Asset management is an industry that Fengyunjun has always been concerned about.

Because the buyer's point of view often has some originality, another point is that the asset management industry is very mysterious, there is a feeling that the dragon does not see the end.

Brothers, looking through the data of large companies such as Apple Inc and McDonald's Corp, will find that two names often appear among the major shareholders: one is Vanguard (pilot Investment), and the other is BlackRock (Blackrock).

Both are asset management companies with the world's leading management scale. As of March 2019, pilot had $5.6 trillion in assets under management, while Blackrock had $6.5 trillion under management.

This can not help but make Fengyunjun have a great interest in the asset management company: how does the company operate? According to what is the valuation? What are the characteristics of the financial data of asset management companies compared with banks?

I. Asset Management Industry

As of March 2019, the top five asset managers in the world by AUM (size of assets under management) were Blackrock, pilot Investment, UBS.N, STT.N and Fidelity Investments.

Among them, Blackrock and pilot belong to the first camp, both of which have AUM of more than 5 trillion US dollars, far ahead of other companies. The AUM for third to fifth place is $3.26 trillion, $2.8 trillion and $2.7 trillion, respectively.

March 2019 ranked the top 15 asset management companies by AUM; pilot investment data is as of April 30, 2019; Allianz AUM includes PIMCO and Allianz Global Investment; Axa Group data is as of December 31, 2018)

From the perspective of the main business of the top 15 companies in AUM, they can be roughly divided into three categories: asset management companies, banks / investment banks, and insurance. Among them, there are 6 asset management companies, 6 banks / investment banks and 3 insurance companies.

Historically, Blackrock has been the largest AUM company in the world since 2009.

By the end of 2017, the AUM of the top 500 asset management companies had reached $93.8 trillion, of which Blackrock's AUM reached 6.29 trillion, accounting for 6.7 per cent.

Between 2008 and 2017, the combined CAGR of the top 20 asset managers' AUM was 4.6 per cent, faster than 3.1 per cent of the top 500 companies. The industry shows the trend of head concentration.

In addition, if you look at more recent trends, you will find that several companies are not only large, but also growing well.

From 2012 to 2017, the fastest AUM growth among the top 50 asset management companies was pilot investment, with CAGR reaching 17%; Blackrock's CAGR was 11%, ranking 13th.

At the end of 2017, the AUM of pilot Investment was 4.94 trillion US dollars, a gap of 1.35 trillion with Blackrock. By March 2019, the gap will have narrowed to 920 billion.

The growth ability of pilot investment is really strong.

Other fast-growing companies with the latest size in the top 15 are MS.N, Amundi (AMUN.PA), Goldman Sachs Group (GS.N) and Capital Group.

Amundi, as Europe's largest asset manager, will emerge later.

II. Subdivision of management scale

AUM is undoubtedly the most important index to measure the asset management company. On this basis, we can also subdivide the AUM.

According to the type of customers, Blackrock's AUM can be divided into: individual investors, Asustek ETF (iShares ETF), institutional investors. According to the investment style, institutional investors can be divided into institutional active management and institutional index investment.

Among them, Asustek ETF also includes the part invested by individual investors.

The redivided individual investor funds are mainly invested in actively managed mutual funds.

Institutional clients include pensions, foundations, donations, official institutions, financial institutions and enterprises.

Other classification methods include classification by product type and customer location.

Let's first take a look at the AUM data by customer type.

By the end of the third quarter of 2019, Blackrock's total AUM had reached 6.96 trillion US dollars.

The largest institutional index investment reached US $2.45 trillion, accounting for 35.23% of the total AUM.

Next is Anshuo ETF, with a scale of 2.05 trillion, accounting for 29.39%.

The size of institutional active management and individual investors are $1.28 trillion and $668.1 billion, respectively, twice as large as the latter.

Together, these four items amount to $6.45 trillion, collectively referred to as long-term investment (long-term).

In addition, the scale of cash management is US $511 billion, accounting for 7.34% of the total AUM, and investment consulting funds are almost negligible.

At the end of the third quarter of 2009-2019, the total CAGR of AUM was 7.8%, and the CAGR of long-term investment was 8.8%.

Long-term investment is growing faster than aggregate AUM and accounting for a growing proportion, reflecting the growing reluctance of investors to put their money in cash management accounts in a low interest rate environment.

Over the past five years, the total CAGR of AUM and long-term investment is 8.6%, and the proportion of long-term investment has not changed much.

This long-term investment as a percentage of AUM will also be useful.

According to the customer's region, Blackrock's AUM can be divided into three parts. Among them, the Americas account for 66% of the total, and the Asia-Pacific region accounts for 27% and 7%, respectively.

It should be noted that the listing of Asustek ETF is based on the listing location to divide the region where AUM is located, and can not fully reflect the source of customer funds.

Next, let's take a look at the trend of each item in AUM.

III. Changes in management scale

The movement of AUM is affected by four factors: net capital inflow (outflow), asset increase (decrease), exchange rate, acquisitions and business sales.

Among them, asset appreciation and exchange rate are affected by market fluctuations, acquisitions and business sales are non-recurrent factors, generally speaking, the most important thing is the net inflow of funds.

Net capital inflows are generally measured by AUM organic growth. Organic AUM growth up to a certain point refers to net capital inflows (outflows) in the past 12 months divided by AUM 12 months ago.

If we don't say much, we'll go to the result.

In the past five years, the best performer is Anshuo ETF, which has an organic growth rate of more than 10% every year, reflecting that under the general trend of global passive investment, investors are increasingly using ETF as part of asset allocation.

The organic AUM growth rate of active institutional management and institutional index investment fluctuated between-5% and 5% for most of the time, showing tepid performance.

Individual investors are in a downward trend as a whole.

Recently, in 2018, the organic growth rate of all types of funds declined, making the organic AUM growth rate of long-term investment at 2.1%, the slowest in more than five years.

This is related to the poor performance of various assets in 2018.

From Blackrock's product performance, it can also be seen that in 2018, whether actively managed fixed income or actively managed stocks, the performance in the past year is much lower than that in the past three years or five years.

The percentage of active management represents the AUM ratio of outperforming benchmark or the median of the same kind; the index represents the AUM proportion of tracking error within acceptable range; the horizontal axis is one-year performance, three-year performance and five-year performance, respectively. The vertical axes are tax-payable active management collection, tax-free active management collection, exponential collection, fundamental active management rights and interests, systematic active management rights and interests, and exponential rights and interests.

With so many assets under management, what about Blackrock's income?

IV. Income composition

In 2009, Blackrock bought Barclays Global Investors for $13.5 billion, which not only increased the company's revenue by 83.2% in 2010, but also brought ETF, which will become an effective growth point for the company in the future.

After that, Blackrock was able to achieve positive single-digit growth in most years.

The only negative growth occurred in 2016, when performance costs fell sharply by $326 million. The decline is mainly related to the liquidation of an outstanding hedge fund in the third quarter of 2015.

Only from 2010 to 2018, the CAGR of Blackrock's income is 6.5%, while the CAGR of AUM in the same period is 6.7%. The two are basically the same.。

In 2018, Blackrock's income was $14.2 billion, up 4.4% from a year earlier; revenue in the first three quarters of 2019 was $10.56 billion, down 1.9% from a year earlier.

(due to the introduction of new revenue recognition rules in 2018, the base of year-on-year growth is adjusted for 2017.)

Fengyunjun divides Blackrock's income into three categories according to its sources: AUM-related income, performance commission income, and service income.

Income related to AUM includes investment consulting, management fees and income from securities lending. In 2018, AUM-related revenue reached $11.55 billion, accounting for 81.3% of total revenue, making it the main source of income.

Performance commission income refers to investment consulting performance fee income, which was $410 million in 2018, accounting for only 2.9 per cent.

Service input includes technical service income, distribution fee income, consulting and other income. In 2018, they were $790 million, $1.16 billion and $290 million, respectively, accounting for 15.8 per cent of total revenue.

V. Management fees continue to decline

Revenue related to AUM is generally collected as a percentage of AUM in accordance with the agreement with the customer.

Fengyun can also use this ratio to measure the company's ability to generate revenue.

In 2018, the AUM-related income generated by long-term investment was US $10.946 billion, accounting for 0.19% of the average AUM of long-term investment in 2018. The ratio of AUM-related income of all funds (including long-term investment and cash management) to the average AUM of the period was 0.18%.

Both have shown a downward trend in recent years.The ratio of AUM-related income to period average AUM for long-term investments has fallen by 4 basis points (basis point) since 2015, while the ratio of total funds has also fallen by 3 basis points.

This reflects the decline in Blackrock's management fees, which is in line with the global trend.

In terms of customer types, the ratio of AUM-related income of individual investors to the average AUM during the period fell from 0.58 per cent in 2016 to 0.53 per cent in 2018, a decline of 5 basis points, but still much higher than the corresponding ratio of other customer types.

During the same period, the ratio of AUM-related income to average AUM of Asustek ETF decreased by 4 basis points.

The corresponding proportion of institutional funds fell by only 1 basis point.

(note: income before 2015 can only be compared with income data classified by product type.)

At this point, Feng Yunjun has answered the first question raised at the beginning: how does the asset management company operate?

Let's take a look at the financial differences between asset management companies and banks.

VI. The actual debt ratio is very low

Fengyunjun once wrote in "China's largest Agricultural Commercial Bank comes to A shares: trillion Chongqing Agricultural Commercial Bank, risks and opportunities coexist | Fengyun Independent rating" once wrote that the most important statement of the bank is the balance sheet.

And the bank's statements have the following characteristics:

The asset-liability ratio is very high

The quality of the asset is important because it determines the provision

The provision will greatly affect the profit margin of the bank.

Asset management companies belong to non-bank finance in classification.

The biggest difference between the asset management company and the bank is that the asset management company only has the right to collect management fees for the funds from customers, and the vast majority of customer funds do not enter the statement. Of course, we are talking about asset management companies other than banking (investment banking) and insurance.

This also determines that the debt ratio of asset management companies can be very low.

Take Blackrock as an example, the most important part of his assets includes assets in separate accounts and assets backed by separate accounts, which reached $90.285 billion and $20.655 billion respectively by the end of 2018, accounting for 57 per cent and 13 per cent of total assets, respectively.

Among them, the separate account assets are held by the wholly-owned subsidiary Blackrock Life Insurance, which represents the independent assets held to finance the pension contracts of individuals and groups; the independent account collateral assets are the collateral received under Blackrock Life Insurance's securities lending agreement.

Blackrock's creditors have no recourse to either of these assets. Accordingly, holders of pension contracts and borrowers of collateral have no recourse to Blackrock's assets.

Blackrock also records equivalent liabilities on the debt side.

If these two items are reduced on the asset side and the liability side respectively, the company's asset-liability ratio is only 31% at the end of 2018 and only 32% at the end of the third quarter of 2019, much lower than the 79% before the reduction.。

Finally, Fengyunjun tries to answer the valuation question of the asset management company-valuation is still mainly about profits and cash flow.

7. Sound profitability

In 2018, Blackrock's operating profit margin was 38.5% and net profit margin was 30.3%.

Due to the introduction of new revenue recognition rules in 2018, operating profit margin decreased by 0.1 percentage point in 2018 compared with the adjusted 2017 data, which has not changed much.

The net interest rate in 2017 is higher than that of the previous two years, which is related to the tax cut bill of that year.

In the latest first three quarters of 2019, Blackrock's operating profit margin and net profit margin were 38% and 30.2% respectively, down 1.1% and 1.2% respectively from a year earlier.

In the long run, operating profit margin and net interest rate increased significantly from 2009 to 2014, corresponding to the period when the company's share of long-term investment AUM increased significantly; after 2014, profit margin was relatively stable, corresponding to the stable period of long-term investment AUM share.

Generally speaking, Blackrock's profitability is quite sound.

In the cost rate, the two main items are salary and welfare costs and general and administrative costs. Since 2009, both expense rates have been on a downward trend, reflecting the economies of scale brought about by the company's increased AUM. In 2018, they were 30.4% and 11.5% respectively, compared with 30.9% and 11.7% in the first three quarters of 2019.

After the company adopted the new revenue recognition rules in 2018, the greater impact is the cost of distribution and services. Distribution and service costs refer to the payments made to third parties to acquire and retain corporate customers, mainly driven by AUM.

Distribution and service costs accounted for 11.8% in 2018, a decrease of 0.4 percentage points compared with the adjusted data for 2017. The share of distribution and service costs has not changed much since 2010.

In addition, direct fund fees refer to the costs arising from the use of index trademarks (such as MSCI's index), relevant data compiled by the index, fund custody, management, accounting and other third-party services.

Direct fund fees have risen slowly since 2010, reaching 7 per cent in 2018 and falling slightly to 6.9 per cent in 2019.

VIII. Cash flow and shareholder returns

Blackrock's cash flow is very good.

In 2018, the company's net cash flow of operating activities was $3.08 billion, with a net-to-cash ratio of 72% and a free cash flow of $2.88 billion.

In the first three quarters of 2019, net cash flow from operating activities was $1.63 billion and free cash flow was $1.47 billion.

At the end of the third quarter of 2010-2019, Blackrock realized a broad sense of cash flow from business activities (note: net cash flow from operating activities plus net cash flow from investment activities) of US $22.46 billion and accumulated shareholder returns (note: stock buybacks minus common stock issues, plus stock dividends) of $29.06 billion.

The cumulative shareholder return minus the cumulative cash flow of broad business activities represents the part of the company that rewards shareholders with financing activities.

Since 2010, Blackrock has rewarded shareholders with financing activities totaling US $6.6 billion, mainly from long-term loans and net subscription fees for non-controlling equity holders.

In the third quarter of 2010-2019, the net amount of long-term loans issued by the company was $2.78 billion and the net subscription fee from non-controlling equity holders was $5.12 billion (note: redeemable non-controlling interests are included in the statement of changes in equity).

IX. Industry comparison

After answering three questions, let's make a horizontal comparison.

Blackrock is the most suitable comparison object pilot investment is not listed, Fengyunjun found a more appropriate comparison object is Amundi.

Amundi is the largest asset manager in Europe, specializing in providing asset management services to third parties, and AUM ranked 12th in the world in March 2019.

(source: Amundi 2018 Annual report)

Amundi's adjusted income in 2018 was 2.582 billion euros, and AUM at the end of 2018 was 1.43 trillion euros, or approximately $1.64 trillion.

57 per cent of AUM comes from France, 12 per cent from Italy, 11 per cent from Europe outside France and Italy, 14 per cent from Asia, and a relatively small share from other regions.

By the way, Amundi's business in China is conducted through a joint venture with China's Agricultural Bank Of China (601288.SHJ01288.HK), in which Amundi holds a 33.33% stake.

In the past two years, the company's revenue growth rate was 7.5% and-5.1% respectively, and its operating profit margin was 42% and 45% respectively.

The operating profit margin of Amundi is better than that of Blackrock。

Fengyunjun's first reaction is to look at staff costs. In the past two years, the proportion of staff costs of Amundi is 37.5% and 34.1% respectively, which is higher than that of Blackrock. Details of Amundi's other operating costs were not disclosed.

By the way, income divided by average AUM (note: the average AUM of Amundi is the beginning of the year plus the end of the year divided by 2), it is 0.18% in the past two years, which is not much different from Blackrock.

It can only be said that Amundi and Blackrock are both excellent companies.

X. concluding remarks

The asset management industry has actually changed a lot in recent years.

According to a Bloomberg report, fees for all types of funds and ETF have generally declined since 2008.

Among them, the large asset management companies can lower the rates because of the advantage of scale, thus attracting more net capital inflows, and the whole market shows the characteristics of "the strong are always strong". On the other hand, small and medium-sized asset management companies try their best to slow down the outflow of funds through mergers and acquisitions and other means.

In recent years, another major trend in the capital market is that exponential investment is favored by more and more people. Take Fidelity's Contrafund and S & P 500 index funds, which are actively managed funds that have outperformed the S & P 500 in nine of the past 10 years and have outperformed the S & P 500 so far in 2009.

But that still doesn't stop Contrafund from having a cumulative net outflow of more than $90 billion since 2009. By contrast, the Fidelity S & P 500 index fund posted net inflows of more than $120 billion over the same period.

There is no lack of discussion on the reasons behind this in the market.

For Blackrock, it is obvious that these two industry trends are favorable.

Back to the company itself.

The latest figures show that Blackrock's AUM is close to 7 trillion US dollars. Among them, Asustek ETF has a significant net inflow every year, while the growth rate of net inflow of individual investors shows a downward trend, while institutional active management and institutional index investment are lukewarm.

The company's revenue has achieved single-digit positive growth in most years, and the long-term growth rate is basically in line with AUM growth.

Blackrock's actual debt ratio is just over 30 per cent.

Operating profit margin and net profit margin have been rising and stabilizing in recent years, and the level of cash flow is very good. The changing trend of profit margin is basically consistent with the trend of long-term investment AUM.

Over the past 9 years, cumulative shareholder returns have exceeded the cumulative cash flow of broad business activities, and the gap is partly made up by long-term loans and net subscription fees for non-controlling equity holders.