MutualFundWire.com: Three Things to Know from State Street’s Earnings

MutualFundWire.com

The insiders' edge for 40 Act industry executives!
an InvestmentWires' Publication

Tuesday, January 22, 2013

Three Things to Know from State Street’s Earnings

We all know that State Street [profile] plans to cut costs this year by cutting 630 jobs, but an asset manager doesn’t make money by cuts alone.

If you peruse the SeekingAlpha transcript of the latest earnings call, you’ll get a sense of how Joseph Hooley and company are doing.

There were three big takeaways regarding their State Street Global Advisors asset management arm, which is just one business out of the goliath’s many asset servicing arms.

The takeaways are: POINT #1: Management Fees Remain Solid
POINT #2: State Street Remains Formidable in the ETF Space
POINT #3: Hooley and Co. Remain Cautiously Optimistic About Risk Appetites

POINT #1: Management Fees Remain Solid
This is what Hooley had to say about management fees:

Investment management fees and SSgA were up 3.6% from the third quarter due to higher performance fees and stronger global equity markets. Compared to the year-ago quarter, investment management fees were up almost 29% driven by stronger equity markets, net new business and higher performance fees. Performance fees in the fourth quarter were $8.2 million, up $4.3 million and $6.1 million from the third quarter and the year ago quarter, respectively. Money market fee waivers were approximately $5 million in the fourth quarter, flat compared to the third quarter, and down 60% versus the prior period.

POINT #2: State Street Remains Formidable in the ETF Space
Hooley had some good things to report about his firm’s ETF operations:

State Street Global Advisors had a strong quarter and year due to improved global equity markets, strong long-term flows into higher-yielding strategies and disciplined expense controls. Net new assets to be managed totaled $24 billion for the quarter and that excludes net outflows in short-term cash collateral related to securities lending. Of the $24 billion, $13 billion went into ETFs with the remainder flowing into the institutional channel including passive equity strategies and fixed income, as well as some money market assets.

With any ETF product line, asset classes gaining new inflows with the SPDR S&P 500 fund, the gold fund and the high-yield fixed income fund. Of note is that year-to-date, ETF assets under management is at a record level of $340 billion, reflecting a 24% increase year-over-year. In both asset servicing and asset management, our pipelines continue to be strong and well-diversified.

POINT #3: Hooley and Co. Remain Cautiously Optimistic About Risk Appetites
Hooley characterized his company’s optimism for the year in this way:

As we begin 2013, client re-risking has continued, as you see from recent data, market data about equity flows. In spite of what feels like a positive start to the year in client risk appetite, we remain conservative in our expectations for the market and cautious regarding investors' willingness to take on additional risk.

He also described his company’s plans for the year in this way:

We've continued to invest in our business expanding the range of solutions we are able to deliver to our clients, balancing this investment with aggressively controlling our cost. And I remain confident in the secular trends that underpin the prospects for growth in this business, and I believe we have the right focus in the short-term to position us well for continued strong performance.