It’s an old saying in the investment world that nobody rings a bell at the top of the market – but perhaps BlackRock sounded a klaxon for the quoted asset management sector right at the start of 2022.

Trouble is, none of us listened.

On 14 January, the US giant announced its asset under management (AUM) had surpassed the magical $10tn mark.

Inflows were booming – the company’s AUM had almost doubled in five years – as were profits. What could possibly go wrong?

For investors in publicly quoted asset managers, practically everything.

The Federal Reserve was getting on with racking up interest rates to curb surging inflation and Russia’s Vladimir Putin was signing off on his plan to invade Ukraine. Equity markets around the world were about to tank.

Fast forward to today and the S&P 500 index is down 17.5% in the year to September, while the MSCI World has dropped 26.4%.

But quoted asset management companies have fared even worse.

As they are essentially a geared bet on shares, when the market smells bad, asset managers stink.

As their AUMs fall, through falling markets and investors heading for the hills, so do their profits, as plummeting income meets high fixed costs. Those star portfolio manager salaries, increasing numbers of compliance people and plush offices don’t come cheap.

Citywire Amplify has X-rayed the share performance of 30 quoted, predominantly long-only asset managers from around the world. Together their market caps have plummeted 40% from $302.86bn to $181.42bn.

That’s $121bn gone up in smoke this year, the equivalent of Union Pacific, ranked about the 50th biggest company in the S&P 500.

Some of the 30 companies have suffered worse than others. Among the hardest hit are a trio of small UK asset managers: Liontrust, Impax and Jupiter.

To give you a handle on just how small they are in relative terms, their current combined AUM of $130bn amounts to around 1.5% of BlackRock’s assets, now down to a measly $7.96tn.

Liontrust, down 66.8%, and Impax, off 64.3% (full, painful disclosure: I am a shareholder), are both aggressively growth-oriented managers with an absolute belief in ESG investing and a slate of funds heavily tilted to equities.

Both houses see the value of investments in the long term and, for that, their investors (me again) do at least get to drink their Kool-Aid. Impax is by far the best in class over five years, with its shares up 266%, while Liontrust investors are still 46% to the good over that period.

(Amplify spoke to the CEOs of both companies, who opened up about the share price drops. Read our interview, with video from our studios, here).

Jupiter is a different case. Beset by a rash of problems that go back well beyond this year, it is truly the fallen angel of the sector. Five years ago, the company was valued at £3bn; that has dropped to £500m today – an 83% fall, including a 64.3% drop in value this year.

As the problems and outflows have piled up, takeover rumours swirling around Jupiter have come and gone. But whether they emerge again, the company is trying to put its own house in order with new CEO Matthew Beesley announcing a rash of redundancies and fund mergers to cut its cost base.

So, who has held up relatively well this year? Hats off to Federated Hermes, whose shares are down just 11.7% this year, bracketed with fellow US manager Diamond Hill (-15%) and M&G (-16.7%).

M&G, the British group spun out of insurer Prudential, deserves its own footnote. Its shares were actually up on the year until August, largely driven by hopes of a value-inducing breakup. But those hopes then faded and were finally killed off by incoming CEO Andrea Rossi, who took office this month.

A certain ratio

If you want another handle on which asset management shares are most favoured by investors, one measure is the ratio of market capitalisation to AUM.

As with the share price action, this indicator has huge variation. The sector as a whole is valued at 0.88% of AUM but ranges from 3.9% for UK boutique Gresham House all the way down to 0.44% for France’s Amundi and Invesco of the US, both giants of the game running more than $1tn.

By and large, the smaller you are, the higher your rating: US group Cohen & Steers ($87.9bn AUM) is valued at 3.5% of assets while specialist UK boutique Polar Capital ($21bn) is valued at 2.2% and Impax at 2%.

But even here, the whole sector is on a downward trajectory. At the start of the year, Impax was valued at 5.1% of AUM, while BlackRock (an industrial machine for ultra-low-cost ETFs) has fallen from 1.38% to 0.98%. Way back in history (well, five years ago) Jupiter was valued by the market at 6.2% of assets. Today? Just 1%.

Private lives

There is one part of the quoted asset management universe that is rated much more highly – the 10 companies that invest in private equity, including giants such as Blackstone, Brookfield and KKR.

While between them they have a mere $4.4tn AUM, their collective market value of $311.5bn is way higher than the long-only firms’ $181.4bn.

And it’s easy to see why their valuations are around eight times higher than their long-only rivals – their fees, and thus their profits, are much higher.

For private equity, think management fees of 1.5% with performance fees to boot, while in the long-only world, the ever-growing power of ETFs (fees as low as six basis points) continues to squeeze margins.

But higher fees or not, investing in these private equity giants has also been a huge dud this year, with their total market value down by 38.7% – almost as much as their long-only counterparts.

Who wants to own an asset manager?

Taking a 36,000-feet view of the sector, you have to ask yourself: why would you invest in asset management businesses?

Yes, the gearing can work positively during bull markets (remember them?) but comb through the holdings of the world’s best equity portfolio managers (who should know a thing about the business they work in) and you’ll find very few going overweight any of the listed companies.

This prompts another question. Why be listed at all, beyond the obvious reason for any company of allowing employees liquid access to their shareholdings?

Sure, you can use the paper for M&A in the sector, but history has shown this to be an incredibly efficient road to value destruction.

Down-with-the-kids Abdrn today is worth some $5bn less than when those fuddy-duddy brands Aberdeen and Standard Life merged back in 2017. This decline prompted Numis analyst David McCann to crunch the numbers for a breakup, describing the business as ‘worth more dead than alive’.

It takes two to tango

What happens next? Much will depend on the interplay between long-only firms and private equity businesses which is getting more intriguing by the day.

On the one hand, traditional asset managers are falling over themselves to make a big move into private assets, in a race to get a slice of a sector that promises stickier assets, higher fees and growing client demand as my colleague Selin Bucak wrote recently. By her reckoning, they control almost $3tn of such assets already.

On the other, we could see those highly rated private equity companies dive in to snap up (and possibly dismember) bargains in the long-only sector.

There’s a lot out there, especially in the UK where sterling’s decline has only added to fire sale values.

(All comparisons are between share prices at the start of the year and 30 September 2022. AUM data from managers’ own websites. Prices sourced from Refinitiv Eikon and crunched by Citywire data genius Thomas James.)