Asset management

The high drama of the past week risks overshadowing a bright spot for the broker-dealers: investment management. Both Lehman Brothers and Goldman Sachs, for instance, saw revenues from this side of the business squeak past their headline- grabbing investment banking divisions for the first quarter.

Partly this reflects the state of the market. Money will still flow to the broker-dealers' asset management arms, even when many investors just want to hide under the covers. The inflows may not be the most exciting kind. Investors are tending to go for cash-like money market funds, which do not command the sort of fees available for managing equities. Money-market fund investments are less likely to be sticky, since when investors regain their nerve, they are likely to park their cash in something more exciting. Still, net inflows over the quarter, which Goldman Sachs and Morgan Stanley both saw, are hardly to be sneezed at in the current climate. And in Goldman Sachs's case, the scale of the inflows more than offset market declines, which resulted in a slight drop in overall assets under management for both Lehman Brothers and Morgan Stanley.

For all three broker-dealers, the asset management side underscored the opportunities available when markets go wild. Revenues from asset management – basically management and incentive fees – were strong at Lehman and Goldman, reflecting both broker-dealers' strength in alternative investments, including hedge funds. Morgan Stanley's asset management business, sporting a black eye over structured investment vehicle-related losses, has been building up stakes in alternative managers to good effect. True, the performance of Morgan Stanley's retail funds could improve. But the general point is that asset management is providing some useful diversification for the broker-dealers at a time when highly paid investment bankers are idling by the phone, waiting for clients to brave the markets again.

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