For Many Managers, Market Volatility has Put Downward Pressure on Revenues and AUM

The median traditional manager saw a 6 percent drop in assets under management in the first three months of 2022.

Jason Alden / Bloomberg

Jason Alden / Bloomberg

Publicly traded asset managers saw a decline in assets under management, revenue, and non-compensation fees in the first quarter of 2022.

According to a Casey Quirk analysis of 18 listed asset managers in North America released Tuesday, the median traditional manager saw a 6 percent drop in AUM and a 7 percent drop in revenue from the fourth quarter of 2021 to the first quarter of 2022. Casey Quirk, part of Deloitte, attributes the bulk of the decline to the state of capital markets and flows in the first quarter.

“The primary driver of assets and revenue is really capital market performance,” Amanda Walters, a principal at Casey Quirk, told Institutional Investor. “This past quarter was the first time that we saw a lot of capital market volatility in the equity and fixed-income markets. As a result, there was almost an immediate decline in assets under management, as well as revenues.”

In general, flows also contribute materially to fluctuations in assets and revenue, Walters said. In the first quarter of 2022, flows remained steady from the fourth quarter of last year, at just under 1 percent of assets. Over the course of 2021, flows also hovered at 1 percent. “[This] signals that this truly is a function of capital market performance [more] than anything else,” she said.

In the first quarter of 2022, asset managers also saw a slight decline in operating expenses, which, according to Walters, includes compensation expenses. Operating expenses for the median manager fell 2 percent from the last quarter of 2021. During the same time period, non-compensation costs — which include data costs, travel, entertainment, marketing, and promotional costs — at traditional managers fell 7 percent.

Walters said it’s not surprising that operating expenses declined slightly because they typically move in lockstep with revenue. However, she added that the decline in operating expenses is muted compared to the 7 percent loss in non-compensation costs. She attributed the contrast to recent efforts by firms to retain talent. “There is a war for talent right now,” Walters said. “Rather than decreasing compensation, they’re hoping to send down profits to retain some of their top talent.”

If market volatility persists over the course of 2022, Casey Quirk expects compensation levels to remain flat or slightly down compared to 2021’s record-breaking compensation levels. Given the current market volatility, Walters said she expects the downward pressure on assets, revenue, and profits to continue throughout the year.

“As a result, you’ll see compensation and non-compensation expenses also coming under pressure as firms try to keep their margins at a healthy and sustainable level,” she said. “I think we’re going to see firms making tough decisions.”