Market Putting Pressure on Asset Manager Profits

Based on data gathered from the operating results of seventeen publicly-traded asset managers, kasina conducted an analysis to quantify the adverse effect of a 10% market correction during the third quarter. The results show operating margins decreasing from 31.3% to 29.7% as a result of a 10% reversal in the Dow Jones U.S. Total Stock Market Index.  

Firms can mitigate the impact of market gyrations by aligning product development efforts with the needs of broker/dealers and investors who are increasingly looking for alternative, hedge-like products that are non-correlated with domestic equities. “Only eight alternative 40’ Act funds were created last year. Broker/dealers are asking for these products and paying a premium for them, but there just aren’t a lot of products out there that truly mitigate risk,” said Steven Miyao, CEO of kasina.  

In the second quarter of 2011, net margins remained virtually unchanged at 22.2%, while operating margins increased from 30.4% to 31.3%, quarter over quarter. On the expense side of the equation, compensation and benefits increased 1% quarter over quarter, and firms cut their advertising and promotional budgets by 2.1% during the same period.