Manager profits mask long-term issues: Casey Quirk


by David Chaplin*

Listed funds management businesses have emerged relatively unscathed from the first round of COVID-19 market disruption, according to research from consultancy firm Casey Quirk, a Deloitte subsidiary.

The Casey Quirk study found median revenue among a group of 19 publicly listed asset managers fell just 6.7 per cent over the March 2020 quarter, offset by an almost 4 per cent drop in operating costs.

“While [assets under management]AUM slumped 16.7 per cent from December 31, average AUM fell only 2 per cent as the severe market decline occurred late in March,” Casey Quirk says, “Fees were stable, net flows declined less than 1 per cent and operating margins for the median manager slipped 1.9 per cent in the first quarter.”

In fact, average AUM and operating margins in March 2020 quarter were up 4.1 per cent and 5.5 per cent, respectively, compared to the same period last year, the report says.

Over the 12 months ending March 31, average gross income for the 19 managers – that collectively hold about US$16 trillion in AUM – rose close to 4 per cent as expenses fell 5 per cent.

In a release, Amanda Walters, a Casey Quirk principal, said: “Investors reacted to the steep March sell-off by moving to safer havens from riskier assets and that was reflected in the first-quarter results.

“With stocks and bonds on the rebound since March, a key indicator for asset manager financial results this year will be the market levels and investor flows for the remainder of 2020.”

However, Walters said that despite riding out the early phase of the coronavirus crisis in reasonable shape, the global funds management industry must still contend with long-term secular challenges such as “anaemic organic growth, rising costs, and continued fee and margin pressure”.

“Now that near-term financial concerns seem to be less acute, asset managers will prioritize longer-term business strategies,” she said.

As well as accommodating possibly permanent changes to operating conditions post-COVID, Walters said the fund management industry could see further consolidation along with pressure to streamline and explore different distribution models for investment strategies.

*David Chaplin is the publisher of Investment News NZ