BT Investment Management Ltd might not be the best fund manager to buy

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Shares in BT Investment Management Ltd (ASX: BTT) climbed 2% to $11.45 today after the money manager posted a mixed updated for its J O Hambro Capital Management (JOHCM) international business and BT Investment Management Australia (BTIM) divisions.

As at the end of December 2015 the BT group had $78.4 billion of funds under management, with the JOHCM international division expected to book performance fees of $37.6 million for the 2015 calendar year.

For the most recent quarter JOHCM also experienced net fund inflows of $900 million, with BTIM suffering net outflows of $400 million due in part to net outflows in the cash and fixed interest fund offerings.

The BT group operates a boutique business model common to many fund managers and posted a record profit result in the last financial year thanks to an 18% increase in FUM and 28% increase in management fees. The growth driver has been the JOHCM international business, which posted FUM inflows of $6.2 billion over the year.

According to analysts’ estimates for earnings per share of 65 cents in FY16 the group trades on around 17x estimated forward earnings, with a growth strategy centred around improving margins and distribution channels. The opportunity to expand into new markets has also worked in the past and is on the agenda.

Given its international exposure and solid track record, BT Investment remains one of the better money managers on the ASX, although its high operating cost to income ratio of 61% is typical of most fund managers and reduces its operating leverage and investment appeal.

At current prices I would prefer Magellan Financial Group Ltd (ASX: MFG) or Macquarie Group Ltd (ASX: MQG) for long-term growth and income.

Magellan recently posted another bumper month of retail FUM growth and with the advantages of far higher profit margins and a founder led focus it deserves its higher valuation at $25.90 per share in my opinion.

Macquarie may also interest value-oriented investors as at $75.50 it trades on a reasonable multiple of earnings with an attractive dividend, particularly after the global equity markets sell off so far in 2016.

Macquarie continues to reposition its business model for the future and shares look an attractive opportunity providing you do not expect Western equity markets to fall further over the year ahead.

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Motley Fool contributor Tom Richardson owns shares of Macquarie Group Limited and Magellan Financial Group.

You can find Tom on Twitter @tommyr345

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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