KANSAS CITY, MO – DECEMBER 22, 2017 - DST Systems, Inc. (NYSE: DST), DST Research, Analytics, and Consulting (DST), a provider of business intelligence that helps transform the distribution, marketing, and product strategy for asset managers, today released the results of its Asset Manager Composite for the third quarter of 2017.
"Operating margins for the public asset management firms rose significantly sequentially to 34.2% for the third quarter of 2017, fueled by record revenues from asset-generated fees coupled with tightly managed expenses," said Michael Andrews, CFA, Head of Investment Products Research and Consulting at DST. "Synchronized global growth and market valuations – "Goldilocks"1 going global – continue to drive record AUM for the industry, which in turn drives higher asset-generated fees, mitigating the secular pressures being faced by the industry."
DST highlighted three important takeaways from the third quarter operating results for the 15 public-traded firms that comprise its Asset Manager Composite2:
Operating margins rose by 182 basis points in the third quarter of 2017 to 34.2% compared to the second quarter of 2017 for the DST Composite group of companies. Cumulative assets under management increased 4.4% quarter-over-quarter, and 13.2% year-over-year. The AUM level of $12.072 trillion represented the third consecutive quarterly all-time high for the Composite group.
Following is our analysis of the key third quarter operating metrics for the Composite group:
On a broader market and macroeconomic level, the third quarter of 2017 built on the momentum experienced in the first half of 2017. Third quarter US Gross Domestic Product of 3.3% represents the best quarterly US GDP in three years, and accelerated from the 3.0% growth notched in Q2. US equities gained 3.96% in Q3, as measured by the S&P 500 Index. The equity market momentum continued in the third quarter due to expanding economic growth and despite natural disasters and the political climate in Washington. The Bloomberg Barclays US Aggregate Index, a broad measure of the bond markets, rose by 0.85% in Q3, compared to an increase of 1.5% in Q2, even as the Federal Reserve initiated its plan to reduce its balance sheet. Non-US stocks continued to lead the global stock market rally in Q3, again led by emerging markets China, Brazil, and Russia. For the third consecutive quarter, the combination of continued strength in equities and bonds resulted in sizable gains across a broad swath of asset classes on a global scale.
Based on this capital markets momentum fueled by synchronized global economic growth, the third quarter performance for assets under management (AUM) and asset flows for the DST Composite companies showed continued strength along most metrics that we follow:
1The term "Goldilocks Economy" may have been coined by David Shulman, senior economist at the UCLA Anderson Forecast, who wrote an article in 1992 titled The Goldilocks Economy:Keeping the Bears at Bay.
2The complete list of 15 firms included in the DST Research, Analytics, and Consulting Asset Manager Composite is provided at the end of this press release.
3SEI Investment is the only asset manager in our Composite that does not report net flows as an ongoing communications practice. Thus, only 14 of the 15 asset managers in our Composite report net flows.
4 BlackRock now represents 49.5% of the DST Research, Analytics, and Consulting Asset Manager Composite group's overall assets (while representing 28% to 30% of revenues, depending on asset-management fees and overall revenues). Therefore, it behooves us to analyze some of the quarterly results by looking at the group excluding BlackRock.
"The third quarter of 2017 was remarkably strong across almost all metrics," said Erach Desai, senior research analyst with DST Research, Analytics, and Consulting. "Despite this strength, the data on flows continue to illustrate a proverbial tale of two cities: the top three firms accounted for more than 91% of overall inflows, and six of the 14 public asset management firms continued to see outflows even in this global Goldilocks macroeconomic backdrop.
DST Research, Analytics, and Consulting Asset Manager Composite includes: Affiliated Managers Group (AMG), Alliance Bernstein (AB), Artisan Partners (APAM), BlackRock (BLK), Cohen & Steers (CNS), Federated Investors (FII), Franklin Templeton (BEN), GAMCO (GBL), Invesco (IVZ), Janus Henderson Group (JHG), Legg Mason (LM), Pzena Investment Management (PZN), SEI (SEIC), T. Rowe Price (TROW) and Waddell & Reed (WDR).
DST Systems, Inc. (NYSE: DST) is a leading provider of specialized technology, strategic advisory, and business operations outsourcing to the financial and healthcare industries. We assist clients in transforming complexity into strategic advantage by providing tools and services to help them stay ahead of and capitalize on ever-changing customer, business, and regulatory requirements in the world's most demanding industries.
Laura M. Parsons
DST Global Public Relations