Casey Quirk: Asset Managers Once Again Under Pressure in Q2 2022 as Revenue and AUM Growth Turn Negative

Publicly traded alternatives firms buck the trend

NEW YORK and STAMFORD, Conn., Aug. 25, 2022 /PRNewswire/ -- Listed North American asset management firms experienced steep declines in assets under management (AUM) and revenue during the second quarter of 2022 after seeing all-time highs in assets, revenues and profit levels just two quarters earlier, according to research from global asset management strategy consultant Casey Quirk, a Deloitte business. 

According to Casey Quirk's analysis, which reviewed 18 listed traditional and alternatives asset managers in North America with a combined $17 trillion in AUM as of June 30, 2022, the median traditional asset manager saw broadly negative results across all operating metrics. With the S&P 500 down nearly 17% by the end of the second quarter, AUM at these firms had declined 12% and pushed revenue down 8%. Though AUM declines predominantly came from the market downturn, asset flows in the quarter for most firms were either flat or slightly negative.

Firms are responding to these industry and macroeconomic headwinds by reducing expenses, including compensation, which is down 6% versus Q2 of 2021. Although non-compensation expenses were up 3% relative to the year prior, they were nonetheless down 3% versus the previous quarter.

Public alternatives managers were a bright spot in an otherwise tepid quarter. They saw slight AUM growth in Q2 along with strong fundraising momentum as demand for illiquid allocations continued to be strong. Median revenue growth was also positive at 7% versus the previous quarter, although 29% of firms did experience a decline. Expenses at alternatives managers also continued to trend upward, with overall operating expenses up 3% and compensation up just over 1% versus Q1. This represents a slowdown in expense growth versus 2021, which saw an average quarterly expense growth rate of 8%.

Despite this relatively stronger showing, the valuation premium that alternatives managers have enjoyed for the past several years has compressed and is now more closely aligned with their traditional counterparts. By the end of Q2, alternatives managers exhibited an average forward P/E ratio only slightly above their traditional peers (12.4x versus 9.3x) — a significant shift from just a year earlier when alternatives traded at a healthy premium (22.2x versus 11.9x). This suggests that the market is viewing forward earnings with heightened scrutiny amidst volatile markets and uncertainty on private market valuations. The full impact of recent market declines may not yet be fully reflected in portfolio company valuations, and both analysts and investors expect a more challenged environment ahead — one that may not be fully clear until 2023.

"All eyes are on the next several quarters to determine the underlying condition of alternatives managers' portfolios. We are looking to see if the bifurcation between public and private returns will persist or fade if a greater share of underlying investments is revalued," said Scott Gockowski, senior manager at Casey Quirk.

Casey Quirk, a business of Deloitte Consulting LLP, is a leading management consultancy that focuses solely on advising asset management firms. Casey Quirk was established in 2002 and acquired by Deloitte in 2016. The organization has advised a majority of the 50 largest asset management organizations worldwide, including eight of the top 10. Casey Quirk provides senior leadership teams with broad business strategy reviews; investment positioning and strategy consulting; market opportunity evaluations; organizational design; ownership and incentive structuring; and transaction due diligence. For more information, please visit www.caseyquirk.com.

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SOURCE Casey Quirk