Sunday, October 25, 2015

Fund Houses Lose $700bn in ‘Particularly Brutal’ Q3



Seven of the world’s largest fund managers collectively lost more than half a trillion dollars in assets during the third quarter as they struggled to cope with the fallout from Black Monday. The slump has sparked fears investors will pull more money during the final months of the year.

The assets of BlackRock, T Rowe Price, Franklin Templeton and the fund arms of BNY Mellon, JPMorgan, Bank of America Merrill Lynch and State Street dropped between 4 and 11 per cent in the three months to the end of September, wiping $727.7bn off their collective asset base.

The slide in assets is in stark contrast to the first half of the year, when BlackRock, JPMorgan, BofA, T Rowe Price and BNY Mellon all saw a jump in assets on the back of buoyant markets and strong investor demand.

Peter Lenardos, an analyst at RBC Capital Markets, the investment bank, said the third quarter was “particularly brutal”. Equity markets slumped globally during the summer amid turmoil in China, with billions wiped off the value of world markets on Black Monday in August. US and global equities had their worst quarterly performance since 2011.

The assets managed by BlackRock, the world’s largest asset manager, fell by $215bn during the three months to the end of September, equivalent to the funds run by Nordea Asset Management.

The fall heaps more pain on asset managers whose balance sheets are already under strain because of a price war around product fees and growing regulatory costs.

Smaller fund houses Ashmore, Jupiter and Gam also reported falls in their assets under management during the quarter.

Amin Rajan, chief executive of Create Research, a consultancy, said some investors panicked during the third quarter and took flight. “Others remain, but are completely unsure which way to jump.”

He warned that investors are likely to switch asset classes during the final months of the year. “We are going to see a lot of rebalancing. If [investors] do not see a lot of returns in asset class X, they will switch to asset Y.”

Jake Moeller, head of UK and Ireland research at Lipper, the data provider, agreed: “I would anticipate more outflows. I would expect what has started [following the situation in] China to continue.” Mr Lenardos added that the third quarter was “not a one-off”.

Chart: Fall in assets under management

Chart: Fall in assets under management
A decline in assets directly hits profitability. Franklin’s profits slid 44 per cent during the third quarter, while BlackRock’s fell 8 per cent compared with the third quarter of 2014.

The Dow Jones Industrial Average, the benchmark, is up around 7 per cent this month, and some analysts believe investors are unlikely to pull money from products during the final few months of the year, especially as markets have improved.

Paul McGinnis, an analyst at Shore Capital, the boutique, was doubtful the third quarter would have an impact on where investors put their money for the rest of the year. “Certainly, any institutional investors will have already been well aware of what markets were doing on a daily basis in [the third quarter] and making asset allocation decisions accordingly,” he said.

Alec Lucas, an analyst at Morningstar, the data provider, added: “My guess is that those who have been in the market will not, on the whole, be spooked.

“As for those who have yet to get back into the market, the volatility will probably continue to scare them off.”

Bank of America, JPMorgan and BNY Mellon declined to comment. The others linked the fall in assets to market volatility and some investment strategies being out of favour. - ft.com

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