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The rise in earnings growth and strong investor inflows are a welcome change for many U.S. asset managers, although strategic challenges are seen to provide a temporary lag.
For the first time in four years, listed U.S. managers are expected to increase profits throughout the calendar year. The growth in stock market valuations has driven active management in the sector. BlackRock, for example, reported a record $ 9 billion at the end of March, up 39 percent from $ 6.45 million in the previous 12 months.
Stock prices have risen and have moved ahead of the broad market for the sector by 2021, led by Invesco, Ameriprise Financial and Franklin Resources.
“A lot of the asset managers were cheap and had valid shares, they traded ebitda six times,” said Michael Cyprys, an analyst at Morgan Stanley. “The flows and performance of actively managed funds are better and we are seeing an improvement in operating margins and profits.”
“The number of assets managed by the industry has risen sharply due to market appreciation, and retail investors have put more money behind the market and put more money into the funds,” said Craig Siegenthaler, an analyst at Credit Suisse. “The stock market can’t keep up with that, so flows will slow in the next couple of quarters.”
By measuring flows and rigorous market performance, the industry will turn its attention to long-term challenges. Intense competitive pressures on rates and poor performance have led to a steady rise in the number of passive products exchanged as a result of the industry’s endless rounds of consolidation.
Invesco bought Oppenheimer Funds in 2018 and last year Morgan Stanley, in a surprise move, bought Eaton Vance to increase its presence and provide more customer service in one place. The sector has to bear the cost pressures caused by investing in technology, expanding into exchange traded funds and private markets.
Marty Flanagan, president and CEO of Invesco, gave the industry a sense of focus after managing $ 1.4 million in asset managers in the first quarter last month and net long-term revenue of $ 24.5 million. “I don’t think the strategic dynamics have changed,” Flanagan said in a winning call with analysts. “Customers expect more from asset managers and you need to scale in all areas of the organization.”
The recording of agreements has been confusing, cost savings are more easily achieved than fund outflows.
“Better deals involve adding a new product or a set of customers to your distribution network,” Cyprys said. “The most important thing in this industry are flows, new money coming in.”
The wind in the industry is that China has begun to accept licenses for western wealth and fund managers, which could transform customer input.
However, the direction of the trip remains focused on funds traded in exchange. After recording $ 503 billion in revenue for U.S. ETFs last year, investors have thrown in an additional $ 269 billion so far in 2021, according to the CFRA. Wisdom Tree is seen as an attractive target for the ETF boom and an attractive target for a larger asset manager.
“The macro trends lost by mutual societies that target ETFs and wealth managers to model portfolios can benefit others and gain market share,” Jarrett Lilien, president and chief operating officer of Wisdom Tree, told the Financial Times. “Our core business is rumored and we’re expanding,” he said, “we keep in mind that we’re attractive.”
The secular wind facing the industry explains the big difference in valuations between asset managers and the wider market. Despite a sharp rise in share prices, the sector estimates its earnings per share are 13.2 times lower over the next 12 months and 22.2 times lower than the S&P 500 wide, according to KBW.
KBW said a strong year of profit growth for traditional asset managers should result in an average profit growth of about 20% this year, “slowing by a whopping 9 percent healthier by 2022.”
“In the long-term historical context, valuations remain cheap, but there should be concerns about long-term growth,” said KBW analyst Rob Lee. The good results of the Affiliated Managers Group, Invesco and Franklin “emphasize that investors will respond to signals of better operating performance” [asset managers’] “The shares are coming out with low valuations,” Lee said.
However, the distribution among asset managers is emerging, with the corresponding growth rates highlighted, according to Credit Suisse. Based on the clean and active flows managed, the industry’s long-term organic growth has recovered since the start of last year led by BlackRock and Invesco, but AMG, Franklin Resources and T Rowe Price have lagged behind their peers.
“Long-term challenges continue and the structural pressures on the industry are shifting to lower quotas and flows, leaving vehicles in the fund of funds,” Cyprys said.
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