Industry Margins Fall in Q4 2014 Largely on Higher Operating Costs

NEW YORK, March 12, 2015 /PRNewswire/ -- The final calendar quarter 2014 was somewhat disappointing for most firms in the asset management industry, as operating margins declined overall and net flows were largely negative for most firms. Overall operating margins in the kasina composite declined 80 basis points q/q, from 34.8% in Q3 2014 to 34.0% in the final quarter of last year. Twelve of the seventeen firms in the composite posted a sequential decline in operating margins, primarily due to higher compensation and other operating costs. Eight firms posted negative net flows in the quarter, while six firms saw a decline in assets under management. Five firms, led by Alliance Bernstein and Janus, benefitted from rising margins in the quarter. Operating margins at Alliance Bernstein increased a startling 490 basis points q/q to 24.3%, due to higher revenue and lower operating costs. However, firm margins stood meaningfully below most peers of similar AUM, such as Federated and Affiliated Managers Group. Janus enjoyed a 209 basis point increase in operating margin to 32.4%, based on higher asset generating fees and overall revenue.   

"For firms to achieve or maintain healthy margins, they need to be strategic about managing expenses," says Julia Binder, Director at kasina and author of Enhancing Profitability With Advanced Business Analytics. "Rather than expending their resources primarily on new sales as many firms do, a focus on reducing redemptions and increasing client retention can have an immediate and positive impact on the bottom line."

Despite the overall sequential fall in margins, the industry continues to enjoy historically high operating income.  Total operating income for the firms in the kasina composite climbed to just under $3.9 billion, from $3.8 billion in Q4 2013 and roughly even with Q3 2014. In addition, total AUM for these firms stood at $10.0 trillion, down slightly from $10.2 trillion in prior quarter, but up from $9.8 trillion in the year-ago quarter.  

Among the wirehouse distributors, the story was a tad worse as operating margins fell 180 basis points to 21.1 in Q4 2014, from 21.9% in the prior quarter.  Each of the wirehouse distributors posted lower q/q operating margins led by UBS with a 202 basis point decline. While each of the firms benefitted from higher assets under management, increased expenses led to the falling margins.

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

Source: Company reports

About kasina
kasina's commitment to innovating distribution in the financial services industry has made it one of the most influential strategy consulting firms in its sector. kasina works with a wide variety of clients from five continents, including firms representing 90% of the U.S.'s total assets under management. An overview of services offered by kasina is available at www.kasina.com.  

Lawrence Petrone, Director of Product Consulting & Research, kasina, (646) 257-4454; [email protected]

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SOURCE DST Systems, Inc.

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