SS&C Reports Record AUM for Asset Managers in Q2 2019 Drive Higher Operating Margins

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Sep 18, 2019, 09:20 ET

WINDSOR, Conn., Sept. 18, 2019 /PRNewswire/ -- SS&C Technologies Holdings, Inc. (Nasdaq: SSNC), today released the results of its Asset Manager Composite for the second quarter of 2019, which analyzes 18¹ publicly-traded firms. Based on this analysis, cumulative assets under management (AUM) grew by 5.4% sequentially to achieve a new all-time peak of $13.640 trillion, surpassing the prior high-point of $12.961 trillion in Q3 2018.

"Overall, the industry remains quite profitable, but AUM growth over the past several quarters has been largely driven by strong capital markets," said Matthew Fronczke, Head of SS&C Research, Analytics and Consulting. "In order to navigate some of the crosswinds evident in the Q2 operating results, leading asset managers are undertaking proactive initiatives, such as building end-to-end sales enablement technologies, implementing portfolio solutions for managed account platforms and exploring new distribution models for deeper engagement. SS&C is at the forefront working with these industry leaders and we are confident that an effective strategy informed by data-driven insights can set firms up for success."

Global markets continue momentum from the first quarter into the second quarter

Global equity and fixed income markets were all positive during the second quarter. The S&P 500 Index had a total return of 4.3% during Q2, after a 13.7% return in Q1. Globally, the MSCI EAFE Index returned 4.0% in Q2, following a 10.1% rise in Q1. The Bloomberg Barclays U.S. Aggregate Index was up 3.1% in Q2, while the Global Aggregate Index (excluding the US) returned 3.4%.

Key performance metrics for Q2 2019

Operating margins for the Composite group increased by 115 basis points to 29.7% in Q2, versus 28.6% in Q1. While an improvement, operating margins were lower than the 33.7% peak achieved in Q4 2017.
13 of the 18 firms in the Composite group experienced improving operating margins on a sequential basis, implying broad strength. The remaining five firms saw their operating margins decline modestly.
The record AUM for the Composite group at the end of Q2, drove asset-generated fee revenues up by 5.4%, and overall revenues up by 6.3% sequentially.
Operating expenses for the asset management industry increased by 4.6% in Q2 compared to Q1, as higher revenues drove higher expense levels.
The combined impact of a 6.3% increase in revenues with a 4.6% increase in expenses, boosted operating margins for the Composite group by 115 basis points, as noted earlier.
Q2 saw an uptick in net inflows of $135.2 billion compared to Q1 net outflows of $37.6 billlion. 11 of the firms in the Composite group experienced outflows in Q2, similar to the number of firms with outlfows in Q1.
All 17 firms (that report flows and market performance) experienced positive market performance during Q2, the same as was the case in Q1. 72.3% of the sequential rebound in AUM from Q1 to Q2 could be attributed to market performance (with net flows attributing 27.7%).

The accompanying chart (operating margin vs. net margin trend lines) shows that both margins are now trending in the same direction; after a somewhat sharp drop in net margins during Q4 2018, compared to operating margins, which was due to higher non-operating expenses.

Note: Reported operating margins do not conform to adoption of Topic 606, prior to Q1 2017.

About the Study

The SS&C Research, Analytics, and Consulting Group helps organizations manage data, gain insight and ignite change. Since Q1 2009, the group has performed consolidated financial statement analysis using the public quarterly earnings of the following composite of 15 asset management firms³. Analysis each quarter includes an adjustment to operating margins to account for one-time charges. It does not, however, include adjustments for stock-based compensation and goodwill amortization as there are variances in reporting by individual asset management firms. Therefore, our operating margins at the individual firm level may differ materially from the "fully adjusted, non-GAAP" operating margins reported by company management. The adoption of Topic 606 – a new revenue recognition accounting principle – starting in Q1 2018 – impacted at least ten of the firms comprising the Composite: thus, the income statement impact (and therefore, for operating margin analysis) can only be reflected back to Q1 2017 on a comparable basis.

Firms included in the SS&C Research, Analytics and Consulting Asset Manager Composite [firms in bold added in Q2 2018]: Affiliated Managers Group (AMG), Alliance Bernstein (AB), Artisan Partners (APAM), BlackRock (BLK), Cohen & Steers (CNS), Diamond Hill Investment Group (DHIL), Federated Investors (FII), Franklin Templeton (BEN), GAMCO (GBL), Invesco (IVZ), Janus Henderson Group (JHG), Legg Mason (LM), Manning & Napier (MN), Pzena Investment Management (PZN), SEI (SEIC), T. Rowe Price (TROW), Victory Capital (VCTR) and Waddell & Reed (WDR).

About SS&C Technologies

SS&C is a global provider of investment and financial software-enabled services and software for the global financial services and healthcare industries. Founded in 1986, SS&C is headquartered in Windsor, Connecticut and has offices around the world. Some 18,000 financial services and healthcare organizations, from the world's largest institutions to local firms, manage and account for their investments using SS&C's products and services.

Additional information about SS&C (Nasdaq: SSNC) is available at www.ssctech.com.

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¹ Starting with Q2 2018, three additional firms have been included in the Composite to include recently public firms and to be more comprehensive in our analysis. The additions are identified with the full list at the end of this press release. Historical Composite references have been updated to reflect these additions.
² Operating margin (as further expounded in About the Study) is profitability after deducting operating expenses from revenues. Net margin is net income profitability, after taxes and non-operating items.
³ Three asset management firms financials were retroactively added in during Q2 2018. For these firms, the Composite data has been adjusted back to Q1 2017.

SOURCE SS&C