The new tax law is a boon for asset managers and it’s already having a positive impact on fourth-quarter results, according to a new report from Moody’s Investor Services.
The median effective tax rate for 14 publicly traded asset managers included in the report has fallen from 30% to 24.3%, and companies have already revalued their deferred tax assets and lower liabilities to reflect their lower tax rates, the report notes.
Federated Investors, Cohen & Steers and Virtus Investment Partners saw the biggest decline in their tax rates — more than 9 percentage points — while OM Asset Management, Gamco Investors and T. Rowe Price saw the smallest drop, between 0.4 and 2.1 percentage points, and Legg Mason saw a slight increase, up 1.3 percentage points.
Overall corporate tax cuts represent a “significant savings for asset managers, giving them greater flexibility to carry out their capital management,” according to Moody’s. They also have “positive credit implications for the [asset management] sector” because investors will have more money to invest, increasing the demand for their products and services, the report notes.
That could help net inflows, which have been a weak spot for asset managers, according to Moody’s. Excluding BlackRock, flows fell 0.81%, between the fourth quarters of 2016 and 2017. Including BlackRock, they rose almost 4%.
BlackRock was the only asset manager with positive net inflows for the five quarters between December 2016 and December 2017, with flows up almost 9%. Waddell & Reed was the only firm to experience outflows during all five quarters, totaling almost 18%.
Of the 12 other asset managers included in the report — most of them with primarily actively managed funds — six saw positive flows during those five quarters; eight had negative flows.