American Capital Ltd. (NASDAQ:ACAS) reported earnings on Tuesday, and they weren't pretty. As expected, the company announced a big writedown on its asset manager, which collects fees from American Capital Agency (NASDAQ:AGNC) and American Capital Mortgage (NASDAQ:MTGE).

This is the second quarter in a row that American Capital has written down its asset management division. In June, the American Capital said its asset manager was worth $981 million, down $75 million from the prior quarter.

In the third quarter, American Capital wrote down its asset manager by another $119 million, to $862 million.

What's all this mean?
American Capital Ltd. earns fees for managing American Capital Agency and American Capital Mortgage. Both mREITs are now trading below book value, and thus neither is issuing new shares to increase assets under management. In fact, both are buying back stock.

Here's a chart of American Capital's mREITs year to date:

MTGE Chart

MTGE data by YCharts.

Because the mREITs aren't issuing new shares, American Capital Ltd. can't increase its fee-generating assets.

After two quarters, American Capital Ltd. is probably pricing American Capital Asset Management as if its mREITs are set for no growth. Previously, it seems American Capital Ltd. had baked in years and years of AUM growth, which would obviously result in years and years of fee growth. We can surmise from the outsized writedown that American Capital isn't so bullish on future capital raises.

Bull turns bearish
American Capital Ltd. has every incentive to get American Capital Agency and American Capital Mortgage back over book value. 

The most recent writedown of American Capital Asset Management seemingly implies that it was wrong about the growth prospects of mREITs, and that mREITs likely won't trade above book value for some time to come.

It's a worrying sign when even the asset manager isn't excited about mortgage REITs like American Capital Agency and American Capital Mortgage. The asset manager knows that raising new assets under management will be difficult in a period of volatile interest rates, and lower dividend yields from mortgage REITs. In short, it knows that investors probably won't be piling money into mREITs any time soon.

Of anyone, the asset manager who earns a fee on AUM should be a cheerleader of their fund. But after the third quarter, it looks like that cheerleading is coming to an end.

American Capital Ltd. isn't so bullish on its mREITs any longer. It's pointing to a world where the high-yield dividend stocks simply linger on without growing assets. Investors should wonder if the days of above-book mREIT valuations are over for good. American Capital Ltd. seems to think so.