Most publicly traded money managers reported quarterly and annual increases in AUM as well as net inflows in the first quarter of the year — in stark contrast to a 2020 first quarter ravaged by the coronavirus pandemic.
Among 23 of the publicly traded managers tracked by Pensions & Investments, aggregate AUM grew 5.4% for the quarter and 33.7% for the year ended March 31 to $32.05 trillion.
"It's been a very different quarter from Q1 2020," said Nalini Kaladeen, London-based director in the EMEA non-bank fixed-income team at Fitch Ratings Inc.
"In that period last year we did see in particular the market effects really dominating the AUM picture — for quite a few of our managers we saw declines of around 12% just from the market effect alone."
At its height in terms of impact on financial markets, the COVID-19 pandemic caused an almost 23% drop in the S&P 500 index for the year-to-date March 23.
But the first quarter of 2021 has been "a lot more stable. ... The general picture we're seeing ... is a robust Q1 performance but with the overhang of the continued pandemic issues and slight frothiness of markets," Ms. Kaladeen said.
The S&P 500 index gained 6.2% in the first quarter of 2021.
At BlackRock Inc., for example — the largest money manager in the world with $9.01 trillion in assets as of March 31 — market increases alone added $164.7 billion in the first quarter. BlackRock, which saw AUM grow 3.8% over the quarter and 39.3% vs. March 31, 2020, also recorded the highest net inflows for the quarter among the 23 managers, at $172 billion.
The firm attributed the growth to its iShares exchange-traded funds business at $68.5 bil- lion in net inflows, cash management strategies, retail and institutional net inflows.
Passive was a continued success story for managers in the first quarter, sources said.
U.S. mutual funds and exchange-traded funds attracted record total inflows in the first quarter, at about $400 billion, according to Morningstar Inc. Within the wall of money moving into equities — with value strategies attracting a huge amount as part of a rotation out of growth — "all this money is basically going to passive strategies," said Adam Sabban, Chicago-based manager research analyst, equity strategies at Morningstar Research Services LLC. That means the "index fund titans have been taking in the most assets by far," he said.
In fact, while some of the value trade has translated into inflows for active managers, "it's still overwhelmingly passive overall. Even though U.S. equity funds took in a record amount, actively managed funds actually suffered outflows — passive offset that" in the month of March, Mr. Sabban added.
Also benefiting money managers in the first quarter was a continued focus on alternative asset classes, with most of the largest quarterly percentage changes in AUM focused on alternatives.
KKR & Co. Inc. recorded a 46% increase in AUM to $367.5 billion, coming in second place in the ranking by quarterly changes. A positive fundraising environment — coupled with the acquisition of Global Atlantic Financial Group Ltd., which closed on Feb. 1 — were highlighted by the firm as contributing to growth. The firm added about $90 billion in AUM. Craig Larsen, partner and head of investor relations, also said on an analyst call that strong investment performance bolstered AUM.
Next in the ranking was The Carlyle Group Inc., which recorded 5.7% quarterly growth in AUM to a record $259.8 billion. The increase was mostly attributed to fund performance.
Ares Management Corp. AUM grew 5.2% over the quarter to $207.2 billion, while Blackstone Group Inc. assets grew 4.9% to $648.8 billion.
"If you look broadly at the asset management space, the traditional asset managers are undergoing some secular challenges because of the threat from passively traded assets like ETFs. But in the alternative space — not necessarily hedge funds, but alternatives and private equity — what's happening is the persistently low-interest-rate environment is causing institutional investors … to look for other ways to get yield," said Catherine Seifert, vice president and equity analyst at CFRA Research Inc. in New York. "Many shifted asset allocation strategies into alternatives. I think that is going to continue," she said.
While passive and alternatives strategies pulled assets in, managers may have suffered from the impact of the low-interest-rates environment and its impact on money market funds, Ms. Seifert said.
Firms like Federated Hermes Inc., for which money market fund assets accounted for almost 50% of a total $625 billion in AUM, are experiencing "downward pressure" from low interest rates on assets that already are subject to fee waivers, she said. Federated Hermes said money market funds AUM was down 2% for the quarter and 12% for the year.
The highest net outflows were recorded by Affiliated Managers Group Inc., at $7.5 billion for the quarter. The majority of net outflows were from institutional clients at $6.3 billion and across global equities strategies, at $8 billion. However, $24.4 billion in market changes helped bolster AUM by 3% for the quarter to $738 billion.
Net outflows were also recorded by Janus Henderson Group PLC ($3 billion), Franklin Templeton ($3 billion), BrightSphere Investment Group ($2 billion) and Victory Capital Holdings ($1 billion).
The main contributor to some huge AUM increases for the quarter and the year was M&A activity.
Morgan Stanley Investment Management recorded the largest percentage increase in AUM, up 81.7% for the quarter, due to the March 1 close of its deal to acquire Eaton Vance Corp. MSIM ended the first quarter with $1.42 trillion in AUM, thanks in part to the addition of Eaton Vance's $583.1 billion in AUM as of Dec. 31. MSIM's AUM was up 143% for the year.
However, that was surpassed in the annual AUM change by Franklin Templeton, with a 158.3% increase in AUM to $1.5 trillion. The firm acquired Legg Mason Inc. in July and its $730.8 billion in AUM as of March 31, 2020.
M&A can also mean a firm loses AUM in terms of percentage change — something that affected BrightSphere's first-quarter results due to its announced divestment of Landmark Partners. Landmark will be acquired by Ares Management in a $724 million deal that is expected to close in the second quarter.
The firm was the only one among the 23 managers to lose AUM over the quarter according to P&I analysis — but that drop was largely due to the fact that, in its first-quarter update, BrightSphere already chose to exclude Landmark's $18.7 billion in AUM from its total. That, coupled with net outflows, led to a 7.4% drop in AUM to $145.1 billion as of March 31. The divestment is one of a number of BrightSphere's sales of affiliates. Last year it sold value-oriented equity manager Barrow, Hanley, Mewhinney & Strauss Inc. and growth equity manager Copper Rock Capital Partners LLC; this year it announced the sale of Investment Counselors of Maryland LLC and agreed to sell Landmark; and this month announced the sale of Thompson, Siegel and Walmsley LLC.
Looking ahead, Fitch's Ms. Kaladeen said the agency's base case is that nothing so major as the unforeseen COVID-19 pandemic will upset managers' apple carts this year.
"We definitely wouldn't expect support measures (from governments and central banks) to suddenly be withdrawn in order to cause volatility," Ms. Kaladeen said. "We wouldn't expect any sudden hikes (in interest rates), but there's only so much you can really predict with these things. But definitely more stable than last year for the developed markets."
One of the main pressures is competition in the industry, "giving rise to margin pressures in particular as we've seen the passives doing quite well over 2020 and increasing allocations going to passives," she said.
CFRA Research's Ms. Seifert added that managers and analysts should look out for two things going forward: "There may be an increased degree of activism as investors start to lose patience with some of the firms who continue to lag their peers in terms of stock performance, and as a corollary to that, their AUM growth or organic AUM growth."
The second is that the pandemic caused many investors to push pause on discretionary or transaction-oriented items "because so many companies were just ... in frozen mode, weren't making any long-term strategic decisions. We may start to see more back and forth among some institutional investors as they regroup and reassess some of their fund managers" and look at how they have performed, Ms. Seifert said.
Most publicly traded managers reported quarterly and annual increases in AUM as well as net inflows in the first quarter of the year.
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