Are Asset Managers More Profitable When SWFs Invest in Them?

It is no secret that listed asset managers and private equity firms are in the business of managing money for fees. In recent years, a number of sovereign wealth funds have been taking large stakes in investment firms. Some examples include the China Investment Corporation in Blackstone and Morgan Stanley, Mubadala in the Carlyle Group, Kuwait Investment Authority in Blackrock, etc. Note that in general the effect of the financial industry downturn, industry consolidation, fund product specialization, and increases in bringing investments in-house has had a significant impact in the asset management fee business.

Are investment firms more likely to be profitable when invested by a sovereign investor, or is it really the case of any large institutional investor? When SWFs invest in the actual asset manager, is there pressure to lower management fees?

Sovereign wealth funds investing in the asset management business may not want fees to be lowered, since they are investing in the business. With that being said, there is no way to track if management fees were scaled back directly, if the SWF decided to invest in a fund operated by the manager.

The below is not a scientific study but an observation:

On September 20, 2007, Mubadala invested $1.35 billion for a 7.5% stake in The Carlyle Group. They also committed $500 million to a Carlyle Fund. Mubadala was anticipating an IPO from the Carlyle Group soon, so they amped their stake in the middle of December 2010.

Data in USD Millions FY 2008 FY 2009 FY 2010
Fund Management Fees $811.40 $788.10 $770.30
Fee-Earning Assets Under Management (at period end) $76,326.40 $75,410.50 $80,796.50
Fund Mgmt Fees / Fee-Earning AUM 1.063% 1.045% 0.953%

Source: SEC Filings – The Carlyle Group

With publicly-traded asset managers (majority non-alternative) the relationship or correlation is non-existent, see below. We postulate the downturn had more to do with profit margins compressing in FY 2010. Sell-side analysts think profit margins will increase in the projected fiscal years.

Select Publicly-Traded Investment Managers – Profit Margins
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