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Bank of America’s Asset Management: Higher Funds and Returns

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Asset inflow rise for managers

Both traditional and alternative asset managers have seen higher inflows in recent quarters from institutional as well as retail clients. The funds have been directed toward equity, debt, real estate, and alternative offerings. Asset managers have garnered higher performance fees due to a strong rise in the broad markets (SPX-INDEX)(SPY) in recent quarters. Bank of America (BAC) manages ~$2.59 trillion as of March 31, 2017—a rise of 5% on a year-over-year basis—helped by appreciation in holdings’ valuation and new fund flows.

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Fund raising and fees

BAC’s Global Wealth and Investment division has managed higher non-interest income in recent quarters—mainly due to higher base and performance fees and partially offset by lower transactional revenue. However, in 2Q17, asset managers are expected to see relatively subdued performance across their equity offerings, mostly because of higher valuations, partially offset by nominal growth in debt offerings. In 1Q17, the division posted net income totaling $770 million, versus $741 million in the prior year, helped by higher interest and non-interest income.

In 1Q17, Bank of America attracted $29.2 billion in long-term flows, reflecting a shift from brokerage to asset management and equity exposure. The division has seen marginal growth in pre-tax margins and a similar level of spending in 1Q17 on a YoY basis. The banking giant competes with traditional managers and commercial banks (XLF) like BlackRock (BLK), Citigroup (C), and Blackstone (BX) for client funds and new clients.

Investors have also diverted their funds toward exchange-traded funds or ETFs in a bid to pay a less to asset managers. The shift has also resulted from a failure of active asset managers to generate alpha or superior returns in challenging and stable markets.

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