Asset Management Revenue “Feeble,” Despite Bull Markets

(March 15, 2013) – Many investors pulled down robust returns from last year’s hot markets, while the major asset management firms posted lackluster results, according to Casey Quirk. 

Median revenue growth among 37 firms increased 4.4% last year over 2011-a sharp drop from the 8% gain posted in (the much weaker) 2011, and a 22% jump in 2010. The Connecticut-based investment management advisory has released its analysis of performance data from 25 publicly traded firms and 12 management subsidiaries of major US financial institutions.

The firm was not overly impressed with what it found.

“Even with the tailwind from favorable investment results last year, asset managers must retool to sustain stronger revenue gains amid changing investor needs worldwide,” said Kevin Quirk, a Casey Quirk partner. His colleague Director Jeffrey Levi added that “revenue growth is the key as cost containment alone is insufficient for long-term success in a business that thrives on attracting and retaining talent.”

The advisory decline to release a company-specific breakdown of the data, or the list of firms included in the analysis. However, it did note that the firms in the middle two quartiles of revenue growth had gains of between about 8% and just under 0%.

aiCIO‘s brief and not-at-all-scientific sampling of public asset managers showed a farily narrow range of revenue growth, with most clustered around Casey Quirk’s median of 4.4%: Schroders gained 4.20%, the Carlyle Group 4.5%, Blackstone Group 4.3%, and Lazard 3.9%. (The firms cited may or may not be among those analyzed by Casey Quirk.) The positive outliers include SEI Investments at 6.8% and Och-Ziff with an astounding 96.5%. On the other end of the spectrum, Oaktree Capital Group’s revenue decline by 6.9% and Legg Mason’s by 4.4%. Northern Trust posted stayed nearly neutral at 0.6%, while BlackRock climbed by a modest 2.8%.

Some of the industry’s leading thinkers have openly cast doubt on asset management’s prevailing business model.

Casey Quirk itself forecast that investment managers worldwide will grow less than 1% annually from net inflows of new capital through 2017, compared to 6% to 7% growth before the financial crisis.

Likewise, Charlie Ruffel, managing partner at Kudu Advisors and aiCIO‘s founder, titled a November column “The Death of (Most) Asset Managers.” He estimated that roughly 10 out of the top 50 asset management complexes in the US are still relevant for the evolved demands of institutional investors. “Most asset managers are looking into an abyss,” Ruffel wrote. “For most managers, stagnation will replace prosperity. To survive, let alone thrive, radical rethinking needs to replace complacency. We are about to see a great concentration of institutional assets in a handful of firms.”