Once upon a time, in boom times of yore, the growth of publicly-traded mutual fund shops' shares outpaced the growth of the overall market. Now the worm has turned.

David Randall Thomson Reuters Regional Sales Consultant

David Randall and Chuck Mikolajczak of Reuters contrast the bull markets of the 1990s and the early 2000s with the one that began in 2009 and note that many asset managers are now cheap, both when compared to their historical PE ratios and when compared to the current PE ratio of the S&P 500. The wire service points to the rise of passive investing and the increase in 401(k) withdrawals as two factors hurting asset managers' valuations.

It's not clear if the valuation hit has spread to privately-held fund firms, too. Last week private equity shops TA Associates and Reverence Capital Partners unveiled a $1.15-billion deal to buy Russell Investments, a more than 33-percent drop from the previously rumored leading bid. That price translates into just 0.42 percent of Russell's AUM, a low ratio as fund firms go, though Russell is a manager-of-managers.

On the flip side, this summer TA was on the opposite side of a deal that valued First Eagle at 4.0 percent of its AUM, which is on the high end for such deals.

What else might be driving fund firms' valuation shift? Perhaps investors have become more wary of how market-driven fund firms' prospects are. Costs don't shift too much as AUM rises and falls, and AUM is heavily influenced by the markets ... so the looming prospect of a big drop can make any fund firm look a lot less profitable in the longer term. Meanwhile, distributors on multiple fronts have woken up to their power and have started pushing back against fund firms' historically higher margins, even as they shrink their fund menus. It's hard out here for a fundster. 

Edited by: Neil Anderson, Managing Editor


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