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Rating:Integrity's Q3 Profit Drops 54 Percent Not Rated 0.0 Email Routing List Email & Route  Print Print
Thursday, November 13, 2008

Integrity's Q3 Profit Drops 54 Percent

by: InvestmentWires Staff, 

Integrity Mutual Funds' third quarter net income dropped 54.5 percent to $129,150. The Minot, North Dakota-based firm pulled in revenues of $7.66 million, down 26 percent from a year ago, due to a decrease in fee income received from the firm's mutual funds and fee income received by the firm's broker-dealer unit.

Integrity's mutual fund AUM totaled $330.42 million, representing a 25.2 percent decline from last year.

* * *

John Hancock Mutual Funds saw sales rise 13 percent in the third quarter compared to last year. The earnings release put out by Hancock's parent, Toronto-based Manulife, on Thursday attributed the growth to the addition of Hancock's funds to "several investment platforms," as well as the addition of new business partners. The release did not provide specifics on the platforms and business partners.

* * *

The market may be hurting, but it looks like Morningstar is still growing strong. The Chicago-based company that Joe Mansueto built reported third quarter net income of $22.2 million, up $2.3 million year-over-year thanks to rising revenue (from $111.9 million in 3Q07 to $125.5 million in 3Q08). Mansueto's still talking cautious, though.

"The financial crisis affected nearly all companies in the third quarter, and we weren't immune," stated Mansueto, chairman and CEO of of Morningstar. "Organic revenue growth was eight percent, a significant decline from previous levels ... [and] because we derive about 15 percent of our revenue from asset-based fees, the market downturn restrained our growth during the quarter."

* * *

Fundamental indexing specialist WisdomTree, on the other hand, managed to pull itself closer to the black, despite the tough market conditions. The New York City-based manager revealed a net loss of only $5.639 million, down from $7.96 million in 2Q08 and $5.79 million in 3Q07. Quarterly revenues at the ETF provider also rose year-over-year, from $5.247 million to $6.183 million. And WisdomTree managed all that despite a drop in assets under management, just like most fund firms, from $4.45 billion on September 30, 2007 to $4.07 billion on September 30, 2008. (It earns advisory fees of 34, 43, 52, 58 and 59 basis points, depending on the type of ETF; the firm manages 49 in total.)

"We have taken the necessary actions to manage our expense base in view of adverse market conditions," stated CEO Jonathan Steinberg. "We made a commitment to reduce our operating loss and our management team has delivered in this difficult operating environment."

* * *

Yet another asset management giant is feeling the pain of the 2008 down markets. On Thursday Putnam parent Great-West Lifeco revealed in its own earnings report that the Boston-based fund firm that Marsh sold boasted $144.8 billion in assets as of September 30, down more than 21 percent from $184.2 billion at the end of 2007.

The earnings report also provides a glimpse at the cost of liquidating a money market fund: for Putnam, shutting down its $12.3 billion Prime Money Market Fund and merging it into the Federated Prime Obligations Fund cost $19 million (or $0.02 per share), after taxes (see MFWire, September 24, 2008).

* * *

Legg Mason recorded a net loss of $103.8 million for its fiscal second quarter, versus net income of $177.5 million a year ago. The loss was mainly due to charges associated with its support for money market funds totaling $191.1 million, executive said.

Assets under management at the end of September were $841.9 billion, a decline of nine percent from end-June and 17 percent from end-September 2007. Legg Mason saw net client cash outflows during the quarter of $20 billion. Equity outflows were about $9 billion and fixed income outflows were about $12 billion. Liquidity inflows were approximately $1 billion.

Revenues dipped 18 percent to $966.1 million, reflecting a decline in fees earned on lower average AUM and lower performance fees.

"While this has been a challenging quarter for all financial services companies, including Legg Mason, I have never been more convinced that we have the right model and strategy to take this company to the next level," said CEO Mark Fetting, who took the helm in January.

Fetting noted the company's AUM decrease was less than several of its rivals, with 75 percent caused by market depreciation.

"Excluding our support for SIVs, we were solidly profitable for the quarter," he said.

* * *

While other fund firms saw their assets under management and net income drop year-over-year, Ivy Funds parent Waddell & Reed actually managed to keep its head above water on both counts. On Tuesday the Overland Park, Kansas-based asset manager revealed net income for the third quarter of $33.4 million, up from $32 million in 3Q07. And while AUM fell to $59.784 billion on September 30 from $70.124 billion on June 30, AUM still climbed slightly year-over-year from $59.382 billion, thanks for $6 million in positive quarterly advisor channel net flows, $1 billion in net positive wholesale flows and $283 million in net institutional flows.

CEO Hank Herrmann acknowledged the tumultuous markets and the pain they've caused, and he credited Waddell's "balanced distribution model" with steadying the firm.

"The virtues of our combined Advisor/Wholesale models were again manifest against this chalenging market," Herrmann stated.

* * *

Naperville, Illinois-based Calamos Asset Management recorded a net loss of $799,000 in the three months ended September 30 versus net income of $7.12 million a year ago. Mutual fund AUM totaled $24.84 billion at the end of the quarter, down from $35.67 billion last year.

* * *

T. Rowe Price's earnings fell 12.5 percent from a year earlier. The Baltimore firm posted net income of $153 million, down from $175 million last year. Investment advisory revenues from the company's mutual funds declined 6 percent, to $326.9 million. Average mutual fund assets were $226.3 during the quarter, down nearly 5 percent from the average a year ago.

Net flows to mutual funds were flat, as $1.3 billion of bond and money fund inflows were offset by net outflows from stock funds.

* * *

Federated posted a 2.59 percent dip in third quarter net income and reported a rise in AUM, driven by strong flows into its money market funds. The Pittsburgh-based investment manager earned $56.2 million in the three months ended September 30, compared with $57.7 million a year ago.

Assets under management totaled $344 billion, up 3 percent from end-June and up 25 percent from end-September last year. The growth was fueled by a $77.9 billion increase in money market assets over the last year.

"Federated's position as an industry leader in high quality money market products benefited our clients and the company during a quarter that saw unprecedented market conditions," said Federated president and CEO J. Christopher Donahue.

* * *

San Mateo, California-based Franklin Resources earned $305.1 million in the three months ended September 30, representing a decline of 30 percent from $436.9 million last year. Total assets under management at the company's subsidiaries were $507.3 billion, down from $580.2 billion at the end of June and $645.9 billion at end-September 2007.

* * *

Janus recorded third quarter income of $26 million, down 48 percent from $50.8 million a year ago. The firm ended the quarter with $160.5 billion in AUM, down from $191.8 billion at the close of June. The decline reflects $26.2 billion of net market depreciation/fund performance, $1.1 billion of long-term net outflows and $4 billion of money market net outflows.

The Denver-headquartered company plans to trim 2009 fixed and discretionary costs by $40 million to $45 million, with the savings coming from a nine percent cut in the workforce (see related story), and a reduction in administrative and general expenses.

Janus executives said the cost-cutting measures will not hamper the firm's ability to meet its long-term strategic objectives, including operating margins of approximately 30 percent.

* * *

New York-based Cohen & Steers posted a net loss of $1.6 million for the third quarter, versus net income $15.9 million a year ago. Assets under management totaled $24.6 billion, down 8.7 percent from end-June and 29.1 percent from end-September 2007.

The company witnessed net outflows of $321 million from open-end mutual funds during the three months ended September 30. Outflows of $943 million were partially offset by inflows of $622 million.

* * *

AMG recorded a 29.9 percent earnings per share drop year-over-year (from $1.07 per share in 3Q07 to $0.69 in 3Q08). Quarterly revenue at the Boston-based acquirer of asset managers also fell year-over-year, from $345.6 million to $290.8 million.

$5.9 billion in net outflows, combined with what AMG president and CEO Sean Healey called "an extraordinarily difficult equity market environment," pushed AUM down more than 14 percent, from $241.816 billion on June 30 to $207.316 billion on September 30. AMG's fund AUM declined from $54.716 billion to $46.058 billion.

* * *

Oaks, Pennsylvania-based SEI saw net income drop 53 percent year-over-year, from $73.299 million in 3Q07 to $34.495 million in 3Q08. However, quarterly revenues and profits from its outsourced work supporting investment managers rose seven and 12 percent, respectively, year-over-year (from $35.844 million to $38.202 million and from $10.399 million to $11.636 million, respectively). It looks like more investment managers outsourced fund administration business last quarter as the market took a turn for the worse.

* * *

BlackRock's third quarter net income was 15 percent lower than last year's, coming in at $218 million, or $1.62 per share, compared to $255.2 million, or $1.94 per share a year ago. The New York City-based asset manager's Q3 profit fell analyst estimates of $1.88 per share, according to Reuters.

BlackRock ended the quarter with AUM of $1.26 trillion, down 12 percent since end-June and down 3 percent since end-September 2007. Company officials said the sharp drop in global equity markets drove $69.1 billion of net asset depreciation in equity and balanced accounts, and the dislocations in the money market industry led to $53.8 billion of net outflows in prime money market funds and low fee securities lending portfolios.

"This is the only time I can remember that product diversification did not help every asset class has suffered, and all market participants have been affected," said BlackRock CEO Larry Fink. "No one, including BlackRock, is immune."

The company recorded investment advisory and administration base fees of $1.08 billion during the quarter, up 6 percent from a year ago.

* * *

MFS' AUM is smarting after the market volatility of the third quarter. On Tuesday, the fund manager's parent, Sun Life, reported earnings for the quarter that ended September 30, and MFS saw its assets under management dwindle by $21 billion (nearly 11.5 percent) to $162 billion, pushing its pre-tax operating margin down to 29 percent ($47 billion). But that margin must still look pretty good to its Canadian insurer parent, which overall reported an operating loss of $396 million (in Canadian dollars).

Market movement drove the vast majority of the AUM drop: $19.4 billion. The investment manager only saw $2 billion in net redemptions (compared to $1 billion in sales in 2Q08, and $0.9 billion in net redemptions in 3Q07). 

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