as actively and passively managed funds. Clients include retail and institutional investors that span corporations, pension plans, governments, foundations, institutions, sovereign wealth funds, third-party mutual funds, and individuals.
Blackstone Group L.P. (NYSE: BX) is a diversified global alternative asset manager with four primary business segments, consisting of: 1) Corporate Private Equity, 2) Real Estate, 3) Credit and Marketable Alternative Asset Management, and 4) Financial Advisory. The common thread throughout BX”s various investment funds is a value-oriented approach, with a focus on out-of-favor, high cash flow generating businesses. Blackstone went public in June 2007 at a price of $31 per share.
Fortress Investment Group LLC (NYSE:FIG) was founded in 1998 and is based in New York, New York. FIG is a global alternative asset manager focused primarily on asset-based value investing. Revenues are generated on fee income from managed assets as well as performance fees. The company charges a base management fee on assets under management and aligns its interests with investors by earning a large portion of its revenue from performance based incentives. Fortress operates through three core business segments, including private equity, hedge funds, and publicly traded investment vehicles, or “castles”. Fortress has offices located in New York, Dallas, San Diego, Toronto, London, Rome, Frankfurt and Sydney, and has AUM of approximately $43.8B as of 6/30/2011. FIG became the first alternative asset manager listed on the NYSE upon the completion of its IPO in February 2007.
Franklin Resources, Inc. (NYSE:BEN) is a leading global asset management firm best known for its Franklin, Templeton, and Mutual Series of funds and its conservative style of investing. The company caters to a broad base of investors including retail, institutions, corporations, endowments, foundations, and high-net-worth individuals. Well diversified, its offering include equity, hybrid, and fixed income mutual fund products that span US and international markets. Founded in 1947 as a fixed income specialist and public since 1971, in 1992 it became the first truly global independent asset management firm when it acquired Templeton, Galbraith and Hansberger Ltd. Headquartered in San Mateo, CA, Franklin maintains 58 offices globally with representation on all continents.
Invesco Ltd. (NYSE:IVZ) is a global asset managers headquartered in Atlanta, Georgia, with offices dispersed worldwide including Beijing, Hong Kong, Melbourne, Singapore, Dubai, and throughout continental Europe and the UK. Invesco is home to several well-recognized brand names within asset management, including Invesco AIM, Atlantic Trust, Invesco Perpetual, Invesco PowerShares, Invesco Trimark and WL Ross. IVZ maintains operations in 20 countries, providing a diverse platform of investment products to retail, institutional and high net worth clients worldwide. In December 2007 Invesco moved its primary listing to the NYSE from the London Stock Exchange, following its re-branding (formerly AMVESCAP Plc) in May 2007.
Janus Capital Group Inc (NYSE:JNS) was founded in 1969 and is based in Denver, Colorado. JNS is a publicly owned asset managers holding company focused on providing retirement planning, investment planning, and tax planning to its clients. The firm primarily provides its services to investment companies, retail investors, institutions, and individuals. Through its subsidiaries, it manages equity, fixed income, money markets, and balanced mutual funds for its clients and invests in the public equity and fixed income markets across the globe. The firm was formerly known as Stilwell Financial Incorporated.
Legg Mason Inc (NYSE:LM) was incorporated in 1981 and is headquartered in Baltimore, MD. LM is a global asset management firm focused on the growth and preservation of its clients’ capital through its proprietary mutual funds and separately managed accounts (SMAs). In December 2005, LM transitioned its business model to solely focus on asset management through an asset swap transaction with Citigroup, Inc. In this transaction LM sold its capital markets and private client businesses and acquired the asset management arm of Citigroup, or Citigroup Asset Management (CAM). Legg Mason and its subsidiaries operate in three primary divisions; consisting of Managed Investments, Institutional, and Wealth Management. The company markets its services to individuals and institutions through brokerage houses, insurance companies, and other third-party distributors. LM attempts to grow assets under management both organically and through acquisitions of boutique investment managers.
T. Rowe Price
Founded in 1937 and based in Baltimore, Maryland, T. Rowe Price Group, Inc. (NASDAQ:TROW) is a global asset management firm serving both institutional and individual investors worldwide. TROW offers a broad suite of mutual fund products, sub-advisory services, and separate account management for individuals, institutions, retirement plans, and financial intermediaries. The firm also offers a variety of sophisticated investment planning and guidance tools. TROW has built its foundation on a team approach to investing, in which collaboration between fund managers is encouraged. The company has a practice of developing and retaining its associates through extensive training and competitive compensation programs. This culture and style has resulted in consistently above-average returns and strong capital inflows since its inception. Over the last several years TROW has broadened its asset base to include more international investors and assets, which we believe will be a key focus of growth for it going forward.
Waddell & Reed Financial
Waddell & Reed Financial, Inc. (NYSE:WDR) was founded in 1937 and is headquartered in Overland Park, Kansas. Through its subsidiaries, WDR provides investment management, investment product underwriting and distribution, and shareholder services administration to mutual funds, institutional and separately managed accounts in the U.S. The company operates as an investment adviser for institutional and other private investors, and provides sub-advisory services to other investment companies, as well as manages assets for funds, corporations, foundations, endowments, Taft-Hartley plans, defined benefit plans, and defined contribution plans. The company distributes investment products through independent financial advisors, broker/dealers, registered investment advisors, and various retirement platforms; and markets investment advisory services to institutional investors directly or through consultants.