Manning & Napier
] is hungry for more acquisitions.
Last Wednesday the Fairport, New York-based mutual fund shop (Fairport is outside Rochester) reported
fourth quarter 2014 economic net income per adjusted share of $0.30, in line with expectations
. Its Q4 2014 revenue of $98.34 million fell $0.55 million short of expectations. Assets under management on December 31, 2014 stood at $47.8 billion, about six percent down for both the quarter and the year. Manning suffered net client outflows of $2.7 billion in Q4 2014 and $3.3 billion in all of 2014.
Last Thursday morning earnings call with analysts, transcribed by Seeking Alpha
, Manning CEO Patrick Cunningham
confirmed that, after buying
2100 Xenon last year, he continues "to look for other opportunities to grow inorganically." In response to a question from KBW analyst Andrew Donnantuono
, Cunningham dug deeper into his perspective on doing more deals:
First of all, we continue to actively look into the marketplace for services and capabilities that we think will help solve our clients' problems. So Jim [James Mikolaichik], chief financial officer of Manning] has spent some great deal of his time and his team looking at a wide variety of potential acquisition candidates.
My observation is that they are not cheap. The good track records are going at a premium. So it's not a -- it's a time when it's difficult to balance both the product that you want and the kind of terms and pricing that you want. So we are active. It's very hard to predict and I am pleased that we're able to integrate Xenon into our organization in a meaningful way and it's fully integrated as far as I am concerned. And so we have our first acquisition turn out the way it has, and I am pleased with that.
And I think that will center stage for us being able to make acquisitions in the future and to make more acquisitions in the future. So we are looking -- we don't have -- there is nothing that I can tell you that we expect to close in the near future, but we are active.
Cunningham also used the earnings call as a platform to make an impassioned defense of active management:
We are confident that active management is here to stay.
There is more than $50 trillion in global assets under management invested in active strategies. Passive management is not concerned whether you make money or loose money, but we are concerned whether our clients make money. This is evidence by the way we compensate our analysts, as well as how we price stocks for investment.
Our conviction is predicated in part on our proven team-based investment approach that you heard us talk about in the past, where some active managers are close -- positive indexers with active share around 50%, we have been consistently around 90% active share across our core equity strategies, which is considered very active. If the valuations in the sector can be justified, we can be significantly overweight or underweight the benchmark.
Despite a secular increase in utilization of index products, active and passive outperformance have gone through cycles overtime. Active strategies tend to underperform in periods of high correlations, narrow markets and more extreme environments driven by greed or fear. These periods include the speculative bull market like 1990s, the financial crisis in 2008 and several periods of risk-on risk-off markets since the crises.
In contrast, active strategies tend to outperform in periods of lower correlation, broader markets and when fundamentals drive returns. But much of the early to mid-1990s, the period following the bursting of the technology bubble in the 2000s and from 2003 until the start of the financial crisis in 2007 are examples.
Passive has been in favor since the end of the financial crisis, as many countries around the globe faced similar conditions of low growth and easier monetary policy. In fact, in 2014, only 19.9% of U.S. equity mutual funds beat their benchmark according to Morningstar.
We believe the period of active underperformance maybe coming to an end as we had into an environment where global economies are starting to diverge in terms of growth trajectories, monetary policies and stock market valuations. This may be setting the stage for market fundamentals to be a more important driver of returns, which should reesult in a greater impact from individual stock selection.
To dig deeper into Manning's results, read the earnings release
and Seeking Alpha's transcript
of the earnings call.
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