2016年-FCA英国金融行为监管局_ms15_2_2_annex_8_23页_808kb

Summary of MS 15/2.2: Annex 8 - Profitability Analysis

Core Content

This document presents an interim report on the profitability analysis of UK asset management firms conducted by the Financial Conduct Authority (FCA). The analysis aims to understand the business models of these firms and assess how profitability reflects the competitive dynamics of the sector.

Main Reasons for Profitability Analysis

1. Understanding Business Models: To analyze the relationship between revenue, costs, and profits across firms, considering factors such as firm size, client base, investment strategy, and asset class.
2. Assessing Market Competition: To evaluate whether high and sustained profitability indicates a lack of effective competition in the sector, based on economic theory that suggests competitive markets should have profit margins aligned with cost efficiency.

Data Overview

• The analysis is based on a sample of 16 firms (2010–2014) and 14 firms (2015).
• Total AUM in 2015: £4.4 trillion.
• Total revenue in 2015: £13 billion.
• Total operating profits in 2015: £5 billion.
• UK AUM covered: Around £3 trillion, which is just over half of the market.

Revenue Sources

• Primary Revenue Streams:
  • Investment Management Fees: Charged for managing segregated mandates.
  • Asset Management Charges: Charged for managing pooled funds.
  • Performance Fees: Earned based on fund performance, either gross or net.
• Revenue Composition:
  • Investment management fees and asset management charges account for the majority of revenue.
  • Only three firms derive more than 5% of revenue from performance fees, with two generating over 14%.
  • Performance fee income for 11 firms averages £463 million per year, while gross performance fees average £54 million per year.

Main Cost Categories

• Staff Costs:
  • Make up 56% of total costs, ranging from a third to two-thirds of total cost.
  • Frontline staff wage cost accounts for about 15% of total costs.
  • Bonus payments make up around 25% of total costs.
• Non-Staff Costs:
  • Include logistics costs (e.g., office, IT, marketing) and payments to third parties and platforms.
  • Logistics costs make up 15% of total costs, with third-party and platform payments accounting for 40% of non-staff costs.

Impact of Scale on Profitability

• Economies of Scale: As AUM increases, cost per £ AUM decreases, indicating economies of scale.
• Revenue per £ AUM: Falls as AUM increases, but at a slower rate than cost per £ AUM, leading to higher operating margins.
• Absolute Profit: Increases with AUM, suggesting that larger firms tend to be more profitable.

Impact of Customer Group, Investment Strategy, and Asset Class

• Institutional vs. Retail Clients:
  • Revenue per £ AUM is higher for retail than institutional (excluding pensions).
  • This suggests that larger institutional clients may drive lower revenue per £ AUM.
• Active vs. Passive Management:
  • Active strategies may have different profitability implications compared to passive ones.
• Asset Classes:
  • Profitability varies by asset class, with some classes contributing more to overall profitability.

Disposable Revenue Analysis

• Definition: Disposable revenue is the profit available for sharing between frontline staff and shareholders.
• Estimation Scenarios:
  • Scenario 1: Frontline staff cost is 50% of total bonus pot.
  • Scenario 2: Frontline staff cost includes all wages and a proportion of the bonus pot.
  • Scenario 3: Frontline staff cost includes all wages and the entire bonus pot.
• Disposable Revenue Margins:
  • Estimated to be in the 30%–70% range, significantly higher than operating profit margins.
  • This highlights the potential for higher economic profits being shared between staff and owners.

Trend Analysis

• Revenue, Cost, and Profit Trends:
  • All three metrics have increased over time for most firms.
  • The increase is strongly correlated with rising AUM.
• Operating Profit Margins:
  • Average operating margin across the sample is 34–39% between 2010 and 2015.
  • About half of the firms show flat margins, while others show growth.
• Cyclicality:
  • The sample period (2010–2015) is not long enough to conclusively assess cyclicality.
  • However, firms appear to be able to trim costs during downturns, maintaining profitability.

Return on Capital Employed (ROCE)

• ROCE Calculation:
  • ROCE is defined as operating profit divided by employed capital.
  • Estimating economic capital is challenging due to high intangible assets.
• Benchmarking:
  • ROCE is compared to the weighted average cost of capital.
  • High ROCE across a large portion of firms suggests potential limitations in market competition.

Presentation of Results

• Averages and Ranges:
  • Averages are used to reflect industry-wide performance while protecting confidential information.
  • Where there is significant variance, ranges and levels of variance are noted.
• Methodology:
  • Averages for percentage variables (e.g., margin) are calculated using asset-weighted or money-weighted methods.

Challenges and Limitations

• Data Granularity:
  • Firms could not provide data at the fund level due to IT and management accounting constraints.
  • This limited the ability to assess profitability at a granular level.
• Time Period:
  • The analysis was based on 6 years of data (2010–2015) due to IT legacy issues.
  • This may obscure large losses during market downturns, though trend analysis helps mitigate this.

Conclusion

• The profitability analysis indicates that asset management firms generally maintain high and stable profit margins.
• Scale has a positive impact on profitability, with larger firms showing better economies of scale.
• Frontline staff play a crucial role in profitability, with their costs and remuneration structures significantly influencing disposable revenue.
• Cyclical behavior is less evident in diversified firms, suggesting resilience to market downturns.

References

• Data sources include Bloomberg and FCA.
• The analysis compares operating margins to those in other industries, showing that asset management firms tend to have higher margins.

This summary encapsulates the key findings and structure of the profitability analysis of UK asset management firms, highlighting the interplay between scale, cost structure, revenue streams, and market dynamics.