A rising stock market and talk of a long-awaited industry consolidation has helped share prices of publicly- traded asset management companies rise sharply in recent months.
Almost all asset managers have significantly outperformed the Standard & Poor’s 500 index, which has risen by 8 per cent in the past year.
Legg Mason shares have risen by 76 per cent, mainly following the news it was taking over Citigroup’s asset management business. Shares in Janus, which appears slowly to be recovering from its part in the mutual fund trading scandal, have risen by 50 per cent. Affiliated Managers Group, which invests in asset managers, has risen by 45 per cent.
Publicly traded companies do not give a full picture of the industry. The three biggest firms, American Funds, Vanguard and Fidelity, are privately owned, and several other big firms such as Barclays Global, State St Global and Pimco are part of larger companies. However, the trend to profitability and higher margins is clear.
T Rowe Price, whose shares have risen by a third in the past year, on Friday reported record fourth quarter results. Its net income rose to $117m, 20 per cent higher than the same quarter in 2004, as assets under management rose by 15 per cent to a record $270bn.
Franklin Resources, the fourth-largest mutual fund group, on Thursday reported a 32 per cent rise in net income for its December quarter, to $318m. Its shares have risen by more than 50 per cent in the past year.
Morgan Stanley’s global index of asset managers is valued at 22 times earnings, above its peak of 20 times earnings reached at the last market boom in 2000.
Although previous regular predictions of consolidation in the highly fragmented industry have not been borne out, there have been signs of action in recent months.
Apart from the Legg Mason deal, Morgan Stanley recently held talks about merging its asset management business with BlackRock, the successful fixed income manager which is majority owned by financial services firm PNC. Shares in BlackRock have risen by almost 70 per cent in the past year, fuelled by that speculation.
Several UK managers have also seen sharp rises in value, on the strength of similar takeover talk and rising equity markets. Aberdeen Asset Management, which last year bought Deutsche Asset Management’s UK arm, has risen by 128 per cent in the past year. New Star Asset Management has risen by a third since it listed on the London exchange two months ago.