Asset Management Profits Down

July 15, 2003, 1:00 a.m. EDT 1 Min Read

Profits for publicly traded asset-management firms to be reported later this month will likely to be below the sharp gains in their stock prices, The Wall Street Journal reports. Many firms will be reporting declines compared to the period a year ago.

Consensus estimates for Janus second-quarter profits are that they will be down 37%. Likewise, analysts expect Waddell & Reed Financials earnings to decline 13% and Gabelli Asset Managements to fall 24%. Other firms, including Franklin Resources, T. Rowe Price and Federated Investors, are expected to show only moderate growth of between 2% and 5%. Only firms that specialize in fixed income have been faring well, including Nuveen Investments, whose second quarter earnings are expected to rise 10%, and BlackRock, whose earnings are being put at 7.5% for the quarter.

Nevertheless, most asset management firms stock prices rose an average of 25 % during the second quarter. This stemmed from investors betting that the bear market has ended and the bare-bone days for money managers have run their course.

The reason for these profit declines is simple. With a reduction of assets under management, there is a subsequent reduction in fee income.

"Valuations continue to race ahead of results," UBS analyst Glenn Schorr wrote in a recent report. There is more risk among asset management firms than many investors realize, he added.