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Rating:Cost Cutting and Bond Flows Boost Mutual Fund Shops' Margins Not Rated 0.0 Email Routing List Email & Route  Print Print
Friday, November 30, 2012

Cost Cutting and Bond Flows Boost Mutual Fund Shops' Margins

Reported by Tommy Fernandez

Reductions in expenses and a continuous positive flow of money into bond funds helped publicly-traded mutual fund shops and asset managers boost their margins sequentially during the third quarter, according to data released by kasina.

The data, the result of kasina's quarterly analysis of the industry, also shows that asset managers also benefitted from a constructive investment market with domestic equity, fixed income, and international equity all posting gains of five percent or more during the past quarter.

On average, operating margins for asset managers increased to 30.2 percent this quarter, compared to 29.2 percent the previous quarter. Meanwhile, net margins bumped up to 22.1 percent, compared to 19.8 percent the previous quarter.

Bond funds raked in $95.7 billion in the third quarter ($133 billion year-to-date), and continued to be the most attractive investor asset class for most asset management firms. T. Rowe Price [profile], Calamos [profile], BlackRock [profile], and Franklin Templeton [profile] posted the highest operating margins among the composite asset management firms, due partly to strong fixed income flows. While equity indices recorded gains in this period, stock funds experienced $38 billion in redemptions, impacting firms’ ability to realize significant category profits, according to kasina.

According to kasina, had the composite results for the 16 publicly held asset management firms excluded financial results from Alliance Bernstein [profile], the operating and net margin would have climbed to 33.7 percent and 24.8 percent, respectively.

Alliance Bernstein had incurred a 36 percent increase in operating expenses from associated costs in liquidating its Public-Private Investment Partnership fund, which resulted in a net operating loss for the quarter. Excluding those costs, adjusted net operating margins for Alliance Bernstein were 20.2 percent, up from 16.1 percent the prior quarter.

Meanwhile, operating margins for wirehouses dipped down to 16 percent from 17 percent in the previous quarter. Morgan Stanley’s financials primarily contributed to the decline with net margins of 7 percent, which reflected nonrecurring costs associated with the Morgan Stanley Wealth Management’s integration and the purchase of an additional stake in a joint venture. UBS and Bank of America Wealth Management each benefitted from a one percent sequential increase in operating margins in the third quarter. 

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