Earnings can be underestimated

Look at what happened in
2008-2009. Profits halved for the major US asset
managers. The cost-to-income ratio (operating
costs / operating income) increased to 63 per cent
from 55 per cent, while pre-tax margins declined
to 37 per cent from 53 per cent.

Following an extended bull market it is sometimes difficult to
diferentiate between an alpha and beta of the
industry cycle.

With the four threats to asset management
closing in, which firms are likely to survive? For
starters, the industry can be roughly divided into
two groups – independent firms such as
Schroders or Blackrock, and proprietary frms
that are owned by banks and insurance
companies.

Looking at the 25 leading European
asset management institutions with a total of
€24tn in assets under management, it is clear that
independent firms are outperforming their
proprietary peers.

The independents are
delivering average pre-tax margins of 44 per cent
versus their proprietary peers of 30-33 per cent.
Their cost structures are also leaner. The cost to
income ratio for independents averages 58 per
cent but runs closer to 70 per cent for bank and
insurance-owned asset managers.