martes, 15 de agosto de 2017

martes, agosto 15, 2017

Asset Managers: Spending Money to Make Money

Investment giants need to spend money now to stay on top of trends that threaten their future

By Aaron Back


Prominent asset managers fell back to earth last week as the fundamental challenges they face resurfaced.

Investors had grown newly optimistic on the sector over the first half of the year amid ever-higher equity markets and even signs that active managers were outperforming their benchmarks for the first time in years.

That came to an end when five of the biggest publicly listed investment managers—AllianceBernstein, Invesco, Legg Mason , T. Rowe Price and Franklin Resources BEN -2.64%▲ —all reported earnings last week.

From the start of the year through Wednesday, they were up an average 19%, a remarkable performance for a sector that has struggled in recent years. But these five stocks fell by an average of 4.5% over two days.

Second-quarter results were mixed when it came to flows. AllianceBernstein, which suffered major outflows last year, saw a surprising $4.7 billion net inflow for the quarter. Invesco, which has lately enjoyed inflows thanks largely to its strong suite of exchange-traded funds, saw a $600 million outflow, largely due to a redemption by a sovereign-wealth fund.

The bigger factor was expenses. Invesco appears to have sparked the sector selloff with its warning that costs would be elevated in the coming year. The company cited investments in new growth areas, including its robo-advisory service and the acquisition of a European ETF company.

On Friday Franklin Resources Chief Financial Officer Ken Lewis told investors he is “leaving no stone unturned” looking for cost cuts. But he added it would still be a challenge to achieve lower expenses next year given the need to fund new strategic initiatives.

These kinds of investments make complete sense. Faced with changes in investor behavior favoring passive, low-cost alternatives, traditional asset managers can’t just stand still. It is urgent for them to develop new online distribution methods such as robo advisers, and to offer more low-cost products like ETFs.

Based on their reaction this week, investors in these companies needed a reminder that these investments cost money.

This points to a key distinction between asset managers: Some can better afford to spend money on future technologies than others. Invesco, which attracted a net $13 billion of inflows in 2016, is in a much better place than Franklin, which saw a whopping $68 billion of outflows.

It can be hard to plan for the future when you are busy trying to close an open wound.

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