Investment managers report lackluster quarter

Reduced DB plan presence, cool markets cited for slight AUM gains

May 13, 2014 @ 12:01 am

By James Comtois

money manager, inflows, first quarter, results, assets under management
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Publicly traded money managers saw rather anemic gains in assets under management for the quarter ended March 31, due in part to defined-benefit plans playing a smaller role in the institutional investment industry and also because equity markets saw only slight growth.

Goldman Sachs Asset Management, Affiliated Managers Group Inc., Northern Trust Corp. and Legg Mason Inc. reported the biggest percentage gain in assets from the previous quarter, but nearly all traditional money managers tracked by Pensions & Investments showed AUM increases in the first quarter.

Only Federated Investors Inc. showed a drop in assets. The money manager reported $366 billion in AUM as of March 31, down 2.6% from Dec. 31 and down 2.9% from a year earlier. The decline in the firm's money market assets — to $263.65 billion, down 4.5% from the end of the previous quarter and down 5.7% from the year before — led to its overall drop in AUM.

GSAM reported $956 billion in assets under management as of March 31, up 4% from Dec. 31 and up 11.2% from a year ago. AMG's AUM of $557 billion was up 3.6% from three months earlier and 20.4% from the year-earlier period. Northern Trust had $915 billion in assets, up 3.5% from Dec. 31 and up 13% from March 31, 2013. Legg Mason's $702 billion in assets was a gain of 3.3% from the end of the previous quarter and 5.6% from a year earlier.

Jeffrey Levi, a director at Casey Quirk & Associates, said that defined-benefit plans “are paying out more [to retirees] than they're contributing [to the plan] and are likely to do so for a long time.”

“The landscape is changing radically within the defined-benefit space,” Mr. Levi added.

As money managers saw only slight institutional asset growth during the quarter, so did the equity markets. In the quarter, the S&P 500 inched up 1.7%, while the Nasdaq composite rose only 1.08%.

HEALTHY NET INFLOWS

Although asset growth in the first quarter was modest, several money managers experienced healthy net inflows. GSAM experienced quarterly net inflows in its assets under supervision, which includes other client assets along with AUM, of $40 billion, compared to net inflows of $13 billion in the fourth quarter and net inflows of $5 billion in the first quarter of 2013. Net inflows for AMG were $7 billion during the first quarter, compared to net inflows of $5.5 billion for the fourth quarter of 2013 and $12 billion for the first quarter of 2013.

“We've seen strong flows across our platform, particularly into unconstrained fixed income and yield-oriented products,” Eric Lane, managing director and co-head of the investment management division at Goldman Sachs, wrote in an e-mail. He added that the firm's investment management division also saw “an increase in insurance and advisory mandates” during the quarter.

Sean M. Healey, chairman and CEO of AMG, told P&I that this quarter marked the “16th consecutive quarter where [AMG] had strong client cash flows,” which he believed was the most important source of asset growth for the firm.

“The bulk of our growth has been organic,” Mr. Healy added.

Stephen Potter, president of Northern Trust Asset Management, said that he attributed the firm's AUM growth to the success of its outsourced CIO business, which saw $6 billion in net inflows in the first quarter and net inflows of $13 billion into this business during the 12-month period ended March 31.

“I think it speaks to both the popularity of the OCIO business and our relative competitive position in the space,” Mr. Potter said.

Mr. Potter said Northern Trust also won a number of global equity mandates in the European and Asia-Pacific regions during the first quarter. In addition, Northern Trust has seen growth within its exchange-traded fund business, which was launched roughly two years ago.

Legg Mason, however, experienced net inflows of $8.3 billion for the quarter, down from the net inflows of $9.9 billion during the previous quarter.

In terms of the other money managers P&I tracked, BlackRock Inc. experienced long-term net inflows of $26.73 billion for the quarter, compared with net inflows of $40.5 billion during the fourth quarter and net inflows of $39.4 billion during the first quarter of 2013. The world's largest money manager ended the quarter with $4.4 trillion in AUM, up 1.8% from Dec. 31 and up 11.8% from a year earlier.

In its earnings release, Laurence D. Fink, chairman and CEO of BlackRock, attributed the firm's asset growth to “the strength and stability of [its] diversified platform” and the firm's decision to “focus on long-term strategic themes.”

J.P. Morgan Asset Management saw quarterly net inflows of $14 billion, compared with net inflows of $23 billion for the fourth quarter. Its AUM grew to $1.648 trillion at the end of the first quarter, up 3.1% from the end of the fourth and 11.1% from the end of the first quarter of 2013, according to parent company J.P. Morgan Chase& Co..

LIABILITY-DRIVEN INVESTMENTS

Bank of New York Mellon Corp. reported long-term net inflows of $21 billion for the quarter, driven by strong inflows of liability-driven investments. Short-term net outflows for firm totaled $7 billion for the first quarter of 2014. For the previous quarter, long-term net inflows totaled $2 billion and short-term net inflows, $6 billion. Meanwhile, in the year-earlier quarter, long-term net inflows totaled $40 billion and short-term net outflows, $13 billion.

BNY Mellon posted a record $1.62 trillion in combined assets under management for its BNY Mellon Investment Management and wealth management businesses as of March 31, up 2.3% from three months earlier and 13.8% higher than a year earlier. The firm attributed the increase in AUM to higher market values and netting new business.

Although many of the money managers that P&I tracked experienced long-term net inflows, Franklin Resources Inc. had $7.1 billion in net outflows. Despite the net outflows, the money manager posted AUM of $887 billion as of March 31, up 0.9% from three months earlier and up 7.7% from a year earlier.

Christopher Shutler, an equity research analyst at William Blair & Co., wrote in a note to clients that Invesco Ltd.'s first-quarter results exceeded consensus estimates. The firm's net revenue of $888 million was $23 million above consensus and $28 million above William Blair's estimate, due to higher performance fees.

Invesco's AUM reached $787 billion at the end of the first quarter, up 1.1% from the end of the previous quarter and up 11.2% from a year earlier. Despite net outflows of $3.4 billion in its U.K. equity income division, long-term net inflows for the firm were $6.5 billion.

Mr. Shutler also wrote that his firm still liked T. Rowe Price Group Inc.'s stock “as a lower-risk play for long-term investors,” based in part on the firm's “excellent performance,” its position within the retirement channel and William Blair's expectation that the company “will have over $3 billion of cash and liquid ... investments by the end of 2014.”

T. Rowe Price's net inflows were $8.8 billion, including $6 billion into the firm's target-date retirement portfolios, compared to overall net inflows of $100 million in the fourth quarter. The firm's AUM reached $711 billion as of March 31, up 2.7% from Dec. 31 and up 15.2% from March 31, 2013.

Net inflows for Morgan Stanley Investment Management totaled $6 billion for the quarter ended March 31, compared with net inflows of $4.2 billion for the previous quarter and net outflows of $2.5 billion in the first quarter of 2013. The firm had $382 billion in AUM at the end of the first quarter, up 2.4% from the end of the fourth quarter and up 12% from the end of the first quarter of 2013.

State Street Corp.'s money management division, State Street Global Advisors, had $2.38 trillion in assets as of March 31, a 1.5% gain from Dec. 31 and a 9.4% rise from March 31, 2013. Janus Capital Group Inc. posted $174 billion in AUM, up 0.1% from three months earlier and up 6.3% from a year earlier. Artisan Partners LP saw its assets reach $107 billion, a 1.8% increase from the end of the previous quarter and a 29.1% rise from the end of the year-earlier quarter.

James Comtois is a reporter at sister publication Pensions & Investments

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