Third Quarter Asset Manager Results Show Continued Improvement

Operating margins for the Composite group rose to 33.7%, rising by 100 basis points sequentially, with a slight improvement in net margins, rising by 140 basis points sequentially.  Cumulative assets under management grew 3.4% sequentially, and 9.9% year-over-year.  The $10.6 trillion level of AUM represents an all-time high for the Composite group.  Revenues from asset-generated fees also rose sequentially, and were marginally lower on a year-over-year basis.

Erach Desai, Senior Research Analyst at DST kasina, stated: "It is reassuring to see that the Composite group's operating margins have continued to improve and are within 120 basis points of the high-water mark of 34.9% set in the second quarter of 2015.  More impressive, however, is the fact that these operating margins are being achieved despite asset-generated fee revenues being relatively flat on a year-over-year basis."

Digging deeper:  Solid operating execution, with positive flows
Composite group results for calendar 3Q 2016 continued to improve.  Overall revenues grew 1.5% sequentially, while asset management revenue from fees rose 2.5% over the same period.  Operating margins for the 16 asset management firms that comprise the DST kasina Asset Manager Composite improved by 100 basis points to 33.7% on a weighted basis.  Sequential improvement in operating and net margins was driven entirely by top-line growth and keeping operating expenses flat.

There was sequential improvement in revenues and margins for 14 of the 16 asset management firms.  Despite the overall uptick in the composite group's operating margin, 6 of the 16 firms saw a slight to modest decline in operating margins.

Overall assets under management for the DST kasina Asset Manager Composite rose sequentially for the fifth consecutive quarter.  At the $10.556 trillion level, overall assets represented an all-time peak level, as noted earlier.  12 of the 16 asset management firms saw their overall AUM rise sequentially.

Net change in assets was impacted primarily by market appreciation, and less so due to net flows and the impact of foreign currency translation.  As seen in the flow breakout of the quarterly changes in the accompanying chart, this was the fourth consecutive quarter with a positive impact from both market appreciation and net inflows.  However, ten of the 15 firms that report net flows experienced a net outflow of assets on a sequential basis – which warranted a closer look under the hood.

Looking under the hood:  Separating out the 800-lb gorilla
As BlackRock represents ~48.5% of the DST kasina Asset Manager Composite group's assets, we have provided an analysis of the quarterly results underlying trends for the remainder of the group. 

The first observation to be made is that the composite group's operating margin has been boosted by 100 to over 300 basis points for the past few years due to BlackRock.  It would appear that operating margins for the vast majority of public asset management firms have realized a range of between 28.0% to 32.4% over the past 8-10 quarters.  The accompanying chart shows that there is no great divergence in operating margin trends when looking at the group with – and without – BlackRock.

When looking at the trend in asset flows excluding BlackRock, the data shows that while overall assets under management have grown for four consecutive quarters, there have been five consecutive quarters of net outflows for the 14 asset management firms excluding BlackRock.  While BlackRock's scale has positively impacted the net asset flows for the overall industry, it has also masked cash flow difficulties at other asset managers.

"We are analyzing the results for the publicly-traded asset management firms, thereby automatically excluding many very large and/or well-known names that are privately-held firms," continued Mr. Desai. "Looking at the public asset management firms, excluding BlackRock, one can see the multi-quarter depletion in net assets is indicative of some secular trends."

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

About DST kasina
DST kasina LLC provides business intelligence services to the asset management industry. Led by industry experts, DST kasina's consulting engagements cover distribution strategies, marketing plans, audits, and educational seminars, each designed to help financial service firms stay ahead of the forces driving the industry while boosting their effectiveness and profitability. With DST kasina WalletShare®, clients are able to integrate marketing automation, predictive analytics, third-party data, and proprietary firm information into one powerful, easy-to-use platform. For more information on how to leverage DST kasina's business solutions, 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. We enable clients to transform complexity into strategic advantage by helping them continually stay ahead of and capitalize on ever-changing customer, business and regulatory requirements in the world's most demanding industries. For more information, visit the DST website at www.dstsystems.com.

Media Contact:
Laura M. Parsons                                                                                
DST Global Public Relations                                                                                 
+ 1 816 843 9087                   
[email protected]

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