By CIARAN MCEVOY Staff Reporter
A surging stock market and rising investor confidence boosted the balance sheets of local money management firms and helped clients earn a cushion to endure this year’s market volatility.
The biggest money management firms on the Business Journal’s list, ranked by total assets under management in Los Angeles County, posted a 15.5 percent increase in 2017. The 100 companies on the list combined for $4.2 trillion in assets under management, a $565 billion gain from the year prior.
Topping the list again is downtown-based Capital Group, where assets under management rose 20.3 percent to $1.8 trillion. Guggenheim Partners Investment Management, No. 2 on the list, reported assets under management of $250.8 billion at its Santa Monica office, an increase of 19.9 percent from 2016’s numbers.
Rounding out the top five are Pasadena-based Western Asset Management Co., which fell one spot to No. 3 with $236 billion in assets, up 6.3 percent; downtown-based TCW Group Inc., at No. 4 with $204.6 billion, a gain of 6.8 percent; and Primecap Management Co., ranked No. 5 with $135.3 billion, a 27.3 percent increase.
“It was one of the strongest years ever for the L.A. market,” said Michele Havens, Los Angeles regional president for Northern Trust, No. 41 on the list. Its local office reported $8.3 billion in assets under management, an increase of 7.8 percent.
Some money managers in Los Angeles said the market’s 3,000-mile distance from the financial epicenter of Wall Street can be an advantage in terms of perspective.
“The further you get from Wall Street, the easier it is to look long term and not get distracted by the noise,” said Gregory Padilla, a principal and portfolio manager at Westside-based Aristotle Capital Management, which is ranked No. 33 on the list. The firm’s assets under management were $15.1 billion, a yearly gain of 36.3 percent.
Padilla pointed to Warren Buffett, nicknamed “The Oracle of Omaha,” as an example.
“You don’t need to be in New York to thrive in this business,” he said.
Local firms nevertheless benefited from the gains in New York-based indexes.
The Standard & Poor’s 500 Index gained 19.4 percent last year, its best annual performance since 2013.
The Russell 2000 Index, comprised of smaller companies, rose 13.1 percent in 2017.
Some markets outside the U.S. fared better. The iShares MSCI emerging markets exchange traded fund, a popular New York-based fund with investors, gained more than 37 percent last year.
A sharp market correction beginning in late January followed by uncertainty over interest rate hikes, inflation and U.S.-China trade tensions, has muted market gains so far in 2018. The S&P 500 is up around 2 percent so far this year.
The yield on the U.S. 10-year Treasury note has risen to more than 3 percent, up from 2.41 percent at the start of the year, stoking inflation fears.
The correction and volatility haven’t knocked basic conditions for economic growth off course, according to Padilla.
“The underlying business fundamentals did not change much,” he said. “In the real world, things are going extremely well. You’re seeing organic growth across multiple industries.”
The threat of a deepening trade dispute with China, the potential for greater regulation of big technology companies such as Facebook Inc. and Alphabet Inc. subsidiary Google, and a stronger dollar that hurts U.S. companies selling goods overseas tend to hurt equities.
But juxtaposed alongside that are strong corporate earnings, with total earnings in the first quarter of 2018 for S&P 500 companies expected to be 24 percent on an 8.6 percent gain in revenue, according to Chicago-based Zacks Investment Research. The recent tax reform law has been credited for boosting earnings.
“You’ve got this interesting tension going on,” said Hal Reynolds, chief investment officer at Westside-based Los Angeles Capital Management and Equity Research. The firm, with $29.9 billion in locally-managed assets, a 33.6 percent annual gain, is No. 21 on the list.
But, he added, clients are getting more used to absorbing news stories, meaning they’re getting more used to hearing volatile news out of Washington, D.C.
Competitive pressures remain in the industry, particularly as some investors ditch active advisory firms, which charge higher rates, for low-fee passive investing firms such as Vanguard Group of Malvern, Pa., that match market returns, Reynolds said.
The overall tone from these firms, however, remains bullish.
“We believe the (better) performance is going to come in the second half of the year,” said Todd Morgan, chief executive of Century City-based Bel Air Investment Advisors, No. 39 on the list with $10.5 billion in assets, a gain of 59.2 percent from the previous year.
Some local firms have added staff while others, such as Tortoise, which is headquartered in Leawood, Kan., but has an office downtown, is looking to hire, Brad Beman, its chief investment officer said.
“We’re definitely looking to grow our business,” he said.
Assets under management at Tortoise’s local office slipped slightly by 0.5 percent to $4.08 billion.
