Analysis: Asset Managers Suffer Slower Revenue Growth

The asset management industry suffered significantly slower revenue growth in 2011, while profitability remained stable, according to an analysis by Casey Quirk.

(March 8, 2012) — The asset management industry suffered significantly slower revenue growth in 2011, while managing to maintain profitability, according to an analysis by Casey Quirk & Associates. 

According to the analysis by the firm, profitability among 21 publicly traded US-based asset management firms, along with the asset management subsidiaries of 12 quoted US financial institutions, remained flat during 2011, with the median operating profit margin hovering around 27% for both 2010 and 2011. Publicly traded asset managers posted median profitability of 35% last year, compared to 25% for subsidiaries, and grew revenues 15% during 2011, compared to similar metrics of 6% for subsidiaries. The slower revenue growth, according to Casey Quirk partner Jeb Doggett, was due to stalled market growth and less market appreciation. 

According to the analysis, quoted investment firms in the US have continued to outperform asset management subsidiaries of larger financial conglomerates. In other words, independent investment management firms are better able to succeed compared to subsidiaries of financial services organizations, due to their ability to attract top talent and implement changes to their strategies more quickly. “Independent firms have more control over their destiny compared to firms owned by a parent company,” Doggett told aiCIO.

“Independent asset managers, whether publicly traded or employee-owned, usually generate stronger cash flow than subsidiaries of larger financial firms,” said Doggett in the analysis. “Because independent firms often can offer to share the asset management economics more directly with their employees, they can compete more aggressively for key industry talent.”

Casey Quirk partner Kevin P. Quirk continued: “While cost-cutting and M&A can have a positive short-term impact on revenue growth and margins, they’re blunt and often unreliable instruments for the long term. True revenue growth and profitability in fund management only stem from sustainable competitive advantages in investments, distribution and talent retention.”