Showing posts with label asset management. Show all posts
Showing posts with label asset management. Show all posts

Wednesday 20 July 2016

A Guided Tour of the Market 5

Asset Management and Insurance

With huge margins and constant streams of fee income, asset managers are perennial profit machines. However, these companies are so tied to the markets that their stock prices often reflect oversized doses of the current optimism or pessimism prevailing in the economy, which means it pays off to take a contrarian approach when you're thinking about when to invest.

Asset management firms run money for their customers and demand a small chunk of the assets as a fee in return. This is lucrative work and requires very little capital investment. The real assets of the firm are its investment managers, so typically compensation is the firm's main expense. Even better, it doesn't take twice as many people to run twice as much money, so economies of scale are excellent.

The single biggest metric to watch for any company in this industry is assets under management (AUM), the sum of all the money that customers have entrusted to the firm. Because an asset manager derives its revenue as a percentage of assets under management, AUM is a good indication of how well – or how badly – a firm is doing.

Investors should look for asset management companies that are able to consistently bring in new money and don't rely only on the market to increase their AUM. Look for new inflows (inflows higher than outflows) in a variety of market conditions. This is a signal that the asset manager is offering products that new investors want and that existing investors are happy with the products they have.

Given the commodity-like products of the life insurance industry, it is next to impossible for one insurer to successfully grow – without acquisitions – above the industry's long-term annual revenue growth rate.

http://books.danielhofstetter.com/the-five-rules-for-successful-stock-investing/

Friday 22 June 2012

Investor's Checklist: Asset Management and Insurance

Look for diversity in asset management companies.  Firms that manage a number of asset classes - such as stocks, bonds, and hedge funds - are more stable during market gyrations.  One-hit wonders are much more volatile and are subject to wild swings.

Keep an eye on asset growth.  Make sure an asset manager is successful in consistently bringing in inflows greater than outflows.

Look for money managers with attractive niche markets, such as tax-managed funds or international investing.

Sticky assets add stability.  Look for firms with a high percentage of stable assets, such as institutional money managers or fund firms who specialize in retirement savings.

Bigger is often better.  Firms with more assets, longer track records, and multiple asset classes have much more to offer finicky customers.

Be wary of any insurance firm that grows faster than the industry average (unless the growth can be explained by acquisitions).

One of the best ways to protect against investment risk in the life insurance world is to consider companies with diversified revenue bases.  Some products, such as variable annuities, have exhibited a good degree of cyclicality.

Look for life insurers with high credit ratings (AA) and a consistent ability to realise ROEs above their cost of capital.

Seek out property/casualty insurers who consistently achieve ROEs above 15 percent.  This is a good indication of underwriting discipline and cost control.

Avoid insurers who take repeated reserving charges.  This often indicates pricing below cost or deteriorating cost inflation.

Look for management teams committed to building shareholder value.  These teams often have significant personal wealth invested in the businesses they run.



Ref:  The Five Rules for Successful Stock Investing by Pat Dorsey


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Investor's Checklist: A Guided Tour of the Market...