Casey Quirk: Strong Markets Sustain Listed Asset Managers; Will Rising Tides Continue to Lift All Boats?

NEW YORK and STAMFORD, Conn., June 23, 2021 /PRNewswire/ -- Eclipsing records set in the fourth quarter of 2020, publicly traded asset managers in North America and Europe set new high-water marks for revenue and assets under management (AUM) in the first quarter of 2021. Despite the uneven global recovery from the COVID-19 health crisis, listed asset managers are boosting headcount and compensation, buoyed by market appreciation and their own stock performance, according to asset management strategy consultant Casey Quirk, a Deloitte business.

Casey Quirk's analysis of 26 listed asset managers with a combined $20 trillion in AUM as of March 31, 2021, shows aggregate revenue increased 20% in the first quarter of 2021 compared with the first quarter of 2020 and 3% in the fourth quarter of 2020. AUM rose 30% compared with the first quarter of 2020 and 3% compared with the fourth quarter of that year.

A year ago, many managers were facing a rapidly falling equities market as the pandemic was unfolding. As a result, year-over-year performance metrics were skewed relative to prior years.

Overall, profit margins have recovered since the pandemic-induced market dip in the first quarter of 2020 and are now closer to levels seen in 2018. Despite median profit margin growth across the board, there is a wide gap between alternatives and traditional listed asset managers. Alternatives managers, or those primarily focused on private markets, reported first-quarter 2021 median operating margin of 46% versus 26% for traditional asset managers, primarily because they had less fee compression, -0.6% versus -6% for traditional firms, and faster revenue growth, 8.9% versus 4.2% for their traditional peers, over the last five years, according to Casey Quirk.

"Asset managers are reaping the rewards of strong capital markets, with many firms increasing their hiring and compensation, even with the pandemic as the backdrop. Alternatives managers outperformed their traditional peers from a revenue, margin and organic growth perspective, and most firms posted inflows into their strategies," said Amanda Walters, a principal at Casey Quirk. "Because continued market appreciation is far from guaranteed, many managers are focused on identifying growth strategies, such as pursuing new alternative capabilities, expanding packaging options such as ETFs, and developing authentic sustainable investing processes and strategies."

Casey Quirk expects asset management merger and acquisition activity to remain robust as managers expand their private markets business. Private markets strategies are the fastest-growing revenue segment within asset management and are projected to generate 32% of global industry revenue by the end of 2024, up from 28% at the end of 2019, according to Casey Quirk.

Overall median headcount and compensation expense rose during the first quarter of 2021 as managers experienced fewer headwinds. During the five-year period from 2016 to 2020, headcount increased at an annualized growth rate of 6% for traditional firms and 8% for large alternative managers. Compensation costs rose nearly 2% during the first quarter of 2021, while operating and other non-compensation expense was sharply lower. Fees were down slightly, but the decline was more stable than in previous quarters.

Separately, Casey Quirk has continually surveyed asset managers about their long-term workplace plans amid the COVID-19 health care crisis and found that the vast majority are pursuing an "evolutionist hybrid" model where employees have the option to return to the office in the coming weeks and months. These firms will consider decisions about future approaches over time as leadership teams learn more about employee and client desires. Roughly 10% are asking most of their employees to return to the office now or in the near term and less than 5% expect a "mostly virtual" model.

"Asset management is a relationship business, and firms want to maintain their strong cultures and connectivity with clients and employees," said Scott Gockowski, senior manager at Casey Quirk. "At the same time, a remote workforce can help firms broaden their talent pools."

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 June 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 see the Casey Quirk website here.

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SOURCE Casey Quirk

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