Breaking News
0

Asset managers brace for more job cuts amid market turbulence

Stock MarketsJan 21, 2019 10:15AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: People walk through the financial district during rainy weather in London

By Simon Jessop, Trevor Hunnicutt and Saikat Chatterjee

LONDON/NEW YORK (Reuters) - Turmoil on financial markets is expected to deepen layoffs and accelerate acquisitions in the fund management industry.

BlackRock (N:BLK), the world's largest money manager, and industry No. 3 State Street (N:STT) announced job cuts this month after the worst year for many stock indexes since the financial crisis and losses across most other financial assets. Hedge funds AQR Capital and Balyasny Capital took similar steps.

"It will be a common industry trend," said Kyle Sanders, an analyst with financial services firm Edward Jones.

"When markets go down, the first place asset managers look to cut costs is with headcount." Until last year, rising markets – buoyed by easy money from central banks – had helped keep fund managers comfortably afloat, with many enjoying profit margins of 20-40 percent, even though fees have fallen.

For an interactive version of the below graphic, click here https://tmsnrt.rs/2RUbOqo.

GRAPHIC: Margin pressure squeeze hurts money managers png - https://tmsnrt.rs/2RPka2I

But the prospect of tighter monetary policy and concerns around economic growth saw $168.1 billion drained from mutual funds globally in the final quarter of 2018, data from Lipper at Refinitiv showed.

For an interactive version of the below graphic, click here https://tmsnrt.rs/2HhyNYA.

GRAPHIC: Tough end to Q4 for many asset managers png - https://tmsnrt.rs/2HhH0Mq

Early January saw some money return to equity markets but it is too early to say if that will be sustained. In the meantime, without market performance to bolster their assets under management, investment managers' revenues, largely based on charging a fee on those assets, will suffer.

BlackRock reported a smaller-than-expected fourth quarter profit and analysts expect fourth-quarter earnings for S&P 500 asset managers and custody banks to drop 0.8 percent on average. At the beginning of October, they had forecast growth of 10.3 percent, Refinitiv data show.

"With revenue-growth expectations dialed back, it's not surprising that firms like AQR and BlackRock are reprioritising," Neal Epstein, Vice President at Moody's Investors Service, said.

BlackRock, State Street and Balyasny Capital declined to comment. Claudia Gray, a spokeswoman for AQR Capital, said the company had experienced record growth in staffing over the past three years.

"Recent small reductions in headcount reflect the need to balance our workforce growth with the current needs of our business,” Gray said in a statement.

CONSOLIDATION DRIVE

If market volatility prompts more investors to pull their money it will compound existing pressure on asset managers from increased competition, particularly from cheaper index-tracking products that have driven down fees. Tougher regulations and investments in technology and data have also inflated costs with compliance managers and data specialists continuing to be hired.

Despite plans to cut 3 percent of its global workforce, BlackRock has said its staffing levels would be 4 percent higher this year as it invests in other areas, including technology.

Elsewhere, the cost-cutting pressure is particularly acute for smaller asset managers which lack the heft to compete on price against behemoths such as BlackRock, which has nearly $6 trillion in assets under management.

Smaller companies will have to go further to shore up their bottom line and, in addition to firing staff, may look to join forces with larger rivals to help share mid- and back-office costs, accelerating a trend begun over the last few years.

A 10 percent fall in assets under management could see profit margins slide by 700-1,000 basis points, which would "absolutely drive consolidation", UBS analyst Mike Werner said.

A total of 915 deals with a combined value of $50 billion were sealed last year, two thirds more valuable than in 2017, Refinitiv data showed, including Invesco's (N:IVZ) $5.7 billion acquisition of OppenheimerFunds.

For an interactive version of the below graphic, click here https://tmsnrt.rs/2RMjXNO.

GRAPHIC: Asset management M&A png - https://tmsnrt.rs/2RW2Adg

That trend is expected to accelerate, particularly in Europe, where listed asset managers’ share prices have been hit hard, and banks and insurers, which held onto their asset management arms during the financial crisis, may be more tempted to sell.

"As the value... is declining, potential sellers may be more inclined to close a deal, leading to increased consolidation," said Christian Edelmann, head of global banking and wealth & asset management at consultants Oliver Wyman.

Over 2018, the Thomson Reuters global fund managers index <.TRXFLDGLPUINVM> fell 27 percent with Standard Life Aberdeen (L:SLA) down 40 percent, France's Amundi (PA:AMUN) down 35 percent and Italy's Anima (SA:ANIM3) down 39 percent.

By comparison, the MSCI World index <.WORLD> fell 10.4 percent.

Asset managers brace for more job cuts amid market turbulence
 

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email