Grow Your Assets With These Asset Management Companies
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With recovery in the global economy and volatility in the global equity, bond, and currency market, demand is increasing for fund management companies. These companies, with their expertise and distinctive strategies, are managing and advising individuals as well as corporations. For these services, the companies charge fees which are considered the main source of revenue.
Three such asset management companies are focused on enhancing their assets under management and are expecting to generate higher revenue in the future. Find how these companies are managing funds and improving their finances, resulting in growth for investors.
Strong servicing fee and foreign exchange management
State Street (NYSE: STT) posted its first-quarter results ended in March. It reported year-over-year revenue growth of 2%, to $2.47 billion, which was strongly driven by its investment servicing fee. This fee is earned for serving as a custodian of financial assets on behalf of institutional investors. With the strong growth in equity markets and growing net new business, its servicing fee total rose to $1.17 billion in the first quarter, reporting year-over-year growth of 9%. The company is charging a servicing fee of 0.0181% on daily average valuation of assets under custody and administration, or AUC.
The company offers its asset services in more than 100 geographic markets globally. This enables it to offer competitive fees to its clients. Last year, it gained new asset servicing contracts worth $551 billion, out of which $70 billion is expected to be installed by the second-half of 2013. Moreover, in the first quarter, the company gained a new asset servicing contract worth $223 billion with 39 new alternative asset servicing mandates including real estate and commodities management.
With competitive servicing fees and its reputation to attract clients, it will continue to attain business. It expects the assets under custody to rise by 10% to $26.81 trillion in 2013 and $29.21 trillion in 2014. Moreover, it expects servicing fees to total around $4.64 billion by the end of this year and $5.15 billion next year.
Additionally, it’s trading services, which includes foreign exchange trading and brokerage, reported quarter-over-quarter growth of 15.6% to $281 million. This growth was primarily driven by high volumes and increased volatility in currency markets. State Street, with the expertise and electronic trading channel, manages a high volume of foreign exchange transactions and takes benefit of market volatility.
Simultaneously, with the improving global scenario, many multinational corporations are enhancing their global footprint, and the company, with its proficiency in managing and hedging foreign exchange transactions, expects to gain new business in the future. Thus, the company‘s trading service fee will grow approximately 6% to $1.07 billion this year and $1.16 billion by 2014.
Cost saving program with good servicing fee
The Bank of New York Mellon (NYSE: BK) expects its asset servicing segment to contribute 31% to the company's revenue in 2013, up from 30.7% last year. This segment includes global custody services, global fund service, security lending, and many more. On these services, the company earns a fee of around 0.0136%. It reported an AUC of $26.3 trillion in the first-quarter, with the year-over-year growth of 3.4%.
In the first-quarter, its active products segment surged with the rising global real estate and attracted new business of $1.43 trillion. The company, to gain more business, is continuously shuffling its investment strategies and strong presence in fixed income and equity markets. This enables it to deliver the best service to its clients. Therefore, it expects AUC to rise to $27.88 trillion by the end of this year and $29.41 trillion in 2014. Additionally, the asset servicing fees will rise to $4.65 billion in this year and $5 billion in 2014.
Last year, the company planned a cost saving program of $650 million -$700 million until 2015. It is focusing on reducing expenses through its operation excellence initiatives and planned to save $410 million-$450 million this year. In the first-quarter, the company successfully saved around $121 million, compared to the target saving of around $106 million.
The savings will be used for integrating and consolidating its business operations and corporate services as well as improving its technology by simplifying and standardizing infrastructure and in-sourcing software development. It expects to easily achieve the annual saving target with its additional real estate initiatives in the U.S., Europe, the Middle East and Africa to consolidate offices and reducing real estate by 35,000 square feet. This initiative will benefit the company in the second half of 2013.
Acquisition to enhance investment solutions
In late 2012, Franklin Resources (NYSE: BEN) acquired K2 Advisors Holding, the world's seventh largest hedge fund solutions provider. This acquisition enhanced the company’s global footprint and diversified its assets under management, therefore improving its return and lowering fund volatility. With this, the company reported assets under management, or AUM, of $846.5 billion in May and strong quarter-over-quarter growth of 40% in its international fixed income products sales.
This growth was mainly driven by European countries like Italy, Switzerland, and Germany, which delivered continuous improvement in long term fixed income products sales in the last 12 months. Due to continuous success in Italy, Franklin generated positive flow and the assets under management reached $36 billion in the second-quarter, ended in March, making it the second largest market after the U.S. The company, with the strong response from Italy, is planning to capture additional European market share and expects the total average AUM to reach around $879 billion in the fourth-quarter.
In June, the company completed the acquisition of the remaining 80% stake of Pelagos Capital Management. Pelagos is an alternative investment specialist focusing on commodities, managing derivative instruments, and hedge fund management.
The company developed a strong relationship with Pelagos since its initial investment. This strategic initiative helps Franklin to improve and expand its alternative investment products and multi-asset solutions platform by providing world-class investment solutions to new and present clients. Pelagos' advanced risk management systems will assist the company in this area. Complete acquisition of Pelagos will generate opportunities for the company to expand its business worldwide.
The company expects year-over-year revenue growth of around 13.75%, to reach almost $8.1 billion in fiscal year 2013.
State Street, with its servicing and trading fee, is expecting high growth opportunities which will drive the investors' confidence.
The Bank of New York Mellon’s service segment and its cost saving initiatives are generating a strong scope for future growth.
Franklin Resources, with its acquisitions, has adopted new alternative investment strategies, and the strong growth in Europe has encouraged it to expand globally.
Therefore, I recommend a Buy on these stocks.
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Shweta Dubey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!