Managing During a Financial Market Meltdown
Asset managers generate fees based on the dollar value of their holdings. In American Beacon’s case, this amounts to roughly one-third of 1%. When the financial markets are in turmoil and the stock market takes a nosedive as investors sell, assets managed by these firms—and those revenues—decline as well. And that’s exactly what happened in 2008 when the subprime mess wreaked havoc on the financial markets. The benchmark S&P 500 stood at 1,251.70 on September 12 of that year—the day the deal closed. By year-end, the index dropped more than 27% to 903.25.
As a result, American Beacon’s managed assets declined around 30%, from roughly $60 billion to $40 billion as money market assets flocked to Treasuries. “We were less profitable, but we still have to get back to where we were,” says Quinn. “You can’t cut costs because there are very little costs to cut. But we’ve got to grow the revenues, so we launched a program that did several things.” American Beacon had a reputation and track record but had an underdeveloped four-person sales force. The strategy was to apply additional resources to marketing its 12 multimanaged active funds, three index funds, and three single-manager products. So while most companies were scaling back, American Beacon was ramping up.
The firm increased its sales force to 15 external salespeople and four internal people who serve in a support capacity. American Beacon’s owners also hired a new CEO, Gene L. Needles Jr. Needles had been president of Touchstone Investments, part of Western & Southern Financial Group, a diversified group of financial services companies based in Cincinnati. “The strategy going forward was to apply additional resources to marketing a very attractive suite of investment products,” says Needles. “So the changes that have been implemented since I came on board were predominantly around that rather than a downturn in the market.”
In addition to continuing to target institutional markets, the firm looked to expand into retail through partnerships with firms such as Merrill Lynch and Smith Barney (now Morgan Stanley Smith Barney L.L.C.). New products rolled out include American Beacon Global Real Estate Fund, introduced in March. All told, assets increased 22% in 2009 for the firm.