U.S. regulators have voted 3 to 2 to pass the new restrictions on the $2.6T U.S. money market industry to avoid a recurrence of the jeopardized corporate lending which arose during the 2008 financial crisis.
The rules "will reduce the risk of runs in money market funds and provide important new tools that will help further protect investors and the financial system," says SEC chairwoman Mary Jo White.
Yes, asset-management execs are seeing nice gains in compensation, but the real issue for the asset managers, according to consultancy kasina, are the fast-rising costs of their wholesaler arrangements.
Compensation and benefits costs at 17 studied publicly traded asset managers rose at twice the rate of fee revenues, says the report. The "plans are not healthy," says kasina's Jeffrey Strange, speaking about external wholesaler compensation.
The report notes compensation and benefits have grown to 36% of asset-based fees from 31% three years ago. "Long-term industry trends argue strongly for asset managers to evolve their plans or risk seeing diminished wholesaling efficiency and firm margins."
Among those studied: BlackRock (BLK +0.3%), T. Rowe Price (TROW +0.3%), Eaton Vance (EV -0.2%), Franklin Templeton (BEN -0.3%), and Gamco (GBL +0.3%).
"Our change in thinking primarily reflects a more powerful flow outlook now that the drag from non-U.S. institutional redemptions over the last two years seems to be lifting," says Sandler O'Neill, upgrading T. Rowe Price (TROW -0.5%) to a Buy with $95 price target. The team advises investors to take advantage of what could prove to be a short-lived valuation disconnect - the stock is trading at 16x 2015 estimated EPS, about the same as its peer group, but historically TROW has commanded a 20-30% P/E premium.
Gabelli reiterates its Buy rating, noting $3.4B of balance sheet cash provides plenty of firepower to repurchase shares should the stock decline.
Citi's William Katz suggests a fund manager pair trade of long T. Rowe Price (TROW -0.5%) against a short in Janus Capital (JNS -1.8%).
He rates TROW just a Neutral, but boosted his price target to $90 following yesterday's Q1 results. Janus is rated "Sell" as Katz sees "substantial downside risk."
The catalysts for betting on T. Rowe Price: It's a more favorable equity and fixed income play, it will enjoy accelerating operating trends for its flagship platforms, and it has faster organic growth, higher margins, better strategic positioning, and better capital management flexibility ... all for a lower valuation.
"Reading the mandate tea leaves - Post Q1 call (transcript), JNS management noted they are not seeing a pickup in active U.S. equity mandates among institutional clients. By contrast, TROW indicated pipeline for institutional remains steady. Given TROW has S/C and M/C capacity constraints, we can only infer solid demand for L/C mandates. Such dynamics reinforce our concern that despite some easing in redemption pressures of late for JNS in Q1, JNS remains a share donor story.
Investment advisory revenue of $826.4M gained $123.5M from a year ago, with average AUM up 17% to $100.2B to $711.4B. Market appreciation and income helped, but there were also net cash inflows of $8.8B.
78% of mutual funds outperformed comparable Lipper averages on a total return basis for the 3-year period ending on March 31. 85% outperformed over a 10-year period, 71% over one year.
Operating expenses of $505.5M gained $62.4M from a year ago, with compensation and related costs up $39.8M. Headcount of 5,692 up about 5%.
Airbnb has finalized a fundraising round of over $450M that values the company at $10B, the WSJ reports. The deal makes Aribnb, which enables people to rent their homes, sofas, rooms, castles and/or yachts to travelers, worth more than publicly traded hotel chains Wyndham Worldwide and Hyatt Hotels.
Private-equity firm TPG, mutual fund T. Rowe Price Group (TROW), venture-capital firm Sequoia Capital and Dragoneer Investment Group participated in the round.
The investment adds to the more than $300M that Airbnb has previously raised.
The latest data from Invesco (IVZ -2.1%) suggests U.K.-related attrition is manageable and no major increase in retail redemptions have taken place, says Citi's William Katz, maintaining his Buy rating and $47 price target.
At Artisan Partners Asset Mangement (APAM -8.1%), however, inflows appear to have disappeared, leaving the firm with small outflows. "We suspect the acceleration in U.S. Value outflows may be related to a lumpy mandate loss while we are encouraged by the initial disclosure of assets for High Yield," says Katz, maintaining his Buy rating and $72 price target.
Taken together, and adding in figures from Franklin Resources (BEN -2.2%), "point(s) to uninspiring equities flows, which likely suggest tough(er) flow backdrop for the industry at large." Standing out, says Katz, may be Waddell & Reed (WDR -3.7%) which announced $3.5B in inflows QTD back in early March.
Investment advisory revenues of $574.8M up 22% Y/Y. Average mutual fund AUM of $420.7B up 23%.
Low interest rates remain a weight around the asset managers: Money market fees waived of $14.4M compares to $4.9M a year ago, and total quarterly income of $287.7M. For all 2013, the firm waived $51.2M in fees and expects the waivers to continue this year.
Mutual fund assets up $31.5B during Q, with inflows of $3.8B and market appreciation and dividends making up the rest.
Operating expenses of $489.7M up $63.6M from a year ago, with compensation and related accounting for $36.6M of that boost. Average staff size is up 5.2% from a year ago.
T. Rowe Price Group Inc is a financial services holding company, which through its subsidiaries, provides investment advisory services to individual and institutional investors in the sponsored T. Rowe Price mutual funds and other investment portfolios.