Market gains, and a shift to passive products, boosted assets under management (AUM) for U.S. asset managers in the third quarter (Q3), according to a report published on Thursday by Moody’s Investors Service.
Equity market performance bolstered industry AUM in Q3, the report says, which boosted revenues, despite mixed flow performance. Just 10% of the increase in long-term AUM came from net flows, the report says.
In terms of net flows, the use of passive products accelerated, according to the report, led by US$51.3 billion worth of inflows into BlackRock’s iShares.
“BlackRock, the largest manager, increased AUM by 4.6%, outstripping the combined 1.9% increase of the other managers’ AUM,” said Neal Epstein, vice president and senior credit officer at Moody’s, in a statement. “Long-term AUM increased by 3.6%, but the increase would be 2.6% if you excluded BlackRock.”
Revenues increased by 1.4% during the quarter, to US$10.6 billion, the report says. However, it notes that revenues generated from performance fees are roughly half the level of a year ago.
“An aggregate decline in effective fee rates was driven by the largest managers, including BlackRock and Invesco, which have growing passive operations and are exposed to the influence of a strengthening dollar,” Epstein added. “But on an individual basis, eight managers increased effective fee rates during the quarter, consistent with a rally in higher-fee equity assets.”
Additionally, EBITDA for firms Moody’s covers increased by 4.6% during the quarter, outpacing revenue growth due to good expense controls. “Management teams exercised cost controls in a year of volatility and uncertain revenue growth,” Epstein said.