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Morningstar’s Q2 2024 US Asset Managers Industry Pulse Study

Revenue growth and profitability are recovering as AUM levels have improved, and this has been fully reflected in company share prices.


Key Takeaways

  • The rally in the US equity markets since the end of October 2023 has left traditional asset managers close to our fair value estimates.

  • Trading multiples for the traditional asset managers have recovered to more normalized territory after the rally seen in the equity markets.

  • For alternative-asset managers, the recovery in the US equity markets has pushed most of the group above our fair value estimates.

  • This has left the trading multiples for alternative-asset managers stretched as the near-term outlook remains murky.

As the financial landscape rapidly evolves, so do the challenges and opportunities that asset managers experience. Since the end of October 2023, the US equity markets have rallied 28%, lifting asset manager valuations close to our fair value estimates. Traditional asset managers are enjoying an improvement in traditional funds flows (albeit still in outflow mode), while alternative asset managers have seen an uptick in fundraising.

When you’re up to date on the latest Q2 2024 industry trends, it can improve your ability to financially empower clients and help them reach their goals. Our Morningstar research takes an in-depth look at the unique challenges and opportunities for both the traditional and the alternative managers.

To read the full research report, download a copy.

Outlook for Traditional Asset Managers

The rally in the equity markets has lifted traditional asset manager valuations but secular headwinds persist for this part of the industry. Here’s what traditional asset managers need to know.

Expectations for moderating inflation and lower short-term rates have lifted US equity markets

The US equity markets have waxed and waned with the expected direction and magnitude of potential changes in short-term interest rates since the start of 2022, and we're nowhere near the end of that cycle.

Market expectations for the path of the federal-funds rate have shifted upward in recent months in response to an upside surprise in inflation and economic activity. Longer-run bond yields have also risen noticeably, implying the market is not just expecting delayed rate cuts, but fewer of them cumulatively.

We continue to forecast that inflation will moderate over the course of 2024 and move closer to more normal levels in 2025-26. This should give the green light to the Fed to cut rates aggressively over the next couple of years, which should be good for both the equity and bond markets.

Line graph showing benchmark performance of stocks, bonds, and commodities from Q1 2020 to Q1 2024.

US stocks have risen 28% in the past six and a half months, lifting the AUM levels of most managers.

Fund flows, AUM growth, and share price performance track market returns

Having risen during much of 2020-21, share prices for traditional asset managers sold off during 2022 as both the credit and equity markets declined double digits. The rally in the US equity markets the past couple of quarters has lifted their fortunes, but not enough to recoup what they lost during 2022-23. Going forward, AUM growth will be hampered by continued outflows from actively managed funds—making traditional asset managers even more reliant on market gains to drive AUM growth in the future.

On top of that, revenue growth will not fully recover until the traditional asset managers see their AUM revert to pre-2022 levels, which in most cases won’t happen until 2024 or early 2025. With ongoing fee compression only adding to the drag on top-line growth, there will be a dampening effect on profit margins, given the operating leverage inherent in the business models of the traditional asset managers.

Line graph showing AUM and market values versus key market and industry benchmarks from Q1 2020 to Q1 2024.

Share prices tend to track the main equity market indexes more closely than changes in AUM.

Fee compression continues to be an issue

The traditional asset managers we cover have not seen their management fees decline as dramatically as the rest of the industry because they were historically priced below average industry rates for active funds, putting less pressure on them to lower fees. We’ve also seen firms acquire or build offerings with higher fee points that are less susceptible to the growth of passive products, a trend we expect to continue in 2024.

BlackRock, T. Rowe Price, and Federated Hermes have seen below average levels of fee compression due to product mix shift, while Affiliated Managers Group, AllianceBernstein, Janus Henderson, and Cohen & Steers have been affected less by industry wide fee compression owing to the niche positioning of some of their core offerings.

Line graph showing quarterly annualized realization rates from Q1 2020 to Q1 2024.

Both Invesco and Franklin Resources have seen their fees decline more than the group average and actively managed funds overall.

Outlook for Alternative Asset Managers

The rally in the equity markets has lifted alternative-asset manager stock price performance above that of the traditional asset managers. Dive deeper into our key considerations for alternative asset managers.

Mark-to-model valuations is helping smooth fund performance

Almost all alternative fund performance took off after the covid-19 pandemic due to a combination of strong equity market returns and a huge fundraising and deployment cycle. Fund returns pulled back during 2022-23, but the use of mark-to-model valuations tend to smooth returns during more volatile markets like we saw during those years.

That said, the historical outperformance of alternative funds relative to traditional offerings has not always translated into above-average stock performance. The hit that the shares of the alternative managers took during the 2022 selloff demonstrated how highly correlated these stocks can be to market returns. We witnessed this again in 2023-24 as the equity market rally drove alternative manager stocks significantly higher.

Bar graph showing cumulative return of alternative segments from Q1 2020 to Q1 2024.

Using mark-to-model valuations helps smooth returns for private-market segments during more volatile markets like we saw during 2022-23.

Private capital fundraising is already on pace to surpass 2023 levels

Private equity remains the largest alternative-asset category and continues to lead fundraising efforts in terms of capital raised at the strategy level, accounting for 57% of total fundraising on average the past four years.

While 2023 fell short of being another record year of fundraising for the private capital markets, there was a meaningful uptick in the back half of the year. Based on results from the first quarter of 2024, we would expect this year to not only surpass 2023 but quite possibly 2022 (with that year's $1.5 trillion being the second-highest annual raise ever behind the $1.7 trillion haul brought in during 2021).

Bar graph showing capital raised by the five largest alternative-asset managers and all others from 2020 to 2024.

Private equity continues to lead fundraising efforts for alternative- asset managers.

Alternative-asset managers are sitting on significant amounts of dry powder

With deployments slowing across the industry, the private equity segment closed out March 2024 with $7.0 trillion in fee-earning AUM and $2.3 trillion in dry powder (compared with $6.6 trillion and $2.3 trillion at the end of 2023).

Much like we've seen with fundraising, the five largest publicly traded alternative-asset managers have increased their share of both total capital invested and dry powder since the covid-19 pandemic. At the end of March 2024, these firms—Blackstone, Apollo Global Management, KKR, Carlyle Group, and Ares Management—accounted for 21% of total capital invested, as well as the industry's dry powder, due to their large fundraising hauls in 2019-22.

Bar graph showing dry powder held by largest alternative-asset managers from 2020 to Q1 2024.

The five largest publicly traded alternative-asset managers have increased their share of both total capital invested and dry powder since the pandemic.

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In a constantly changing asset management industry, it’s important for asset managers to stay ahead and demonstrate their value. When you know the latest trends, you can better support your clients.

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