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Industry Margins Retreat a Bit as Market Bounces Up and Back

By Eric Daugherty

Second quarter operating margins for the publicly traded asset managers retreated just a bit to 28.1%, from 28.6% in the 1st quarter. Average AUM for these firms shrank 2.5% in the quarter, as the equity markets measured by the Wilshire 5000 advanced 5% in the first quarter, then rose another 3% in the second before falling 18%. Positive cash flows cushioned the AUM decline. Revenues for these firms gained 4%, but expenses rose 5% from the prior quarter, compressing margins slightly.

Source: Yahoo! Finance

Firms continue to be clustered in a pack, with a few margin stars popping out of the top of the cluster and a few firms still struggling to get back into the pack.

Given the decline in markets over the course of the 2nd quarter, we should see narrower margins again in the 3rd quarter as average quarterly AUM declines (unless, of course, we get a big market surge).

As you'll read about in a blog piece coming soon, even more interesting than the quarterly meanderings of margins is the slow erosion of them over time. We extended our analysis back to 2000 and found evidence of a maturing market with margin compression, which holds significant implications for asset managers.