Mixed quarter for money managers as volatility hit inflows

Asset managers reported mixed success in attracting inflows for the second quarter as a pickup in market volatility weighed on investors' appetite for riskier assets. Flows were a particularly important determinant of gains in assets under management for the period, as equity markets at home and abroad posted little or no gains. For the quarter, the broad-based Russell 3000 domestic equity benchmark ended little changed, while the Morgan Stanley Capital International All Country World Index added a scant two-fifths of a percentage point. When it came to flows, the latest quarter saw a continued widening in the dispersion between winners and losers, said Michael Kim, an analyst who covers money managers for Sandler O'Neill & Partners. Mr. Kim cited Affiliated Managers Group Inc., Franklin Resources Inc. and Waddell & Reed Financial Inc. as among the quarter's winners, while pointing to AllianceBernstein Holding LP, Artio Global Investors Inc. and Janus Capital Group Inc. as examples of firms that continued to struggle with sizable redemptions. With retail investors leading the pullback from equities during the quarter, institutionally focused firms enjoyed relatively strong inflows, helped by continued demand for alternative and international products, said Daniel T. Fannon, an analyst who covers money managers for Jefferies & Co. For example, AMG reported record inflows of $7.5 billion, with Sean M. Healey, the firm's chairman and chief executive, citing strong demand for alternative strategies as well as global and emerging-markets-equities return-oriented strategies. The Bank of New York Mellon Corp. likewise reported record net inflows of $31 billion. Roger A. Freeman, an analyst with Barclays Capital Inc., noted that institutional inflows for a number of companies — including Franklin Resources and T. Rowe Price Group Inc. — exceeded market expectations. Although the impact of the latest bout of market volatility on those flows remains an open question, the latest reports lend credence to reports from money manager executives of a growing number of active discussions with institutional clients, he said. Firms reporting record assets under management at the end of the quarter included AMG, up 2.5% at $348.4 billion; Invesco Ltd., up 1.8% to $653.7 billion; J.P. Morgan Asset Management, up 0.9% to $1.342 trillion; and T. Rowe Price, up 2.2% to $520.9 billion. BlackRock Inc., the world's biggest manager, reported $3.659 trillion in assets under management as of June 30, up 0.3% from the first quarter. According to the firm's quarterly data, $9.9 billion in outflows related to the company's December 2009 acquisition of Barclays Global Investors and $8.9 billion in outflows from the firm's quantitative-equity strategies offset inflows for other business segments, led by $20.7 billion into BlackRock's multiasset-class offerings. On balance, the company reported net inflows of $8.5 billion. During a conference call discussing BlackRock's latest results, Laurence D. Fink, chairman and chief executive, said that the main drags on the firm's net inflows, such as mergers, are poised to recede. Meanwhile, a strong performance turnaround by BlackRock's active quantitative strategies this year should result, within six to 12 months, in net inflows for a business segment that had been struggling for more than three years, he said. During the call, Mr. Fink said that many investors had trimmed their holdings of riskier assets on news about economic and political uncertainties. He urged them not to “capitulate” in the face of short-term fears. Continued drawdowns of huge distressed-asset mandates awarded by the U.S. government to firms such as BlackRock and State Street Global Advisors further weighed on net flow reports. Joseph L. Hooley, chairman, president and chief executive of SSgA parent State Street Corp., said that $27 billion of such outflows in the second quarter left SSgA's assets under management down marginally at $2.116 trillion, from $2.12 trillion in the first quarter. Without those outflows, SSgA would have reported net inflows of $10 billion, he said. Like Mr. Fink, Mr. Hooley said that an apparent decline in investor confidence short-circuited the pickup in demand for riskier assets that became evident in mid-2010, boosting demand for SSgA's passive, cash and exchange-traded-fund offerings. That growing caution about risk left investors favoring fixed income during the latest quarter. For example, Franklin Resources saw $20.5 billion in net inflows for taxable global and international bond strategies, and another $500 million for taxable U.S. bonds, contributing to record inflows for a quarter of $21.7 billion. The company's equity strategies, which account for more than 40% of the firm's overall assets under management, saw a net outflow of $300 million.

JANUS OUTFLOWS

Janus reported $3.1 billion in net outflows despite $1 billion of inflows for its bond offerings. The company's fundamental equity strategies suffered painful outflows of $4.6 billion, mitigated somewhat by $500 million of inflows for quant affiliate Intech. Goldman Sachs Asset Management, meanwhile, reported net outflows of $3 billion, as $7 billion of inflows for the firm's fixed-income strategies was offset by outflows of $5 billion, $3 billion and $2 billion, respectively, for its money market, alternatives and equity strategies. Improved flows for Western Asset Management Co., the fixed-income giant that accounts for about two-thirds of Legg Mason Inc.'s $662.5 billion in assets under management, left some analysts predicting better times ahead for Legg. Although $3.7 billion of second-quarter net outflows left Legg's assets under management down 2.6% from the first quarter, the company reported net inflows of $100 million for fixed income, which left those overall outflows at less than half those for the first quarter and the year-earlier quarter. AllianceBernstein, meanwhile, continued to struggle in the second quarter, with net outflows of $19.5 billion, leaving its assets under management at $461 billion, down 3.4% from the first quarter. Douglas Appell is a reporter at sister publication Pensions and Investments.