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Friday, September 09, 2011

Market Volatility Dampens Asset Growth

Reported by Hung Tran

What happens when the market corrects itself at a 10 percent clip during Q3? Well, the operating margins for 17 publicly-traded asset managers decreased from 31.3 percent to 29.7 percent as a result of a 10 percent reversal in the Dow Jones U.S. Total Stock Market Index, according to findings from kasina.

“Even a small shift in asset allocation can have dramatic effects on firm profitability,” stated Steven Miyao, CEO of kasina. In Q2 2011, net margins remained unchanged at 22.2 percent, while operating margins increased from 30.4 percent to 31.3 percent, quarter over quarter, according to data from kasina. On the expense side of the equation, compensation and benefits increased one percent quarter over quarter, and firms cut their advertising and promotional budgets by 2.1 percent during the same period.

Large firms that were profitable in Q2 were T. Rowe Price[see profile], BlackRock[see profile], and Franklin Templeton[see profile] while small shops such as Calamos[see profile], Pzena Investments, and GAMCO[see profile] led their peers in profitability.

To curb market risks, kasina suggested that firms align their product development efforts with the needs of broker/dealers and investors who are increasingly looking for alternative, hedge-like products.

“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,” stated Miyao. 

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