Small and large, new and old, there's no shortage of investment managers for investors to choose from on the ASX.
The primary challenge for a money manager is to grow its funds under management (FUM), as revenues are charged as a percentage of FUM.
Rising equity markets are a powerful tailwind as just tracking an index should see total FUM grow in tandem with the market, on the flipside falling markets will have the opposite effect.
The other main way an investment manager can grow FUM is through net inflows, either via winning large institutional mandates, or through retail distribution channels like financial advisers.
For most fund managers the big money is generally made attracting institutional mandates. The key to winning these mandates is a strong businesses development team and good track record of past investment performance to impress potential clients.
Critical to success then is demonstrating past outperformance versus a benchmark, usually a major global index or local index like the S&P / ASX 200 (Index: ^AXJO) (ASX: XJO). Ironically, for an active manager just holding a portion of cash through falling markets can generate some of the best (and easiest) outperformance versus an equity benchmark.
Let's take a look at the relative strengths and weaknesses of some fund mangers available to ASX investors and consider which may offer the strongest returns in the years ahead.
AMP Limited (ASX: AMP)
Strengths: Strong distribution network, growth into China and solid dividend yield
Weaknesses: Low return on equity, life insurance business that has performed poorly in recent years
Overall rating: 3/10
BTT Investment Management Ltd (ASX: BTT)
Strengths: Just posted a strong quarter of FUM growth for Q1 2015, globally diversified with leverage to European stock markets at record highs
Weaknesses: Strength of global equity markets is reliant on continued low interest rates, Europe's rebound may prove temporary
Overall rating: 6/10
Macquarie Group Ltd (ASX: MQG)
Strengths: Innovative and adaptable with a strong reputation in its home market, asset management business is now core earnings driver
Weaknesses: More than just an asset management business, capital-markets businesses especially cyclical in nature
Overall rating: 8/10
Magellan Financial Group Ltd (ASX: MFG)
Strengths: Strong investment and sales teams, cost light and strong FUM growth, the stock's 5-year return an impressive 1,863% rise
Weaknesses: Expensive valuation means it could fall further than most in event of sustained downturn in equity markets
Overall rating: 9/10
Perpetual Limited (ASX: PPT)
Strengths: Fund management team has good reputation for stock picking in Australian equity space and solid investment performance
Weaknesses: Patchy history and inability to grow FUM at a decent rate has contributed to the stock's price rising an embarrassing 7% over the last 10 years (despite the recent five-year equity bull market)
Overall rating: 2/10
So it looks like Magellan may be the best option for long-term investors, where the investment team are known to be fans of the great Warren Buffett..
