While leading banks, mortgage originators and brokers, insurers and investment banks have all taken serious hits from the financial crisis, investment management firmsmost notably mutual fund companieshave been holding strong, buoyed by a steady stream of fees.
Not so anymore, The Wall Street Journal reports. The financial crisis is catching up with mutual fund companiesand fast. Exacerbating the decline in assets under management, as both the fixed income and equity markets continue sharp declines, are massive outflows by investors who cant take the losses anymore.
In September alone, following a 27% average decline in U.S. diversified stock funds, U.S. stock mutual funds suffered $19.1 billion in outflows, the fourth month in a row investors have headed for the exits and the fourth-highest monthly outflow on record, according to TrimTabs Investment Research.
Proof of the hit mutual fund companies are taking lies in their earnings and stock prices, as well as layoffs. The value of publicly traded asset management firms has declined as much as 70% in the past three months. By comparison, the Dow Jones Industrial Average is down 25%. Specifically, Janus stock is down 49% in the quarter, Franklin Resources is down 30%. Year-to-date, the Dow Jones Wilshire U.S. Financials Index is down 50%.
Not surprisingly, Janus announced it is laying off 9% of its employees to save $15 million a year, and AllianceBernstein and American Century Investments have both indicated they, too, will probably lay off sizeable numbers of employees.
Looking ahead, the outlook is not good well into 2009, according to analysts. The recent selloff of the equity markets will likely pressure earnings growth for the asset managers throughout 2008 and into 2009, said an analyst with Fox-Pitt Kelton, which has downgraded AllianceBernstein, BlackRock, Affiliated Managers Group and T. Rowe Price.
Likewise, J.P. Morgan Chase is recommending that investors avoid publicly traded investment management firms, at least in the near-term.