Sector Snap: Asset managers' shares slide

Shares of asset managers fell an average of 7 percent Wednesday as the broader markets tumbled on dismal retail sales data and worries about the banking industry. An analyst predicted asset managers, already suffering heavy losses, will face significant challenges in coming quarters.

Barclays Capital analyst Roger Freeman said long-term trends are favorable for the companies, "but the industry needs to work through significant near-term headwinds." In a note to clients, he downgraded shares of The Blackstone Group to "Underweight" from "Overweight," and initiated coverage of Janus Capital Group Inc. at "Underweight."

Shares of Janus fell more than 9 percent to $7.12, while Blackstone slid more than 8 percent to $5.60.

Freeman also downgraded ratings on alternative asset managers Fortress Investment Group, GLG Partners Inc. and Och Ziff Capital Management Group to "Equal Weight," or "Neutral," from "Overweight." The analyst said he's skeptical about the strength of the companies' business models and is concerned investors will seek further redemptions.

In afternoon trading, Fortress was down 8 percent to $1.61, GLG Partners was 7.3 percent lower at $2.54 and Och Ziff Capital shares fell 7 percent to $4.66.

Freeman initiated coverage of Invesco Ltd., Legg Mason Inc. and T Rowe Price Group Inc. at "Equal Weight," or "Neutral," and issued an "Overweight" rating on BlackRock. Assets under management for the companies are down an average of 30 percent due to significant worldwide stock and bond market declines.

"Given the magnitude of the AUM decline going into 2009, we do not believe cost reductions will be able to fully offset the revenue shortfall," he said. "As a result we expect margins to decline meaningfully, similar to the 2000-2002 equity market downturn."

Freeman said fixed income and equity fund flows are negative and only partially offset by less profitable money market flows.

The Barclays move comes a day after Keefe, Bruyette & Woods analyst Robert Lee cut earnings estimates and price targets on most asset managers.

"With virtually all equity markets and asset classes posting dismal returns and outflows at high levels, we believe Q4 is likely to go down in the record books as the sharpest one-quarter decline in operating earnings for most asset managers," he wrote in a note to investors.

In afternoon trading, Blackrock shares fell 5 percent or $6.80 to $120.19. Invesco shares were down 6.6 percent at $12.35 and Legg Mason slipped 7.7 percent to $20.80. T. Rowe Price shares dipped 4.4 percent to $29.69.

The broader markets also fared poorly Wednesday after the government issued a dismal reading on retail sales and investors grew increasingly anxious about the banking industry. Major stock indexes lost more than 3 percent, including the Dow Jones industrial average, which fell more than 250 points, its sixth straight slide.