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Investors Pouring Funds Into Asset Managers Coffers

Wednesday, 8 Jun 2011 | 4:51 PM ET
Peter Kraus
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Peter Kraus

It’s no secret yields have been hovering around all-time lows—and could get even lower if QE3 comes to pass. It’s also no secret investor sentiment has waned in the face of recent negative economic data.

Asset managers nonetheless were waxing positive at this week’s KBW Specialty Finance Conference. Investors had already been pouring money into their funds, and – with renewed confidence in the equity market—were attaching fewer strings.

Standard & Poor’s said that issuer volume for high-risk assets like commercial mortgage-backed securities and auction-rate securities is staggering—but is driven first and foremost by investor demand for them.

Consumer companies like Dunkin’ Donuts, Sonic, Domino’s and IHOP were a few names cited as those taking advantage of asset-backed securities—a market set to reach mid-2000s level of $15 billion this year—where before they would have been relegated to high-yield debt.

For Federated Investors, CEO Chris Donahue said new assets were being shifted into equities and fixed income—which appear high-earning, relative to the money market funds that are the firm’s bread and butter.

A rising tide, though, lifts all boats, and some of this newly injected capital is only enough to get the fund back to pre-crisis levels.

Take AllianceBernstein. The asset manager now counts $477 billion under its belt—after losing a quarter of managed capital in the fourth quarter of 2008 alone

That was right as CEO Peter Kraus was taking the helm, whom you may remember from his short-lived tenure at Merrill Lynch: He started just days before Bank of America bought the brokerage, but his leaving post-sale triggered an exit package near $25 million.

His job at Merrill—to oversee growth, acquisitions and integration of corporate strategy among senior business leaders—is the same job, it appears, that he has at AB. And this time, too, he’s faced with restoring the reputation of a firm whose stock price and nearly half-a-trillion profile have both been beleaguered.

Kraus spoke to CNBC exclusively, and he had the following to say.

On who’s buying in the low-yield environment: “Yields are low in the fixed-income business. Having said that, investors really still want that kind of security for the assets that they’re allocating, and in Asia in particular. In Asia, investments are quite yield-conscious, so even though yields are still low on a relative basis, [they’re] still attractive to Asians.”

On the potential for QE3: “It’s possible—anything’s possible, but we don’t think it’s probable.”

On clients’ worries: “The regulatory environment.” (We should note he supports shareholders’ rights to say-on-pay. So there’s that.)

Finally, on recent market volatility: “Where markets have traded in the last year, they’re actually reasonably range-bound—they actually haven’t gone up or down that much although they’ve been volatile in between. So we believe there is a real recovery going on in the US – slow, not as quick as we would like, but a recovery nonetheless. And that will take root over time.

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