Andrew Richards is a stock analyst who covers asset management firms for Morningstar, a Chicago-based investment research firm. Richards spoke to The Examiner last week about the strength of asset managers during an economic slowdown.
Q What does an economic slowdown mean to asset management firms?
A Certainly, if people invest less, that will affect them on the fund-flow side. With asset managers, their revenue is dictated by the size of assets under management. If the market goes up, their value goes up with it as long as they perform with the market. The other thing that can be affected by a down market is new sales, or getting people into these funds.
We value these companies with a long-term approach, as long as 10 years, and we assume there?s going to be a recession at some point.
Q What do you like about Baltimore firms T. Rowe Price and Legg Mason?
A T. Rowe Price is relatively protected due to the fact that so much of their assets are tied into long-term funds, like 401(k) plans. People would have to be really hard-pressed to liquidate their retirement plans, because they would probably go several other places before their 401(k). It?s going to be really hard to withdraw from these funds.
Legg Mason is little less protected, just because institutions represent a big part of their business. It?s a good thing for them that they now have a president and CEO in place [Mark Fetting succeeded Raymond “Chip” Mason last week]. He has a lot of industry experience and a lot of experience at Legg.
Q Is the collective financial health of asset managers a sign of a strong economy?
A Asset management firms tend to be lagging indicators rather than leaders. If people are worried about the economy and a possible recession, they?re taking money out of these accounts. The companies? performances can be seen as a result of the downturn, not a cause.
