Since the recession hit the U.S. economy, rising unemployment has been a serious problem, and interest rates have remained incredibly low. This changed the focus of people towards stocks that could provide regular income to run their households. Dividend giving companies have been the main focus for these investors. Also, retired individuals and older people in the U.S. also focus on regular income providing companies rather than growth companies, to meet their day to day expenses.
The economic recovery is increasing the asset management industry’s profitability, but there are challenges as well. The assets under management will increase in the coming years, but only firms that change their policies according to the changing environment will be able to get the benefit.
There has been a slight recovery in the industry during the last year. Disturbed financial markets, new laws, more demanding investors and increasing competition for talent are making profitable growth difficult to achieve.
The financial crisis and its aftereffects have highlighted the risks of asset managers. The increased linkage between credit, market, liquidity and valuation risks stress the need for more adaptive approaches to investment risk management. As a result, managers are beginning to follow an enterprise wide approach to risk.
Lazard Ltd (NYSE:LAZ), KKR & Co. L.P. (NYSE:KKR), and American Capital Ltd. (NASDAQ:ACAS) are the three main companies in the asset management industry that have charged higher fee yield despite the recession, based on their quality of service provided to investors. On the other hand, Legg Mason Inc (NYSE:LM), has been the most popular company and has the highest assets under management.
I have picked up the four dividend paying companies above to analyze in this report from an investment perspective. The report focuses on choosing the company with most favorable returns in the coming years.
Financial performance analysis
Source: Company Financials
In spite of the pressure on asset managers to reduce the fees charged from the large institutional investors, Lazard Ltd (NYSE:LAZ) was able to charge a high fee yield of 113 bps. The merger and acquisition advisory segment contributed the major portion of fee income as the company specializes in crafting solutions to the complex financial and strategic challenges of a diverse set of clients across the world. The value of Trans-Atlantic merger and acquisitions transactions announced in FY12 increased significantly by 24%. The American Capital Ltd. (NASDAQ:ACAS) and and KKR & Co. L.P. (NYSE:KKR) were next to report healthy fee yields.