Flanagan’s Reshaped Invesco May Lead Asset Manager Earnings

Invesco Ltd., the Atlanta firm whose shares have outperformed rival money managers over the past five years, may lead that group in third-quarter profit growth, helped by the purchase of Morgan Stanley’s mutual funds business.

Invesco will probably report a 47 percent increase in adjusted earnings per share, the most among the 15 members of the Standard & Poor’s index of asset managers and custody banks. Pittsburgh, Pennsylvania-based Federated Investors may do the worst, with an estimated 32 percent decline in earnings from a year earlier, according to 14 analysts.

Martin Flanagan, who took over as chief executive officer in August 2005, has boosted assets under management about 60 percent by acquiring asset managers and cut costs by making Invesco’s subsidiaries work more closely together. The June purchase of the Morgan Stanley fund business, which included the Van Kampen funds, added $114.6 billion.

“They are already seeing most of the benefit from the acquisition, which is highly unusual,” Mark Lane, an analyst at William Blair & Co. in Chicago, said in an interview. “This integration went very, very smoothly.”

Invesco’s shares have risen 85 percent in the past five years under Flanagan, the most of all 15 firms in the asset manager’s index. Only BlackRock Inc., which isn’t part of the Standard & Poor’s index of asset managers and custody banks, did better among the large firms, more than doubling in price.


New York-based BlackRock became the world’s largest asset manager with last year’s acquisition of Barclays Global Investors. It will probably report adjusted earnings of $2.49 a share, an increase of 19 percent from the third quarter of last year, according to the average estimate of 12 analysts surveyed by Bloomberg.

The BGI deal, completed Dec. 1, more than doubled its assets under management to $3.15 trillion, adding passive index funds to BlackRock’s actively managed strategies.

BlackRock is scheduled to report third-quarter earnings on Oct. 20. Invesco will follow on Oct. 25.

Flanagan, 50, announced his first acquisition at Invesco just five months after being hired, when he agreed to buy exchange-traded funds provider PowerShares Capital Management in Wheaton, Illinois. He followed with the takeover of private-equity firm W.L. Ross & Co. in October 2006, and two months ago purchased Australian investment manager Concord Capital Ltd.

“We feel we don’t have any gaps right now,” Flanagan said in a telephone interview. “We’re not in Brazil, but we’ve concluded we’d rather do a better job in China.”

‘Order Out Of Chaos’

Apart from expanding through acquisitions, Flanagan reduced costs by combining technology, support services and management structure across the firm’s units. In his first four calendar years, he cut staff by 16 percent.

Invesco units include the former Aim mutual funds, rebranded under the Invesco name in August; Perpetual, the largest money manager in the U.K.; and joint venture Invesco Great Wall Fund Management in Shenzhen, China.

“He’s created order out of chaos,” Jason Weyeneth, an analyst in New York for Sterne Agee & Leach Inc., said in a telephone interview. “He’s got the different pieces paying attention to each other and sharing resources across different regions and products.”

Invesco also navigated the financial crisis better than rivals like Legg Mason Inc. and AllianceBernstein Holding LP. Legg Mason’s assets have slumped by a third to $674 billion from a peak of $1 trillion in 2007. AllianceBernstein’s assets have declined 40 percent in the past three years.

Lured From Franklin

Flanagan was lured to Invesco from Franklin Resources Inc., where he was co-CEO with Gregory Johnson, son of the firm’s founder and chairman, Charles Johnson. He counts the elder Johnson among his mentors, along with the late John Templeton, who hired Flanagan when he was 23.

“He got a very high profile at Franklin because he rocketed to the top,” Burton Greenwald, an independent fund consultant based in Philadelphia, said in an interview.

Franklin Resources, manager of the Franklin Templeton mutual funds, may report an increase of 11 percent in adjusted earnings per share to $1.78, according to the average estimate of 20 analysts surveyed by Bloomberg. Franklin, best known for its global funds, benefited from a surge in deposits into its fixed-income funds.

Legg Mason’s adjusted earnings per share may rise 30 percent to 39 cents, according to the average estimate of 17 analysts. AllianceBernstein may post a drop of 38 percent, according to the average estimate of 9 analysts. AllianceBernstein is not a member of the asset manager index.

Franklin is scheduled to report earnings Oct. 28, Legg Mason on Oct. 27. Bank of New York Mellon Corp., the biggest custody bank, and Boston rival State Street Corp. said they plan to report third-quarter results tomorrow.

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