Report: Second half of ’08 just a warm-up for more “slashing” at asset managers

Nov 25th, 2008 | Filed under: Editor's Pick, Today's Post | By:
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Falling equity markets have caused pain for many businesses.  But despite the destruction of corporate wealth and the inability to access capital markets for growth, falling stock prices usually have only an indirect impact on business performance.

Not so for asset managers, however.  Traditionally, asset management revenues have been directly tied to assets under management (AUM).  So if AUM falls due to market performance, so does revenue.

As of yesterday, the S&P 500 was down over 40% YTD.  This translates into a 40% decrease in top line revenue for asset managers.  A 40% drop in revenue makes the auto sector look stable.  Thankfully, the average closing value of the S&P 500 (a better indication of asset managers’ annual revenues) looks to be down about 17% this year.  Still, 17% is going to hurt.

This, according to a report released this week by consulting firm Casey Quirk, a company specializing in the asset management industry.  The report says that this top-line revenue hit can only be mitigated by reductions in headcount, incentive payouts or other operating expenses.  As a result, asset managers will have to juggle these expenses in order to engineer acceptable profit margins next year.  The chart below from the report makes the case…

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