Study Of Listed Fund Managers' Financial Results Shows Strong 2013; Alternatives Shone

Tom Burroughes

9 April 2014

A rising tide lifts all boats but it seems some can rise faster than others in revenue and profit when it comes to a soaring stock market. That, at least, is the finding of a survey of listed asset managers’ financial performance last year.

According to US-based consultants and research firm , the surge in equity markets last year produced the highest median revenue growth among publicly traded asset managers since 2010 at 52 firms worldwide.

Median revenue growth was 15 per cent in 2013 for the 44 traditional and eight alternatives listed managers analyzed by Casey Quirk. Median operating profit for those firms was 31 per cent last year, the second-highest achieved since 2009, and just below the median 32 per cent profit margin posted in 2011, according to the study.

Given the cyclical nature of asset management generally – the industry typically fares well when markets in which they invest are buoyant – the data will reassure some practitioners that the sector has recovered some of its strength after a tough recent period.

One group of quoted firms – alternatives asset managers – outperformed their traditional rivals in both revenue growth and profit expansion in 2013. Alternatives firms enjoyed a median 35 per cent revenue growth last year, compared with 14 per cent for traditional firms. Alternatives managers also generated a 41 per cent median operating profit last year, vs. 29 per cent for the traditional firms.

The data suggests that alternatives firms – embracing sectors such as hedge funds, private equity, real estate – have been able to earn more money for their managers than was the case for more traditional players. This is a perhaps striking fact in view of how the alternative sector has at times seen its relatively high fees, such as hedge funds’ 2/20 fee structure, come under strain in light of at times patchy investment performance.

While market appreciation powered the bulk of the increase in assets under management last year at listed managers, the alternatives firms outgained the larger group of quoted firms in attracting net new money from investors, according to the Casey Quirk analysis.

“Alternatives firms are benefiting as both institutional and individual investors search for products and solutions that deliver less correlation and volatility, and additional sources of income,” said Jeffrey Levi, a director at Casey Quirk. “These firms are also achieving more consistent operating margins than in the past.”

The analysis of publicly traded managers indicates that North American firms outperformed their European peers in 2013 in both revenue growth and operating profit margins. The 36 listed managers in the US and Canada generated a median 16 per cent revenue growth and a median 31 per cent operating profit, compared with 12 per cent and 27 per cent, respectively, for the 12 UK and continental European firms in the Casey Quirk analysis. The results illustrate why North American markets should continue to attract and reward sustained efforts by international managers, Levi said.