Asset Managers: Compensation and Performance

11 / 25 / 2015
by Charles Skorina | Comments are closed

Asset Managers: Compensation and Performance (Part I)

As recruiters we work both sides of the investment-management street: serving not-for-profits like foundations and endowments, and also fee-based (and mostly for-profit) money managers.

Those fee-based managers, especially the big ones, are newsworthy because they invest a lot of money for a lot of customers, including non-profits investors.  They’re closely watched by business reporters and financial analysts, who are always hunting for breaking news that might move the markets.

We have a different focus: we are more interested in the market for executive talent than in the markets for investable assets and we’ve been looking at the money-managers from that angle for quite a while.  Ultimately, we want to understand how the performance of their CEOs and senior managers is judged, how they are compensated, and why they are hired and fired.

We begin with a list of 36 publicly-traded, fee-based U.S. asset managers.  Most money managers are private and keep their compensation data away from prying eyes like ours.  Which means that our list includes a substantial sample of all publically listed asset management firms in the US, the only public and comprehensive source for the data we need.

However, we think the $16.5 trillion managed by our 36 SLAM firms is a useful proxy for judging executive performance.

From a headhunter’s point of view our 36-company SLAM list is intimate enough so we will be able to examine in detail (and almost real-time) the performance of individual CEOs as they try to turn AUM into revenues and earnings for their stockholders.

It’s also the starting point for an analysis of their asset flows, revenues, earnings, and management performance which we’ll roll out in subsequent letters.

Here’s our Skorina Listed Asset Manager List -the SLAM list.

SLAM Rank AUM

Towers Watson Rank

Asset Manager

Ticker

AUM 6/30/15

$ bns

1

1

BlackRock

BLK

$ 4,721.3

2

5

JP Morgan Chase AM

JPM

$ 1,780.0

3

6

BNY Mellon AM

BK

$ 1,724.0

4

12

Franklin Resources

BEN

$ 866.5

5

14

Invesco

IVZ

$ 803.6

6

16

T. Rowe Price

TROW

$ 773.0

7

17

Legg Mason

LM

$ 699.2

8

22

Affiliated Mgrs Grp

AMG

$ 642.7

9

23

Principal Fin Grp

PFG

$ 539.9

10

AllianceBernstein

AB

$ 485.1

11

18

Morgan Stanley IM

MS

$ 403.0

12

26

Federated Investors

FII

$ 349.7

13

27

Eaton Vance

EV

$ 312.6

14

28

Blackstone

BX

$ 332.7

15

OldMutual AM

OMAM

$ 226.6

16

35

Lazard AM

LAZ

$ 203.1

17

Carlyle Group

CG

$ 192.8

18

38

Janus Capital Grp

JNS

$ 189.5

19

Apollo Global Mgmt

APO

$ 162.5

20

47

Waddell & Reed

WDR

$ 120.7

21

Financial Engines

FNGN

$ 114.5

22

52

Artisan Partners AM

APAM

$ 109.2

23

Oaktree Capital

OAK

$ 103.1

24

54

KKR

KKR

$ 101.6

25

63

Ares Management

ARES

$ 87.5

26

65

Fortress Invest Grp

FIG

$ 72.0

27

WisdomTree

WETF

$ 61.5

28

77

Cohen & Steers

CNS

$ 50.1

29

Och-Ziff CM

OZM

$ 46.5

30

87

GAMCO Investors

GBL

$ 43.1

31

85

Manning & Napier

MN

$ 43.1

32

117

Pzena IM

PZN

$ 28.0

33

135

Calamos AM

CLMS

$ 24.4

34

Silvercrest AM

SAMG

$ 19.0

35

154

Diamond Hill IM

DHIL

$ 16.7

36

Hennessy Advisors

HNNA

$ 6.1

Total

$ 16,454.9

What’s an asset manager and who’s counting?

It’s not easy to accurately determine how many asset managers there are in the world and how much money they manage.

Central bankers and academics have been looking harder at these firms post-2008, worried about their role in global financial stability.

Andrew Haldane, chief economist for the Bank of England, noted in a speech in April, 2014 titled The Age of Asset Management that: “Academics, practitioners and regulators have been studying banks, their behavior and failure, for several centuries.  Analyzing and managing the behavior of asset managers is, by contrast, a greenfield site.”

Also, see Chapter 3 of the IMF’s Global Financial Stability Report, April 2015: Asset Management Industry and Global Stability which tackles the subject in greater depth:

https://www.imf.org/External/Pubs/FT/GFSR/2015/01/pdf/c3.pdf

In his speech Mr. Haldane cited the Towers Watson Top 500 List as a reliable source for global asset managers, and we concur.  We always pay attention when TW rolls out their annual list, which they just did.  And, since it’s directly pertinent to our own research, let’s take a quick look at the 2015 edition (using data for 2014 year-end).

Two important points:

01 TW’s 500 firms now manage a global total of $78.1 trillion.

02 The U.S. houses 139 of them and they manage $41 trillion, more than half the global total AUM.

The U.S. is more than holding its own in this global industry.  In just the eleven years 2004-2014 U.S. asset managers have increased their share of global AUM from 41 to almost 60 percent.  Some of that is organic growth in the U.S, but some of it has been subtracted from the Swiss, Japanese and UK managers.

The TW 500 is a well-respected list, but how complete is it?  If the top 500 managers have $76 trillion, then how much more would we find if we listed the next 100, or the next 500?

The short answer is: although there are a lot more than 500 asset-managers in the world, the TW list doesn’t miss very much AUM relative to that colossal total.

We note that some big firms like Man Group (a UK hedge-fund manager with about $42 billion AUM) and TPG (a major U.S. private-equity player with about $75 billion AUM) are omitted from the TW500 (along with quite a few other mid-sized HF and PE managers).  But other, similar, firms like KKR and Bridgewater are included in the TW list.  We’re not sure why.  But these inconsistencies probably don’t distort global AUM very much.

Various other sources and our own research suggest that there are thousands of significant fee-based asset managers in the world including those on the TW list with a current grand total AUM well over $80 trillion.

So, we think TW’s $78 trillion is a bit on the low side.  But the distribution of global AM firms is so long-tailed that the TW 500 still captures the lion’s share of AUM dollars.

PWC (PriceWaterhouseCooper), in a white paper published this spring, gives us a useful upper bound for these global AUM estimates. 

See: http://www.pwc.co.za/en/press-room/asset-manage.html

They predict that global managed AUM might be $100 trillion by the year 2020.  If we discount that number at 2 percent per year back to 2014, and add back a few trillion dollars out in the hard-to-count long tail of the distribution, we get a number that’s pretty close to TW’s.

What does that mean for our SLAM list?

We think TW’s $41 trillion AUM for 139 U.S. asset managers is a decent, conservative estimate for U.S. total AUM, and only a little on the low side.

That means that the $16.5 trillion AUM in our SLAM list captures about 40 percent of total managed assets for U.S.-domiciled firms.  That’s despite the fact that our 36 firms are only a fraction (probably less than 5 percent) of U.S firms managing over $3 billion AUM (when all the smaller hedge funds are counted).

As we mentioned above, our SLAM asset managers are important to us because they are exchange listed and subject to public reporting requirements.  So we can get our hands on enough data to do meaningful analysis on performance, compensation, and executive effectiveness.

On a global level, our 36 SLAM firms manage about 21 percent of the world’s total AUM.

Although we’ve chosen to include some relatively small firms, we also include some of the global giants.  This is deliberate.  In order to develop a framework for evaluating executive performance and pay, we wanted to have a representative group by both size and asset-type.  But in aggregate the SLAM list clearly punches far above its 36-company weight.

This also implies that the aggregate asset flows, revenues and profitability of the SLAM firms measured from period to period should be broadly representative of the global asset-management business.

Our own broad-minded position is: anybody who manages money on a full-discretion basis and charges a fee for that service, is an asset manager.  Regardless of what specific vehicle or strategy they employ — listed mutual funds/ETFs, separately-managed accounts, private equity, hedge funds, CTAs, or whatever — they are all “asset managers” in our book.

All-in CEO Earnings:

Let’s cut to the chase: who manages our SLAM firms and how much do they make?

CEOs and other “named executive officers” must reveal their annual compensation in a format prescribed by the SEC: the Summary Compensation Table, or SCT.  But it doesn’t always reveal everything about what a CEO actually takes to the bank.

Some listed asset managers, primarily the private-equity and hedge-fund firms, have complex structures which include partnerships nested inside or parallel to the SEC-registered entity.

If a CEO has partnership money in investment vehicles he may be receiving return on his capital which is not considered “compensation” by the SEC.  These earnings may be listed as an “other” item in the SCT, but not always.  Partnership profits or return of capital may also be disclosed in a footnote outside the SCT proper.

Also, some CEOs have very large holdings in their publicly-listed shares, which garner very large dividend payouts.

We’ve tracked down these items as best we can and include them in this table.  It sets out both official SCT comp and our “all-in” earnings totals.

(There are 38 lines in this table instead of 36, because two of our firms have a pair of co-CEOs):

CEO Compensation: Summary Compensation Table & Other Sources

CEO Name

FIRM

SCT

Comp

$000

Divids 

$000

Invest

Profit

& Return Capital

$000

FY14

Total SCT Comp

&

Other

$000

Conway, William E., Jr.

Carlyle

282

95,100

247,700

$343,082

Black, Leon

Apollo

274

268,000

62,400

$330,674

Och, Daniel S.

Och-Ziff

1,142

270,249

$271,390

Rubenstein, David M.

Carlyle

282

98,200

132,300

$230,782

Ressler, Antony P.

Ares

4,304

113,291

$117,596

Gabelli, Mario J.

GAMCO

88,518

172

$88,690

Schwarzman, Stephen

Blackstone

85,889

$85,889

Kravis, Henry

KKR

64,451

$64,451

Roberts, George

KKR

64,375

$64,375

Fink, Laurence D.

Blackrock

23,862

9,626

$33,489

Bhutani, Ashish

Lazard AM

20,959

457

$21,415

Johnson, Gregory E.

Franklin Res

15,904

1,968

$17,872

Fleming, Gregory J.

Morgan Stanley

17,441

175

$17,615

Flanagan, Martin L.

Invesco

15,622

482

$16,104

Wintrob, Jay

Oaktree

15,711

$15,711

Steers, Robert H.

Cohen & Steers

3,124

12,478

$15,602

Erdoes, Mary Callahan

JP Morgan AM

15,600

–  

–  

$15,600

Faust, Thomas E., Jr.

Eaton Vance

11,247

2,329

–  

$13,576

Arledge, Curtis Y.

BNY Mellon AM

11,937

425,315

–  

$12,363

Sullivan, Joseph A.

Legg Mason

11,549

161,618

–  

$11,710

Bain, Peter L.

OldMutual AM

11,427

$11,427

Kennedy, James A.S.

T. Rowe Price

8,902

2,492

$11,394

Zimpleman, Larry D.

Principal Fin Grp

9,370

361

$9,731

Weil, Richard M.

Janus

8,148

565

$8,713

Pzena, Richard S.

Pzena IM

2,372

6,310

$8,681

Herrmann, Henry J.

Waddell & Reed

7,687

$7,687

Kraus, Peter S.

Alliance

Bernstein

6,786

$6,786

Colson, Eric R.

Artisan Partners

6,624

$6,624

Raffone, Lawrence M.

Financial Engines

5,507

$5,507

Healey, Sean M.

Affiliated Mgrs

5,370

$5,370

Calamos, John P., Sr.

Calamos AM

4,525

624

$5,150

Steinberg, Jonathan L.

Wisdom

Tree

4,381

511

$4,891

Donahue, Christopher

Federated Inv

3,658

$3,658

Hennessy, Neil J.

Hennessy Advisor

2,438

279

$2,717

Nardone, Randall A.

Fortress

2,536

$2,536

Dillon, Roderick H., Jr.

Diamond Hill IM

1,035

1,038

–  

$2,073

Hough, Richard R.

Silvercrest AM

1,375

–  

–  

$1,375

Cunningham, Patrick

Manning
& Napier

1,012

156

–  

$1,168

As this table suggests, there’s a big difference between a “hired hand” CEO on one hand; and a founder or partner who effectively owns a big chunk of the firm, but also functions as a CEO.

The two kinds of compensation are conceptually different even though accounting and regulatory conventions don’t always clearly set them apart.

There’s also the special case of an active founder/principal who is not officially an executive officer.

For example, Jay Wintrob was recently hired as CEO of Oaktree (which previously had no official CEO).  He has a very nice comp package, but he’s not making founder-type money.

Founder and co-chairman Howard Marks is the man most closely identified with the firm and undoubtedly banks a lot of money every year as return on his invested capital.  But he’s not an executive officer and his earnings are not disclosed in the firm’s proxy statements.

Founders and principals in these firms usually can’t be fired by an independent board like garden-variety CEOs in conventional public companies.  But that doesn’t mean that outside stockholders can’t indirectly reward or punish them.  They can walk away from an underperforming company and drive stock prices down to embarrassing levels. (Or, vice-versa in the case of a high-performer.)

We’ll consider all this in Part Two.  And, as promised, we’ll present our analytics and delve deeper into the asset flows, revenues and profits of these firms.

Watch your mailboxes for the next installment.