DST kasina Composite Indicates Operating Margins Have Fallen Sharply In First Quarter Due To Lower Revenue

Operating margins for the 16 asset management firms that comprise the DST kasina Asset Manager Composite fell sequentially by 307 basis points to 30.4% on a weighted basis in calendar Q1 2016. On a simple average basis, the Composite declined by 239 basis points to 29.3%. Moreover, the drop was felt by almost all of the constituents in the Composite, as 13 of the 16 firms saw an average quarter-over-quarter (q/q) margin decline of 453 basis points. The only asset manager to post a significant margin increase in Q1 2016 was GAMCO, with operating margin of 56.5%, versus 40.1% in the final calendar quarter of 2015.  While GAMCO recorded lower revenue in Q1 2016 versus the prior quarter, it also saw a significant drop in operating expenses due to reduced allocated restricted stock unit (RSU) expense.

While the source of the sequential decline in operating market varied somewhat between firms, there were clearly consistent trends in the financial data. First, quarterly revenue for most of the asset managers in the Composite fell in Q1 2016, due largely to lower investment management and advisory fees. While assets under management (AUM) fell for only seven of the asset managers in the quarter, a multi-quarter trend toward lower AUM for many of these companies led to the Q1 decline in lower asset management and advisory fees. Some of the asset managers also attributed lower management fees to an increasingly competitive market, particularly in the retail investment markets.        

On a positive note, most asset managers were able to constrain rising costs, as 13 of the 16 asset managers in the composite posted flat to falling sequential operating expenses.  As an example, GAMCO, Affiliated Managers Group, Alliance Bernstein, Invesco, Waddell & Reed, Pzena Investment, and Artisan Partners all benefited by a q/q decline in operating expenses of 5% or more.  Had those firms not cut expenses, the decline in the overall operating margin would have been worse.   

Note: DST kasina's asset management composite includes: BlackRock, Franklin Templeton, Invesco, Legg Mason, T. Rowe Price, Affiliated Managers Group, Alliance Bernstein, Federated Investors, SEI, Janus Capital Group, Waddell & Reed, Artisan Partners, Cohen & Steers, GAMCO, Calamos, Pzena Investment Management

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DST kasina helps leading companies in the financial services industry manage data, gain insight, and ignite change in their business. Through effective use of advanced analytics, research, and distribution intelligence technologies, DST kasina enables business to better understand, predict, and optimize key business factors impacting their asset growth and profitability. For more information on how to leverage DST kasina's strategic advisory services, visit www.kasina.com.

About DST
DST Systems, Inc. (NYSE: DST) is a leading provider of specialized technology, strategic advisory, and business operations outsourcing to the financial and healthcare industries. Combining unmatched industry knowledge, critical infrastructure and service excellence, DST helps companies master complexity in the world's most demanding industries to ensure they continually stay ahead of and capitalize on ever-changing customer, business and regulatory requirements. For more information, visit the DST website at www.dstsystems.com.

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Laura M. Parsons                                                                                            
DST Global Public Relations                                                                                         
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SOURCE DST kasina LLC

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