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Big Asset Managers Miss Wall Street Targets as Investors Flee

Four of the largest U.S. money managers reported sharp declines in second-quarter earnings, as volatile markets and fleeing customers cut into their fee income.

Four of the largest U.S. money managers reported sharp declines in second-quarter earnings on Thursday, as volatile markets and fleeing customers cut into their fee income.

The decline was steepest at Denver-based Janus Capital Group Inc, which remains mired in a multiyear trend of lagging fund performance and customer withdrawals. The company's shares lost 2.6 percent on the New York Stock Exchange.

Net income of $23.4 million was down 44 percent from a year earlier. And the 13 cent per share profit was a penny less than analysts, on average, had expected according to Thomson Reuters I/B/E/S, due to higher-than-anticipated customer outflows of $3.9 billion from long-term funds.

"It looks pretty messy," said Sandler O'Neill analyst Michael Kim, who had expected outflows of about $2 billion.

Total assets under management at Janus fell to $152.4 billion on June 30, down 7 percent during the quarter and 10 percent from a year earlier.

Most of the industry fared poorly in one of the toughest quarters for money managers since the financial crisis ended. Beset by fears of debt defaults in Europe and an economic slowdown in the United States and China, investors drove the MSCI All Country Index down 6.4 percent in the second quarter while the Standard & Poor's 500 lost 2.8 percent.

And that prompted many investors to withdraw and wait for the chaos to subside, particularly from stock funds, the category that tends to provides the highest fees to managers.


That hit profits at Invesco Ltd, the largest manager reporting results on Thursday. Net income attributable to common shareholders declined 16 percent from a year earlier. Atlanta-based Invesco said its per-share profit adjusted to exclude some items was 41 cents, 2 cents less than analysts had expected.

During the quarter, customers yanked a total of $8.3 billion, including $4.9 billion from higher-fee, long-term funds, Invesco said. Assets under management at the end of the quarter totaled $646.6 billion, down 1 percent from a year ago.

"In this uncertain climate, investors naturally were seeking safe havens and acting defensively," Invesco Chief Executive Officer Martin Flanagan said on a call with analysts.

But in July, the company had a "sharp turnaround," Flanagan said, with customer inflows into various funds, including real estate, bank loans and international growth equity products.

"Frankly, you can see the end of the tunnel and, looking out to next year, a pretty good outlook," he said.

That helped rally Invesco shares, which closed up 2.1 percent on the New York Stock Exchange.

Invesco's second-quarter outflows were "not the end of the world given the company's solid and consistent performance records, (and) resilient investment management fees," Nomura analyst Glenn Schorr wrote in a note to investors.

Janus Chief Executive Officer Richard Weil struck a more pessimistic note on his call with analysts.

"With extreme market volatility and ... not such great results in equity markets more broadly, a lot of investors are scared, and they're either doing nothing, or pulling back from equities," Weil said.

Profits at smaller Waddell & Reed Financial, based in Overland Park, Kansas, dropped 17 percent to $41.7 million. Adjusted per-share profit of 52 cents matched the average analyts estimate.

Customers added to Waddell funds during the quarter, though at a slower pace than in the same quarter a year ago. Second-quarter inflows totaled $376 million, down from $1.7 billion a year earlier. Total assets declined 3 percent from last year to $89 billion. Shares gained 2.4 percent.


At Pittsburgh-based Federated Investors, second-quarter profits dropped only 5 percent to $40.4 million. As one of the largest manager of U.S. money market funds, Federated had less to lose in the stock market turmoil.

Total assets of $355.9 billion as of June 30 included $265.5 billion of money market funds. Customers added $2 billion to long-term funds, Federated said.

Shares of Federated gained 1 percent during the day in trading on the New York Stock Exchange.

Overall, the reports were similar to competitor T. Rowe Price Group Inc's a day earlier. On Wednesday, T. Rowe reported slightly lower-than-expected quarterly earnings as well as outflows from institutional investors, but it had a net inflow of $4.7 billion overall, because retail customers put money into its funds.

And the world's largest asset manager, BlackRock Inc , said last week that its second-quarter profit dropped 11 percent. The $3.5 trillion firm said declining markets had cut $76.8 billion from the value of its assets in the second quarter. Still, BlackRock reported customers had added $3.8 billion to its funds.

(Editing by Lisa Von Ahn and Leslie Gevirtz)

Copyright 2010 by Reuters. All rights reserved.

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