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The past 24 months have been a wild ride for the asset management industry. It went from the depths of despair during the fourth quarter of 2008, when the global economy teetered on the brink of disaster, to the heights of elation during the last nine months of 2009, as markets around the world came roaring back. This year, of course, has been marked by renewed volatility, whether from sovereign debt troubles in Greece and other European nations, a fall in the value of the euro, fears of inflation as government spending has exploded, stalled economic recoveries around the globe or the BP oil spill in the Gulf of Mexico, the worst in America’s history.
[Click here to see the complete rankings for the II300: America's Biggest Money Managers]
“People are walking on egg shells again,” says Scott Powers, president and CEO of Boston-based State Street Global Advisors.
With $1.9 trillion in assets, SSgA is the second-largest firm in the II300, Institutional Investor’s annual ranking of the 300 biggest U.S. money managers. Asset management firms of all sizes are increasingly coming to terms with just how fragile their business models may be, even as asset-based fees have long been touted as almost bulletproof, delivering money in good economic times and bad. BlackRock’s $15.2 billion purchase of Barclays Global Investors from Barclays last year — which created the largest asset manager in the world, a $3.3 trillion behemoth that tops the II300 — has given a boost to mergers and acquisitions activity. Like Barclays, Morgan Stanley (No. 22, with $354 billion) decided to divest what it saw as a noncore business, selling Van Kampen Investments to No. 18 Invesco ($423 billion in assets) in June.
At the same time the founders of smaller shops are getting realistic about a fair price they can get for their firms, letting go of the idea that another fevered bull market will emerge and create bidding wars for their businesses.
One example of a deal that likely would have fetched a much higher price in flusher times is Minneapolis-based Piper Jaffray Cos.’ recent acquisition of Advisory Research for approximately eight times ebitda (earnings before interest, taxes, depreciation and amortization). Steven Levitt, co-founder and managing director of investment bank Park Sutton Advisors in New York, says that Chicago-based Advisory Research, which has approximately $5.9 billion in assets and focuses on value investing, would have sold for about 11 times ebitda during the 2003–’07 time period.
The biggest winners in 2009 were firms that offer fixed-income products, as well as international and global strategies. Big gainers include SSgA, whose assets have grown by $467 billion since the end of 2008; Vanguard Group, which climbs two spots, to No. 5, and now has $1.2 trillion in assets; Allianz Global Investors of America, the owner of bond giant Pacific Investment Management Co., which rises two spots, to No. 7, with $1.1 trillion in assets; and Franklin Templeton Investments, which jumps from No. 19 to No. 15, with $554 billion.
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