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					                                                                              MORGAN                     STANLEY                           RESEARCH
                                                                              NORTH               AMERICA



                                         Happy 5th Birthday, Risk-Reward      Morgan Stanley & Co. LLC                              Matthew Kelley
                                         Triangle! And it works.                                                                    Matthew.Kelley@morganstanley.com
                                                                                                                                    +1 212 761 8201
                                         Find out why...
                                                                                                                                    Thomas Whitehead, CFA
                                                                                                                                    Thomas.Whitehead@morganstanley.com
                                                                                                                                    +1 212 761 5672

                                                                                                                                    Kevin Kaczmarek
                January 4, 2013                                                                                                     Kevin.Kaczmarek@morganstanley.com
                                                                                                                                    +1 212 761 0531


Industry View   US Asset Managers                                                                                                   Elizabeth Elliott
                                                                                                                                    Elizabeth.Elliott@morganstanley.com
                                                                                                                                    +1 212 761 3632
In-Line
                2013 Outlook/Earnings Preview:
                                                                              Organic Growth: strongest in ETFs & alternatives
                Strength in ETFs & Alternatives                                                         Traditional Asset Managers
                                                                                                   Inflows for ETFs & strong performers
                                                                                                                                                                 Alternatives
                                                                                                                                                                Superior growth
                                                                                   25%

                                                                                   20%

                Three key themes shaping the trajectory of US                      15%

                Asset Managers in 2013: ETF share capture,                         10%

                accelerating inflows to alternatives, and a stronger                5%

                realization cycle. We view BLK, IVZ, BX, and OAK                    0%

                as the best ways to play these themes at attractive                 -5%




                                                                                                                        BLK

                                                                                                                               AB




                                                                                                                                                  JNS




                                                                                                                                                                        CG
                                                                                                          TROW
                                                                                                  FII



                                                                                                                 IVZ




                                                                                                                                                                 BX




                                                                                                                                                                                   OAK
                                                                                                                                     BEN

                                                                                                                                           WDR



                                                                                                                                                          LM




                                                                                                                                                                             KKR
                                                                                           WETF
                valuation levels.
                                                                                          2013e flows as % of BoP AuM                            2010-15 fee-paying AuM CAGR

                2013 themes & positioning: we expect US traditional           EPS Estimate Changes
                asset managers to continue trading at valuation levels                                                                              4Q12e
                                                                                                                       MS              MS                                    MS New
                close to the broader market until stronger organic growth                               Rating         New             Old          % Chg.      Cons.        v. Cons.
                trends emerge, while alternative asset managers’                  AB                     EW            $0.35         $0.34                3%    $0.33           6%
                                                                                  BEN                    EW             2.43         2.36                 3%    2.36            3%
                valuations will hinge on AuM growth and the realization           BLK                    OW             3.68         3.66                 1%     3.68           0%
                                                                                  BX                     OW            0.46          0.49                (6%)   0.47           (2%)
                cycle. Three key themes and how we would position                 CG                     EW            0.49          0.50                (2%)   0.52           (6%)
                into 2013: 1) ETFs, still less than 7% the size of global         FII (GAAP)
                                                                                  IVZ
                                                                                                         UW
                                                                                                         OW
                                                                                                                        0.37
                                                                                                                        0.45
                                                                                                                                     0.39
                                                                                                                                     0.47
                                                                                                                                                         (5%)
                                                                                                                                                         (4%)
                                                                                                                                                                 0.39
                                                                                                                                                                 0.48
                                                                                                                                                                               (5%)
                                                                                                                                                                               (6%)
                mutual fund & ETF assets, continue to gain share (BLK             JNS                    UW             0.14         0.14                 0%     0.14           0%
                                                                                  KKR                    EW            0.24          0.50               (52%)   0.43          (44%)
                & IVZ); 2) Structurally higher institutional allocations to       LM **                  EW            0.48          0.51                (6%)   0.55          (13%)
                                                                                  OAK (ANI)              OW            1.01          1.02                (1%)    0.82          23%
                alternatives (BX); and 3) Stronger realization cycle              TROW                   EW            0.89          0.88                 1%    0.89            0%
                                                                                  WDR **                 EW            0.57          0.57                 0%     0.58          (2%)
                benefits alternative asset manager stocks (BX & OAK).             WETF                   EW             0.03         0.03                 0%     0.04         (25%)
                                                                                                                                                        2013e
                                                                                                                       MS              MS                                    MS New
                Watch for momentum in flows and realizations: we                                                       New             Old          % Chg.      Cons.        v. Cons.
                expect investors to focus on organic growth momentum              AB                                   $1.46         $1.41               4%     $1.41           4%
                                                                                  BEN                                  10.09         10.10              (0%)    10.06           0%
                in traditional asset managers’ 4Q results, particularly           BLK                                  15.24         15.20               0%     15.01           2%
                                                                                  BX                                    2.15         2.15                0%      2.09           3%
                given accelerating flight to safety in 4Q outside of ETFs.        CG                                    3.05         3.04                0%      3.10          (2%)
                                                                                  FII (GAAP)                            1.76         1.78               (1%)     1.81          (3%)
                We see strongest momentum into 2013 at BLK, IVZ,                  IVZ                                   2.01         2.05               (2%)     2.07          (3%)
                WETF, and AB given recent return to inflows after 19              JNS
                                                                                  KKR
                                                                                                                       0.62
                                                                                                                        2.09
                                                                                                                                     0.62
                                                                                                                                     2.15
                                                                                                                                                         0%
                                                                                                                                                        (3%)
                                                                                                                                                                 0.60
                                                                                                                                                                 2.34
                                                                                                                                                                                3%
                                                                                                                                                                              (11%)
                straight quarterly outflows (see page 5 for                       LM **                                1.98          2.00               (1%)     2.20         (10%)
                                                                                  OAK (ANI)                             5.01         5.00                0%      4.79           5%
                debates/catalysts). We expect organic growth and pace             TROW                                  3.78         3.78                0%      3.82          (1%)
                                                                                  WDR **                               2.44          2.41                1%      2.47          (1%)
                of realizations to drive alternative asset managers, and          WETF                                 0.27          0.23               17%     0.28           (4%)
                we see OAK (+60%) and BX (+57%) as having the                 Source: Thomson Reuters, Morgan Stanley Research estimates
                highest y/y distributable earnings acceleration in 2013.      ** Old ests for WDR & LM as of 12/14 (all others updated in late Oct / early Nov).



                Changes to 4Q12/2013 estimates: we are lowering our
                4Q estimates for traditional asset managers by an
                average 1%, largely on mark-to-market and flows, while        Morgan Stanley does and seeks to do business with
                keeping 2013 estimates mostly flat. We see most likely        companies covered in Morgan Stanley Research. As
                positive revisions to 2013 consensus at BLK (ETF              a result, investors should be aware that the firm may
                inflows and margin expansion) and AB (assuming recent         have a conflict of interest that could affect the
                inflows continue). Meanwhile, we lowered our 4Q12             objectivity of Morgan Stanley Research. Investors
                                                                              should consider Morgan Stanley Research as only a
                alternative asset manager ENI estimates slightly across       single factor in making their investment decision.
                the board on lower marks, but took DE estimates up as
                                                                              For analyst certification and other important
                exits picked up late in the quarter (2013 largely flat).      disclosures, refer to the Disclosure Section,
                                                                              located at the end of this report.
                                                                                              MORGAN                                        STANLEY                 RESEARCH

                                                                                              January 4, 2013
                                                                                              US Asset Managers




US Asset Managers: 2013 Outlook
                                                                                              Exhibit 2
In-Line Industry View: Subdued Organic Growth,                                                ETFs: growing rapidly, but still less than 7% of global
with Pockets of Strength Driving Overweights                                                  mutual fund + ETF AuM pool
An overall sluggish organic growth trajectory drives our In-Line                                                                                    Global ETFs vs Mutual Funds
view for US Asset Managers. We expect the stocks to trade                                                                     35%                                                                                     8%
                                                                                                                                                                                                          6.8%
roughly in line with the broader market until stronger growth                                                                 30%                                                                                     7%




                                                                                               Net Flows (% of BoP AuM)
                                                                                                                                                                                       5.9%      6.0%
trends emerge. While the market likely expects somewhat of a                                                                  25%
                                                                                                                                                                             5.0%
                                                                                                                                                                                                                      6%

shift from fixed income to equity flows in 2013, we note that this                                                            20%                                                                                     5%




                                                                                                                                                                                                                           ETF Share
                                                                                                                                                                    4.1%
trend may not benefit our coverage universe as much as some                                                                   15%                       3.3%                                                          4%
                                                                                                                                               2.8%
investors may think given recent structural trends. We see the                                                                10%    2.4%                                                                             3%

strongest pockets of organic growth, key drivers of our                                                                       5%                                                                                      2%

Overweight ratings, in ETF providers (BLK & IVZ), and                                                                         0%                                                                                      1%

alternative asset managers (BX, OAK). Our price targets                                                                       -5%                                                                                     0%

suggest a median 11% upside over the next 12 months.                                                                                 2005      2006      2007       2008     2009      2010      2011      YTD
                                                                                                                              ETF Net Flows (LHS)     Mutual Fund Net Flows (LHS)     ETFs % of Mutual Fund + ETF AuM (RHS)

Exhibit 1
                                                                                              Source: Company Data, Morgan Stanley Research
Organic Growth: strongest in ETFs and alternatives
                     Traditional Asset Managers                        Alternatives           #2 – Increased Allocations to Alternatives
                Inflows for ETFs & strong performers                  Superior growth
 25%                                                                                          We anticipate higher institutional allocations to alternatives
 20%                                                                                          (and to a lesser extent HNW) will continue to drive superior
                                                                                              AuM growth for alternative asset managers. We view BX –
 15%
                                                                                              which grew fee-earning AuM at a 27% clip y/y as of 3Q12 - as
 10%
                                                                                              best-positioned for growth given its one-stop shop for LPs
  5%                                                                                          looking for PE, real estate, credit, and hedge fund exposure.
  0%
                                                                                              Exhibit 3
 -5%                                                                                          BX: fee-earning AuM up 27% over TTM
                                                          JNS




                                                                            CG
                     TROW

                            IVZ




                                             BEN




                                                                LM




                                                                                 KKR
                                  BLK

                                        AB




                                                                                       OAK
               FII




                                                   WDR




                                                                       BX
        WETF




                                                                                               Fee-paying AuM ($B)
                                                                                                                                                                                    $168.6
       2013e flows as % of BoP AuM                       2010-15 fee-paying AuM CAGR           180
                                                                                                                                                            $157.6                                      Credit (GSO)
                                                                                               160
Source: Morgan Stanley Research estimates                                                                                             $132.9                                         45.9
Note: we show 2010-15 fee-paying AuM CAGR for alternatives to capture a larger portion of a    140                                                           41.8
cycle, vs lumpy year-to-year fundraising.
                                                                                               120                                     28.7                                                             Hedge Fund
                                                                                                                                                                                                        Solutions (BAAM)
                                                                                               100                                                                                   43.6
3 Key Themes Driving the Stocks in 2013                                                                                                37.2
                                                                                                                                                             40.2
                                                                                                       80                                                                                               Real Estate
#1 – ETF Share Capture                                                                                 60                                                    38.5                    40.6
                                                                                                                                       30.0
While the market remains somewhat focused on potential shift                                           40
in fund flows away from fixed income and towards equities, we                                          20                              37.0                  37.2                    38.5
                                                                                                                                                                                                        Private Equity

expect ETFs to continue taking share from mutual funds, as                                                                0
retail seeks low fee beta and institutions increase tactical                                                                          3Q11                  2Q12                    3Q12
exposure. With ETFs still representing less than 7% the total
                                                                                              Source: Company Data, Morgan Stanley Research
global pool of mutual funds & ETFs, we see significant runway
for future growth. We view BLK as best positioned to benefit                                  #3 – Stronger Realization Cycle Benefits Alternatives
given the highly scalable nature of its iShares franchise driving                             As we wrote in Morgan Stanley’s “Big Debates 2013” recently,
operating margins higher. While we also see significant upside                                we see the potential for stronger realizations in 2013 given
in WETF, where we forecast 27% organic growth in 2013, we                                     longer-than-typical maturity of investments, funds crossing
see a more volatile risk-reward skew as it continues to come up                               hurdle rates, and conducive credit conditions. We expect that
the growth curve and investors settle on valuation                                            stronger realizations driving cash earnings higher would
methodologies.                                                                                provide a significant boost to alternative asset manager stocks,



                                                                                                                                                                                                                               2
                                                                       MORGAN                STANLEY             RESEARCH

                                                                       January 4, 2013
                                                                       US Asset Managers




which lagged the S&P 500 and traditional asset managers in             4 Overweight-Rated Stocks
2012. Within our coverage universe, we see BX as poised to              BX: long-term, we view BX’s diversified platform as an
benefit given low consensus expectations for its distributable           attactive one-stop shop for LPs looking for solutions in PE,
earnings relative to peers. We also view OAK as a primary                real estate, credit, and hedge funds. Near-term, we expect
beneficiary as its Opps VIIb Fund recently crossed the                   shares to benefit as realizations begin to pick up, first in Real
threshold to realized carry, which should result in a significantly      Estate (where we estimate $2.90 value of future carry), and
higher 2013 shareholder distribution (we model 10.0% yield vs            then in Private Equity (we estimate $2.61 value of future
6.3% in 2012), but this is likely more widely accepted than BX’s         carry).
ramp in realizations.
                                                                        OAK: while AuM growth could lag peers given elevated
Exhibit 4                                                                realizations, OAK’s shareholder distributions are set to rise
2013 Dividend Expectations: BX has lowest                                significantly as $10B Opps VIIb distressed debt fund recently
consensus expectations, in our view                                      crossed threshold for paying cash carry. We forecast a
 Indexed 2013 Consensus Dividend Estimates                               10.0% distribution yield in 2013 (highest among alternatives
 120                                                                     under coverage), vs 6.3% in 2012.
 115
 110                                                                    BLK: we view BLK as best positioned to benefit from the
 105                                                                     structural growth of ETFs, which in turn should enable
 100                                                                     continued operating margin expansion (vs industry wide
  95
                                                                         margins in decline). We also see potential upside to flow
                                                                         estimates in 2013 as ETFs continue to pour in (we estimate
  90
                                                                         $50B for 2H12 and $72B for 2013) and institutions continue
  85
                                                                         to seek alternatives, index, and multi-asset.
  80
   Mar-12         May-12          Jul-12         Sep-12     Nov-12
        BX             CG             KKR             OAK        APO    IVZ: we view IVZ’s product platform – with a presence in
Source: Thomson Datastream, Morgan Stanley Research
                                                                         multi-asset, alternatives, and ETFs – as poised for continued
                                                                         organic growth. Critical for P/E multiple expansion, in our
                                                                         view, is continued inflows (including IBRA catalyst) driving
                                                                         higher operating margins.

                                                                       Exhibit 5
                                                                       Coverage Universe Risk/Reward
                                                                        Coverage Universe (Upside to Price Target)
                                                                       100%
                                                                                       Overweight                                 Equal-weight             Underweight
                                                                        80%
                                                                        60%
                                                                        40%      24%                      20%
                                                                                       20%                      16%
                                                                                             11%    11%               11%   10%    10%
                                                                        20%                                                               8%     6%   3%    2%
                                                                       current
                                                                        price
                                                                        -20%                                                                                      -12%
                                                                        -40%
                                                                        -60%
                                                                        -80%
                                                                                 BX    OAK   IVZ    BLK WETF BEN      LM    KKR    CG     AB TROW WDR       FII   JNS

                                                                       Source: Company Data, Morgan Stanley Research




                                                                                                                                                                    3
                                                                                       MORGAN             STANLEY              RESEARCH

                                                                                       January 4, 2013
                                                                                       US Asset Managers




Traditional Asset Managers: 4Q12 & 2013 Preview
Exhibit 6
Organic Growth Gauge: we see strongest organic growth at BLK, AB, and WETF in 4Q12
                                   Long-term Flows                             Avg Long-Term AuM Growth
                               3Q12                               4Q12e                             2013e                        3Q12              4Q12e              2013e
                       (% Ann.)      ($B)                  (% Ann.)     ($B)               (%)               ($B)              (% Ann.)           (% Ann.)              (%)
AB                      (4.3%)      ($4.4)                   6.7%       $7.0              3.1%              $13.2               (0.1%)             10.8%               6.8%
BEN                      0.8%        $1.4                    1.4%       $2.7              2.4%              $18.9                9.0%              19.0%               9.4%
BLK (1)                  3.8%       $31.1                    3.9%      $33.1              3.6%             $125.6                2.1%              11.8%               9.2%
FII                      8.9%        $1.8                    3.0%       $0.7              5.7%               $5.0               17.9%              11.0%              12.1%
IVZ                      6.7%        $9.6                    1.7%       $2.6              4.2%              $26.0               12.0%               8.2%               9.7%
JNS                     (5.3%)      ($2.0)                  (8.7%)     ($3.4)            (1.6%)             ($2.4)               1.4%               3.2%               2.8%
LM                      (7.4%)      ($9.5)                  (8.0%)    ($10.4)            (2.6%)            ($13.4)               2.1%               0.7%               2.4%
TROW                     3.1%        $4.1                    1.7%       $2.3              4.6%              $26.5               14.9%              12.8%              12.6%
WDR                      3.8%        $0.8                   (0.6%)     ($0.2)             2.4%               $2.3                8.7%              13.3%              10.5%

Peer Avg                  1.1%                                0.1%                        2.4%                                    7.6%             10.1%              8.4%

WETF                     27.6%             $1.0              22.2%              $0.9     27.2%               $5.0                17.3%              33.8%             38.6%
Source: Company Data, Morgan Stanley Research. Simfund, Morningstar, Thomson.
(1) BLK 3Q flows exclude a $74B low-fee index fixed income redemption.




                                                                                        Exhibit 7
Slight Negative Revisions, on Average, to Estimates                                     Changes to Estimates: EPS estimates down slightly
We lowered our traditional asset manager estimates by an                                on lower marks/flows, placing us just below consensus
average of 1% for 4Q12, largely on lower market returns                                 on average
(MSCI World +2%, Global Agg -0.5%) and in some cases                                                                                            4Q12e
lighter inflows. Our FY13 ests on average are roughly flat vs                                                          MS           MS                                   MS New
our prior ests, despite slightly lower flows expectations for                                             Rating       New          Old        % Chg.        Cons.       v. Cons.

2013. Our revised estimates are just below consensus on                                 AB                 EW         $0.35        $0.34          3%         $0.33             6%
                                                                                        BEN                EW         2.43         2.36           3%         2.36              3%
average.                                                                                BLK                OW         3.68         3.66           1%         3.68              0%
                                                                                        FII (GAAP)         UW         0.37         0.39          (5%)        0.39             (5%)
                                                                                        IVZ                OW         0.45         0.47          (4%)        0.48             (6%)
                                                                                        JNS                UW         0.14         0.14           0%         0.14              0%
                                                                                        LM **              EW         0.48         0.51          (6%)        0.55            (13%)
                                                                                        TROW               EW         0.89         0.88           1%         0.89              0%
                                                                                        WDR **             EW         0.57         0.57           0%         0.58             (2%)
                                                                                        WETF               EW         0.03         0.03           0%         0.04            (25%)
                                                                                                                                                2013e
                                                                                                                       MS           MS                                   MS New
                                                                                                                       New          Old        % Chg.        Cons.       v. Cons.
                                                                                        AB                            $1.46        $1.41          4%         $1.41             4%
                                                                                        BEN                           10.09        10.10         (0%)        10.06             0%
                                                                                        BLK                           15.24        15.20          0%         15.01             2%
                                                                                        FII (GAAP)                    1.76         1.78          (1%)        1.81             (3%)
                                                                                        IVZ                           2.01         2.05          (2%)        2.07             (3%)
                                                                                        JNS                           0.62         0.62           0%         0.60              3%
                                                                                        LM **                         1.98         2.00          (1%)        2.20            (10%)
                                                                                        TROW                          3.78         3.78           0%         3.82             (1%)
                                                                                        WDR **                        2.44         2.41           1%         2.47             (1%)
                                                                                        WETF                          0.27         0.23          17%         0.28             (4%)

                                                                                        Source: Morgan Stanley Research estimates, Thomson Reuters
                                                                                        ** Old ests for WDR & LM as of 12/14 (all others updated in late Oct / early Nov).




                                                                                                                                                                                     4
                                                                MORGAN                    STANLEY                   RESEARCH

                                                                January 4, 2013
                                                                US Asset Managers




Key 4Q12/2013 Debates by Stock
 AB: we believe that 4Q inflows (we estimate $7B including              institutional for equity exposure. We also look for updated
  $5.8B through November) could surprise some investors                  expense guidance (comp and advertising could be swing
  after 19 straight quarterly outflows. With real estate and             factors in 4Q), as well as trajectory of target date fund
  other cost saves now more in numbers, clarity on the                   inflows to start the year.
  trajectory of AB’s retail flows and operating margin could      WDR: data suggests that some of WDR’s inflowing funds
  prove catalysts for the stock into 2013 in our view.             slowed in recent months and Asset Strategy (~30% of
 BEN: we expect flows remained positive & concentrated            AuM) outflows stepped up, so expect investors to focus on
  in fixed income (mainly global). We expect investors to          flow trajectory into 2013 and further inroads in wholesale
  remain focused on the impact of any flight from fixed            and institutional channel.
  income, usage of BEN’s cash (we est ~$16/share @                WETF: strong inflows continue, with nearly $1 billion net
  12/31) despite busy Dec qtr ($3 special divi; $300MM debt        inflows expected in 4Q (thru 12/27), led partially by Japan
  paydown), and further build-out of alternatives platform         Hedged Equity Fund.
  (closed on stake in K2 HFoF business during Dec qtr).
                                                                 Largest Quarterly Equity Mutual Fund Outflow in More
 BLK: for 4Q, we expect ETF inflows (we est $26B),
                                                                 Than 3 Years, Bonds & ETFs Continued to Grab Share
  performance fees (we model $217mm including PPIP
                                                                 Equity mutual fund outflows hit their highest level in over three
  fund) and operating margin (40.8% est) to be in focus. Into
                                                                 years in 4Q12, while equity ETF inflows continued to pour in.
  2013, we expect increased clarity on management plans
                                                                 ETFs captured 67% of all long-term inflows for the full year.
  and regulation to attract more investors, and see potential
                                                                 Meanwhile, fixed income inflows (to both ETFs and mutual
  upside to ETF inflow estimates (we forecast $72B in 2013,
                                                                 funds) continued at a strong clip, although bond mutual fund
  similar to $73B for FY12e).
                                                                 inflows were lowest since 4Q11.
 FII: we expect investors will continue to focus on MMF
  reform given nearing FSOC comment timing (as well as           Exhibit 8
  the SEC undergoing a leadership change), and how the           4Q12 Long-Term Flows: largest equity mutual fund
  industry/FII could respond under various scenarios. We         outflows in 3+ yrs, as bonds & ETFs keep taking share
  expect continued, but slowing long-term inflows q/q.              Industry Flows ($B) by Asset Class

 IVZ: we expect lower inflows q/q, driven by slow down in        $45
                                                                  $40
  fixed income inflows & acceleration of equity outflows          $35

  (QQQ-driven). However, overall inflows still impressive vs      $30
                                                                  $25
  industry, driven mainly by IBRA catalyst. We believe that       $20
                                                                  $15
  operating margin expansion, coupled with continued              $10
  inflows, is the key to unlocking multiple expansion.             $5
                                                                   $0
 JNS: we expect investors to remain focused on trajectory        ($5)
                                                                 ($10)
  of equity outflows and any slowdown in fixed income            ($15)

  inflows, as well as negative performance fees (we est          ($20)
                                                                 ($25)
  -$17mm in 4Q12, including INTECH) and operating                ($30)
                                                                 ($35)
  margin. Also expect questions on the long-term impact of
                                                                           1Q10



                                                                                   2Q10



                                                                                           3Q10



                                                                                                      4Q10



                                                                                                             1Q11



                                                                                                                        2Q11



                                                                                                                                3Q11



                                                                                                                                            4Q11



                                                                                                                                                        1Q12



                                                                                                                                                                2Q12



                                                                                                                                                                           3Q12



                                                                                                                                                                                     4Q12




  the Dai-ichi alliance (hit ~20% stake in early December),                 Equity MF             Bond MF             Balanced MF                  Equity ETF             Bond ETF
  and leadership change at INTECH.
                                                                                                                       Quarterly flows ($B)                              % Change
 LM: we expect investors to remain focused on the                                                                  4Q12     3Q12         4Q11                         Q/Q      Y/Y
                                                                 Long-term mutual funds:
  company’s efforts to stem outflows (we est ~$10B in C4Qe        Equity                                            ($31.2)     ($18.5)             ($22.6)       69%              38%
                                                                  Bond                                                25.6        34.4                20.1       (26%)             27%
  vs $9B in C3Q). Investors are also likely to focus on           Balanced                                            (0.3)        5.1                (2.1)     (107%)            (84%)
                                                                 Long-term mutual funds                              ($5.9)      $21.1               ($4.6)     (128%)             27%
  progress with the CEO search, further details surrounding
  the acquisition of Fauchier Partners (London-based             ETFs:
                                                                  Equity                                             $33.2          $44.3            $19.0         NM              NM
  HFoF), and any recent discussions with ratings agencies.        Bond                                                 7.7            6.2             12.8         24%            (40%)
                                                                 Total ETFs                                          $40.9          $50.5            $31.8        (19%)            28%
 TROW: with industry equity fund outflows intensifying and      Long-term mutual funds + ETFs                       $35.0          $71.6            $27.2        (51%)            NM
  fixed income inflows slowing down in 4Q, although TROW          ETFs % of total LT flows
                                                                  Fixed income % of total LT flows
                                                                                                                     117%
                                                                                                                      95%
                                                                                                                                     71%
                                                                                                                                     57%
                                                                                                                                                     117%
                                                                                                                                                     121%
  continues to buck trends for the most part, we expect
                                                                 Source: EPFR, Morgan Stanley Research
  investors to focus on the appetite of both retail and



                                                                                                                                                                                            5
                                                                                             MORGAN              STANLEY               RESEARCH

                                                                                             January 4, 2013
                                                                                             US Asset Managers




Alternative Asset Managers: 4Q12 & 2013 Preview
4Q12 Estimates: ENI Slightly Lower Across the Board                                          4Q12 Exit Activity Picked Up Amid Fiscal Cliff Debate
We’re lowering our 4Q12 economic net income (ENI) estimates                                  Exit activity continued to pick up as 4Q12 included a number of
across the board for BX, CG, KKR, and OAK (ENI & ANI) on                                     special dividend payments and M&A transactions in addition to
lower (but still positive) estimated portfolio returns. Full list of                         ongoing secondary equity offerings. In particular, BX’s exits
estimate changes in the following exhibit.                                                   appeared to have begun picking up as PBF Energy priced its
                                                                                             IPO and the Alliant sale to KKR was announced. KKR exit
Exhibit 9                                                                                    activity accelerated meaningfully in the quarter and included
Changes to Estimates: ENI down on lower (but still                                           two Dollar General sales, two HCA dividends, an HCA
positive) 4Q12 portfolio marks                                                               secondary and the announced sale of Oriental Trading, among
Economic Net Income
                                4Q12e                                  2013e
                                                                                             others. We also believe that CG and OAK continued their
                    MS            MS                        MS           MS
                                                                                             robust exit activity.
        Rating      New           Old      Change           New          Old      Change
                                                                                             Exhibit 8
BX        OW       $0.46        $0.49       ($0.03)        $2.15       $2.15      ($0.00)
CG        EW        0.49         0.50        (0.02)         3.05        3.04        0.00     Selected Exit Activity: secondaries and dividends
KKR       EW        0.24         0.50        (0.26)         2.09        2.15       (0.06)    drove 4Q activity, while M&A continues to pick up
OAK       OW        1.04         1.05        (0.01)         3.74        3.73        0.01

Distributable Earnings                                                                       Pricing /                                                 Total
                                4Q12e                                  2013e                 completion                                             transaction
                                                                                             date             Portfolio company                     size ($mm)    Description
                    MS            MS                        MS           MS
                    New           Old      Change           New          Old      Change     Blackstone Group
                                                                                                 11/27/12   TDC A/S                                    516        Follow-on offering
BX                 $0.29        $0.29        $0.00         $1.22       $1.21       $0.00         12/12/12   PBF Energy Inc                             533        Initial public offering
                                                                                                 12/12/12   SunGard Data Systems                       720        Dividend
CG                  0.72         0.74        (0.01)         2.92        2.91        0.00         12/19/12   Team Health Holdings Inc                   266        Follow-on offering
KKR                 0.19         0.15         0.04          0.91        0.92       (0.00)     Ann. 11/23/12 Alliant Insurance Services Inc             NA         Sale to KKR, closed in 4Q
OAK                 1.30         1.30         0.00          5.90        5.89        0.00
                                                                                             KKR
Source: Company Data, Morgan Stanley Research                                                   09/27/12      Dollar General Corp                     1,863       Follow-on equity offering
                                                                                                10/31/12      HCA Holdings Inc                        1,110       Special dividend of $2.50 per
                                                                                                                                                                  share
Distributable Earnings Estimates Flat to Slightly Up                                             11/15/12
                                                                                                 11/30/12
                                                                                                              Rockwood Holdings Inc
                                                                                                              Dollar General Corp
                                                                                                                                                       296
                                                                                                                                                       608
                                                                                                                                                                  Follow-on equity offering
                                                                                                                                                                  10b5-1 plan selling by entity
Meanwhile, our distributable earnings (DE) estimates for BX,                                                                                                      held by KKR and Goldman (up
                                                                                                                                                                  to 12.2mm shares able to be
CG and OAK are roughly flat for 4Q12. We raised our DE                                                                                                            sold)
                                                                                                 12/07/12     Avago Technologies Ltd                   741        Follow-on equity offering
estimate for KKR +4c due to higher exit activity (additional DG                                  12/11/12     HCA Holdings Inc                        1,031       Follow-on equity offering
                                                                                                 12/12/12     SunGard Data Systems                     720        Dividend to buyout consortium
sales, HCA secondary, 2 HCA special dividends Avago
secondary). We also believe that KKR’s 2006 Fund’s netting                                       12/13/12     HCA Holdings Inc                         888        Special dividend of $2.00 per
                                                                                                                                                                  share
hole may have been reduced to ~$150-250mm during the                                            12/17/12      Bharti Infratel Ltd                      767        Initial public offering
                                                                                               Ann. 11/2/12   Oriental Trading Co.                     500        Sale to Berkshire Hathaway;
quarter, putting it on track to close in 1Q13 (unchanged from                                                                                                     KKR a former creditor,
                                                                                                                                                                  acquired stake in 2/2011 after
our previous forecast).                                                                                                                                           company exited bankruptcy

Exhibit 10                                                                                    Ann. 11/14/12   VictorianFibre Holding & Co SCA           76        Sale to United Internet AG

Distributable Earnings Breakdown                                                             Carlyle Group
                                                                                                 10/05/12     Housing Development Finance Corp         839        Follow-on offering
                                            BX       CG    KKR     OAK
                                                                                                              Ltd - HDFC
4Q12e distributable earnings per share                                                           10/11/12     Kinder Morgan Inc                       2,366       Follow-on offering
Fee-related earnings                      0.16     0.08    0.08    0.38                          11/02/12     Rumbo.es                                  96        Acquired by Bravofly
Realized performance fees net of comp     0.06     0.64    0.13    0.50                          11/10/12     China Crane Investment Holdings Ltd       72        Acquired by Cargotec Corp
Other (tax receivable, etc.)              0.03    (0.02)  (0.01)  (0.10)                                      (49%)
                                       _______ _______ _______ _______                          11/29/12      Qualicorp SA                             433        Follow-on offering
Distributable earnings ex investment      0.25     0.70    0.19    0.77                         12/04/12      Qualicorp SA                             152        Follow-on offering
income                                                                                          12/05/12      Chimney Co Ltd                           109        Initial public offering
Realized investment income                0.04     0.02    0.50    0.53                         12/11/12      Hertz Global Holdings Inc                790        Follow-on offering
                                       _______ _______ _______ _______                          12/12/12      Graphic Packaging Holding Co             113        Follow-on offering
Distributable earnings including          0.29     0.72    0.69    1.30                         12/12/12      Kaisa Group Holdings Ltd                  67        Follow-on offering
investment income                                                                               12/19/12      Metaldyne, LLC                           NA         Sale to American Securities
Additional true-up / (amount retained)    0.09     0.25   (0.14)  (0.29)                       Ann. 6/13/12   Jiangsu Sinorgchem Technology Co         446        Sale of 61% stake to
                                       _______ _______ _______ _______                                        Ltd                                                 Sinochem International Corp
Distribution (4Q12e)                      0.38     0.97    0.55    1.01                       Ann. 12/25/12   Qualicaps Co.                            590        Sale to Mitsubishi Chemical
Distribution (2012e)                      0.68     1.24    1.07    2.90                                                                                           Holdings
Distribution (2013e)                      1.00     2.33    0.91    4.57                      Notes: Transactions may not necessarily represent exits by associated sponsor.
                                 (1)                                                         Source: Dealogic, Morgan Stanley Research
Distributable earnings (2013e)                     1.22        2.92        0.91       5.90
(1) As defined by individual companies.
Note: BX and CG distribution policy allows for 10c and 16c for Q1-Q3 with a true-up in 4Q.
Source: Company Data, Morgan Stanley Research




                                                                                                                                                                                               6
                                                                 MORGAN              STANLEY               RESEARCH

                                                                 January 4, 2013
                                                                 US Asset Managers




Capital Deployment Trends                                        Exhibit 9

From a capital deployment perspective, Carlyle has been most     Recent Selected Capital Deployment
                                                                                                              Total
active although BX and KKR both announced and/or closed                                                    transaction
>$1B buyouts in 4Q. Capital deployment in real asset themes      Close date Target                         size ($mm) Description

remains popular, with all three firms showing interest in real   Blackstone Group
                                                                   10/02/12 Accor SA (United States          1,900    Purchase of Motel 6 chain of US
estate and energy investments in recent quarters.                           Economy Hotels division)                  budget hotels
                                                                   10/04/12 59 commercial buildings in        85      Majority interest via recap of 4.5mm
                                                                            Southern California                       sq ft office portfolio
                                                                   10/08/12 International Tractors Ltd        100     12.5% stake in Indian tractor
                                                                            (ITL)                                     manufacturer
                                                                   11/01/12 GCA Services Group Inc            NA      A leading facility services company
                                                                                                                      in the U.S.
                                                                    11/19/12 Vivint Inc                      2,000    A provider of security, home
                                                                                                                      automation & tech services
                                                                    11/19/12 Top Ryde City                    353     Australian shopping center
                                                                    11/26/12 Burlington Hotel                  87     Four-star Irish hotel, largest in
                                                                                                                      Dublin, bought out of receivership
                                                                        Ann. LLOG Exploration                 NA      Commitment for over $1.2B to
                                                                    11/13/12 Company LLC                              expand offshore oil & gas operations

                                                                        Ann. Intertrust Group Holding SA      881     Offshore trust management
                                                                     12/3/12                                          business

                                                                 KKR
                                                                   10/12/12 WMF Wuerttembergische             403     European producer of silverware,
                                                                            Metallwarenfabrik AG                      table settings and other household
                                                                                                                      wares
                                                                    11/07/12 Commercial loan portfolio        NA      Australian and New Zealand
                                                                                                                      commercial loan portfolio from BOS
                                                                                                                      International
                                                                    11/19/12 Westbrick Energy Ltd             75      Canadian private oil & gas co.; KKR
                                                                                                                      committed to invest $175mm more
                                                                                                                      equity to fund expansion
                                                                    12/20/12 United Water / KKR water         307     Partnership for water and
                                                                             utility partnership                      wastewater system operations in
                                                                                                                      Bayonne, NJ.
                                                                        Ann. Sunrise Senior Living Inc        156     A leading provider of senior living
                                                                     9/14/12 (management company                      services and housing
                                                                             business )
                                                                        Ann. Acteon Group Ltd                1,293    British oil and natural gas services
                                                                     10/1/12                                          company
                                                                        Ann. The Ridge at Harvest Hills       NA      Residential real estate development
                                                                    11/14/12                                          in Williston, North Dakota w/ 2 co-
                                                                                                                      investors
                                                                        Ann. Alliant Insurance Services       NA      Insurance brokerage firm purchased
                                                                    11/23/12 Inc                                      from Blackstone

                                                                 Carlyle Group
                                                                   10/18/12 Getty Images Inc                 3,300    Acquisition of roughly 50% in digital
                                                                                                                      photo agency
                                                                    11/15/12 OzForex Pty Ltd                  70      Australian foreign exchange
                                                                                                                      company
                                                                    11/30/12 Diversey GK                      376     Carlyle-led management buyout of
                                                                                                                      Japan sanitation solutions provider
                                                                                                                      from Sealed Air
                                                                    12/14/12 Hamilton Sundstrand             3,460    Carlyle and BC Partners acquire
                                                                             Corporation                              manufacturer of pumps and
                                                                                                                      compressors
                                                                       Ann. TCW Group Inc(1)                  750     Asset management company
                                                                   8/9/2012
                                                                       Ann. Focus Media Holding Ltd          3,084    Stake a Chinese multi-platform
                                                                  8/13/2012                                           digital media company
                                                                       Ann. DuPont Performance               4,900    A global supplier of vehicle and
                                                                  8/30/2012 Coatings                                  industrial coating systems
                                                                       Ann. Landmark Aviation Inc             NA      Operates one of largest fixed based
                                                                  9/14/2012                                           operation aviation networks in the
                                                                                                                      world
                                                                       Ann. Tok&Stok Ltda                     346     60% stake in Brazilian furniture
                                                                  9/14/2012                                           retailer
                                                                       Ann. 7 Days Group Holdings Ltd         432     Carlyle- and Sequoia Capital-led
                                                                  9/26/2012                                           buyout of Chinese economy hotel
                                                                                                                      chain
                                                                       Ann. Export Trading Group              210     Minority stake in African commodity
                                                                 11/13/2012                                           exporter

                                                                       Ann. Duff & Phelps Corp                744     Acquisition of investment banking
                                                                 12/30/2012                                           and advisory firm w/ Stone Point,
                                                                                                                      Pictet and Rothschild
                                                                 Source: Dealogic, company data, Morgan Stanley Research




                                                                                                                                                          7
                                                                 MORGAN       STANLEY       RESEARCH

                                                                 January 4, 2013
                                                                 US Asset Managers




Changes to Estimates & Target Prices
We rolled forward all of our models to reflect FY13               Federated Investors (FII, Underweight, $22 PT)
estimates (vs 4Q12-3Q13 prior) for valuation purposes.            Weaker performance and slightly reduced long-term flow ests
                                                                  drive our GAAP EPS decrease for 4Q12e (37c vs 39c prev).
Overweights                                                       Our 2013e EPS also declines 2c to $1.76, in light of weaker
                                                                  expected long-term flows (+$5B vs +$7B prev), as our est’d
BlackRock (BLK, Overweight, $237 PT)                              pre-tax fee waiver impact remains unchanged (-$65M). Our
4Q12e EPS up 2c to $3.68, FY13e up 4c to $15.24 (from             $22 price target remains unchanged, and we expect MMF
$15.20 previously) mostly on lower G&A expense partially          reform to remain in focus as the FSOC comment period draws
offset by slightly lower average AuM balances. We est +$33B       to a close this month.
(4% annualized) of long-term net inflows for 4Q, driven by
ETFs (+$26B) and institutional index (+$8B). Raising price        Equal-Weights
target to $237 (vs $221 previously) due to higher EPS
estimates and a slightly higher multiple (we utilize 14x vs       AllianceBernstein (AB, Equal-weight, $19.50 PT)
13.5x previously).                                                We raise our 4Q12e and 2013e EPS estimates to 35c (vs 34c
                                                                  prior) and $1.46 (vs $1.41 prior) on better flows and ongoing
Invesco (IVZ, Overweight, $30 PT)                                 cost savings. We estimate $7B of inflows in 4Q12 after 19
We lower our 4Q12e and 2013e EPS to 45c and $2.01 (vs 47c         straight quarterly outflows. Raising price target to $19.50 (vs
and $2.05 prev) on weaker flows and markets. Our 4Q12             $17.50 previously).
long-term inflow est of +$2.6B (vs +$3.6B prior) includes
$2.6B outflows from the PowerShares QQQ product (minimal          Franklin Resources (BEN, Equal-weight, $151 PT)
P&L impact). Price target of $30 unchanged.                       We raise our C4Q12e EPS to $2.43 (from $2.36), driven by
                                                                  strong global equity & fixed income fund performance, which
Blackstone (BX, Overweight, $20 PT)                               also provide a boost to investment income. Slightly offsetting
We lower our 4Q12e ENI -3c to 46c on slightly lower portfolio     this is our lowered inflow estimates, which also lower our
marks. Our 2013e ENI est remains unchanged at $2.15.              2013e EPS by 1c to $10.09. For C4Q12, we est inflows led by
Expect BAAM inflows of $0.9B and an additional $2.5B of           fixed income (mainly global taxable, but also domestic taxable
Real Estate AuM from inclusion of Capital Trust assets. Our       & muni) & hybrid funds, offset by equity outflows (largely
PT rises from $20 (from $19).                                     global). Price target raised to $151 (vs $146 previously).

Oaktree Capital Group (OAK, Overweight, $55 PT)                   Legg Mason (LM, Equal-weight, $29 PT)
We lower our 4Q12e ANI -1c to $1.01c and raise our 2013e          We lower our C4Q12e and CY2013e EPS to 48c and $1.98
estimate to $5.01 (from $5.00 previously) on slightly higher      (from 51c and $2.00) as slightly weaker flows (-$13B in
fee-paying AuM. We estimate $0.9B of fee-paying                   CY2013e vs -$12B prev) compound a slightly weaker margin
fundraising, mostly from closed-end funds such as ROF VI.         than prior expectation. Price target remains $29.

Underweights                                                      T. Rowe Price (TROW, Equal-weight, $71 PT)
                                                                  We raise our 4Q12e EPS to 89c (from 88c) on higher
Janus Capital (JNS, Underweight, $8 PT)                           investment income (which typically peaks in 4Q), trumping a
Despite lowering our long-term flow expectations to -$3.4B        reduction in our 4Q12e flows (+$2.3B vs +$4.1B prev). Our
outflows (from -$2.7B), our 4Q12e and 2013e EPS remain            2013e EPS remains unchanged at $3.78, as our flow
unchanged at 14c and 62c. Our negative performance fee            estimates for the year ($27B) are effectively unchanged. We
ests for 4Q (-$17M) and 2013 (-$71M) are largely unchanged.       raise our price target to $71 (vs $69 previously).
With Dai-Ichi open market purchases complete, we expect
valuation of shares to shift back to fundamentals, absent a
broader beta rally in the market. Tweaking price target higher
to $8 (from $7.50) on higher markets heading in 2013.




                                                                                                                               8
                                                                  MORGAN       STANLEY   RESEARCH

                                                                  January 4, 2013
                                                                  US Asset Managers




Waddell & Reed (WDR, Equal-weight, $37 PT)
Our 4Q12e EPS is unchanged at 57c from our initiation on
12/14, and we raise our 2013e EPS to $2.44 (from $2.41) as
higher returns in late December lead to higher AuM in forward
periods. We slightly reduce our 4Q12e & 2013e flows to
-$0.2B and +$2.3B (vs +$0.1B and $2.4B respectively). We
raise our price target to $37 (from $35) on higher 2013 EPS.

WisdomTree (WETF, Equal-weight, $8 PT)
We raise our ests 2013e EPS to 27c (from 23c), on the back of
higher flow expectations ($5B vs $4B prev) driven partially by
the impressive growth trajectory of the Japan Hedged Equity
product. We est 4Q inflows of ~$930MM (based on $904MM
inflows thru 12/27 disclosed on WETF website), driving our
21% pro forma operating margin est. Our $8 price target
remains unchanged.

KKR (Equal-weight, $17 PT)
We lower our ENI for 4Q12e and 2013e to 24c (vs 50c prior)
and $2.09 (vs $2.15 prior) on lower portfolio marks and lighter
KKR Capital Markets deal activity. Reduction in portfolio
marks driven by somewhat weaker-than-expected public
market returns (including a 14% q/q decline in DG shares).

The Carlyle Group (CG, Equal-weight, $29 PT)
We lower our 4Q12e ENI to 49c from 50c on slightly lower
portfolio marks. 2013 ENI estimate largely flat at $3.05. We
expect $1B of CPE fundraising from strategies such as middle
market buyouts and $0.5B of flows into hedge funds (ex $2.2
contribution from Vermillion acquisition) in 4Q12.




                                                                                                    9
                                                                                                              MORGAN                STANLEY                      RESEARCH

                                                                                                              January 4, 2013
                                                                                                              US Asset Managers




Exhibit 10
US Traditional Asset Managers Comparables Summary
US Asset Managers                                                              Last 6M                                                                                      Valuation Metrics
                                                                     Latest     Flows /                             EPS                                                                                                       Share Price             Short        Div
03-Jan-13                                     Share    Mkt. Val.      AuM      BoP AuM            EPS Estimates     CAGR                                 P/E                    EV / EBITDA     Mkt Cap /      EV /         Performance (%)           Int. %      Yield
Company                Ticker    Rating       Price     ($MM)         ($B)     (% ann.)       2012E   2013E 2014E 12-14E(%)                   2012E     2013E       2014E      2012E 2013E      AuM (%)      AuM (%)       1M     3M      12 M        of O/S      2012E
US Traditional Asset Managers
AllianceBernstein        AB        EW        $17.99     13,212        419          (3.4)      1.24          1.46       1.57    12.7           14.5x      12.3x      11.4x      23.4x   20.6x       3.2         3.1          0.4     18.1      29.8      0.1            6.5
Franklin                BEN        EW        $129.79    27,613        750           1.6       9.25         10.09      10.99     9.0           14.0x      12.9x      11.8x       8.4x    7.4x       3.7         3.1          0.8      5.3      35.5      1.0            0.9
BlackRock               BLK        OW        $213.35    29,775       3,673         (4.6)      13.39        15.24      16.86    12.2           15.9x      14.0x      12.7x       8.1x    7.3x       0.8         0.9          9.2     18.4      22.9      1.5            2.8
Federated                 FII      UW        $21.52      2,237        364          (3.4)      1.63          1.76       1.89     7.6           13.2x      12.2x      11.4x       7.8x    6.8x       0.6         0.7          6.7     13.1      46.3     17.0           11.5
Invesco                  IVZ       OW        $27.01     12,033        683           1.0       1.71          2.01       2.30    15.9           15.8x      13.4x      11.7x      11.0x    9.6x       1.8         1.8          9.1      7.3      34.9      0.6            2.6
Janus                   JNS        UW         $9.07      1,717        158          (7.3)      0.56          0.62       0.72    13.8           16.2x      14.7x      12.6x       7.8x    7.3x       1.1         1.2         16.1     (1.7)     41.9     10.9            2.6
Legg Mason               LM        EW        $26.09      3,437        651          (0.7)      1.82          1.98       2.36    13.9           14.4x      13.1x      11.1x       9.5x    8.3x       0.5         0.6          2.8      8.5       8.7      6.9            1.7
T. Rowe Price          TROW        EW        $66.99     17,563        574           3.2       3.37          3.78       4.28    12.7           19.9x      17.7x      15.6x      11.3x    9.8x       3.1         2.8          6.7      8.9      19.3      1.3            2.0
Waddell & Reed          WDR        EW        $35.91      3,074        95            2.6       2.21          2.44       2.70    10.5           16.2x      14.7x      13.3x      10.4x    9.3x       3.2         3.4          9.8     17.6      46.5      3.9            5.6
AMG                     AMG        NC        $133.91     7,050        416           9.9        7.55         8.99      10.29    16.8           17.7x      14.9x      13.0x      14.8x   11.7x       1.7         2.0          4.4      9.4      36.3      2.4            0.0
Artio                   ART        NC         $1.94       116          18         (65.7)      0.21         (0.05)     (0.04)    NM             9.2x       NM         NM         3.3x    NA         0.7         0.3        (13.4)   (29.6)    (60.2)     2.4            3.8
Calamos                CLMS        NC        $10.75       220          34          (8.8)      0.87          0.83       0.90     2.0           12.4x      13.0x      11.9x       NA      NA         0.6         0.6          9.7     (4.5)    (12.6)     1.9            4.0
Eaton Vance              EV        NC        $32.59      3,790        193          (0.9)      1.93          2.14       2.36    10.6           16.9x      15.2x      13.8x       9.7x    8.6x       2.0         2.1          5.8     17.2      44.9      7.4            2.4
Mean                                                                               (6.1)                                       11.5           16.0x      14.1x      12.7x      10.6x   9.7x        1.8         1.8          5.3      6.7      21.7     4.6            3.5
Median                                                                             (2.2)                                       12.5           15.8x      14.0x      12.6x      9.7x    9.0x        1.7         1.9          6.2      8.7      32.4     2.4            2.6

WisdomTree             WETF        EW         $6.66      922           17         43.3         0.08        0.27       0.24     78.7           88.7x      25.0x      27.8x       NA      NA         5.5          NA         9.4      4.9       9.2      2.5            NA

Source: Company Data, Morgan Stanley Research, ThomsonReuters




Exhibit 11
US Alternative Asset Managers Comparables Summary
US Alternative Asset Managers
                                                                   Net flows (% of                      Earnings metrics                                                        Valuation metrics                                                         Sell-side
                                                                                (1)
03-Jan-13                                                          BoP FPAuM)              ENI / unit         Distributable earnings / unit           Price / ENI       Price / distributable earnings   Distribution yield (%)    Total return (%)      ratings (%)
                                          Market   Total     Fee-
                                 Stock       cap   AuM     paying
Company                           price     ($B)    ($B) AuM ($B) 2012e 2013e         2012e   2013e   2014e         2012e 2013e 2014e          2012e 2013e 2014e             2012e 2013e 2014e           2012e 2013e 2014e          1M      3M 12M     Buy     Hold     Sell
Blackstone Group      BX        16.16      18.1    205      169     24     4           1.65    2.15    2.52          0.77  1.22  2.12            9.8   7.5   6.4              20.9  13.3   7.6             4.2   6.2  11.2          10      16  15    84.6     15.4     0.0
Carlyle Group         CG        26.28       8.0    157      115       4   14           2.12    3.05    3.35          2.23  2.92  3.76           12.4   8.6   7.9              11.8   9.0   7.0             NM    8.9  11.4           5       3  NA    44.4     55.6     0.0
           (2)
KKR & Co.             KKR       15.51      10.9      66       50    12    13           2.67    2.09    2.34          0.71  0.91  1.09            5.8   7.4   6.6              21.8  17.0  14.2             6.9   5.9   7.1          12       7  24    72.7     27.3     0.0
                (3)
Oaktree Capital       OAK       45.70       6.9      81       66     (7)   3           5.31    3.74    3.39          3.69  5.90  4.83            8.6 12.2 13.5                12.4   7.8   9.5             6.3  10.0   8.1          12      15  NA    50.0     50.0     0.0
Mean                                                                  8    8                                                                     9.2   8.9   8.6              16.7  11.8   9.6             5.8   7.7   9.5          10      10  20    62.9     37.1     0.0
Median                                                                8    8                                                                     9.2   8.1   7.2              16.7  11.1   8.5             6.3   7.5   9.7          11      11  20    61.4     38.6     0.0

Source: Company data, Thomson Reuters, Morgan Stanley Research estimates, except for NC (not covered), which are Thomson Reuters estimates.
(1) Alternative asset manager net flows include fee-paying fundraising and inflows net of redemptions and distributions.
(2) Distributable earnings excludes realized investment income for KKR.
(3) Consensus reports adjusted net income (ANI) for OAK. MS ANI estimates and multiples for OAK in 2012-14 are $3.83 (12x), $5.01 (9x) and $4.10 (11x), respectively.




                                                                                                                                                                                                                            10
                                                                                                                            MORGAN                             STANLEY        RESEARCH

                                                                                                                            January 4, 2013
                                                                                                                            US Asset Managers




Invesco Ltd. (IVZ, $27.01, Overweight, PT $30)
Risk-Reward View: Global Platform & Strong Flows at a Discount                                                                                                            Why Overweight?
                                                                                                                                                                           We’re Overweight based on our view
    $45
                                                                                                                                  $42.00 (+55%)
     40                                                                                                                                                                     that IVZ is due for a P/E re-rating
                                                                                                                                                                            (going to group avg multiple) as
     35
                                                                                                                                                                            inflows drive the market to digest
     30                                                                                             $ 27.01                       $30.00 (+11%)                             transformation of IVZ’s global product
     25
                                                                                                                                                                            platform & performance.
                                                                                                                                                                           We forecast 16% EPS CAGR in
     20
                                                                                                                                  $19.00 (-30%)                             2012-14e (highest in coverage
     15
                                                                                                                                                                            group), driven by continued inflows &
                                                                                                                                                                            positive operating leverage.
     10
                                                                                                                                                                           We view IVZ as a primary beneficiary
        5                                                                                                                                                                   of retail investor re-risking once
                                                                                                                                                                            market volatility subsides, given
       0
       Jan-11                     Jul-11              Jan-12                   Jul-12               Jan-13               Jul-13                       Jan-14
                                                                                                                                                                            product breadth, near top of group
                Price Target (Jan-14)                          Historical Stock Performance                        Current Stock Price   WARNINGDONOTEDIT_RRS4RL~IVZ.N~
                                                                                                                                                                            performance, and global client base.
Source: Morgan Stanley Research, ThomsonReuters
                                                                                                                                                                          Key Value Drivers
 Price Target $30                                 Derived from 13.5x target P/E on base case NTM EPS, below historical
                                                  levels (16x) but roughly in line with group avg as mkt digests transformation.                                           Continued inflows, more skewed to
 Bull                    15x Bull Case            Strong flows (+8%) driven by better than expected retail. Investor                                                        dividend & fixed income products and
 Case                    NTM EPS of               re-risking yields stronger flows to equities & alternatives. IBRA product suite                                           ETFs during risk-off environment;
 $42                     $2.50                    continues to see strong inflows. Equities return 10% in the NTM. Operating                                                poised to benefit when investor
                                                  margin reaches 40%. PT via 15x bull EPS + 11% cost of capital.                                                            re-risking returns.
 Base                    13.5x Base               4% net inflows. Inflows improve over the rate in 2012, as IBRA products
                                                                                                                                                                           Continued strong growth in
 Case                    Case                     pick up sizeable flows against a still uncertain macro backdrop. Equity                                                   international fund range (31% of AuM
 $30                     NTM EPS of               market returns 7.5% over the NTM. Operating margin of 37%. PT via 13.5x                                                   is managed for int’l clients), including
                         $2.01                    base case EPS + 11% cost of capital.                                                                                      cross-border funds.
 Bear                    11x Bear Case Flows flat NTM inflows. IBRA and fixed income inflows offset equity,                                                               Potential Catalysts
 Case                    NTM EPS of               alternative and money market outflows in a down market with investor focus
 $19                     $1.52                    remaining on capital protection. Equity markets lose 2% over the NTM as                                                  If retail flows to long-term products
                                                  operating margin falls to 33%. PT via 11x bear case EPS + 11% cost of                                                     return faster than expected (i.e. “risk
                                                  capital.                                                                                                                  on”), we expect IVZ to be a primary
Bear to Bull Waterfall                                                                                                                                                      beneficiary given strong performance
                                                                                                                                                                            and product breadth.
 Impact ($/share)
                                                                                                                                                                           The IBRA product suite, which
                                                                                                                       $4.17
            Bull 41.66                                                                                                                                                      recently hit its 3Y mark, should
                                                                                          $2.00        $0.36                                                                continue to be a flow catalyst as
                                                      $1.37
                                                                       $1.32                                                                                                distribution ramps outside the US.
                                      $2.31

    Target 30.14                                                                                                                                                          Risks to Our Price Target
                          Curr.

                                                                                                                                                                           Despite strong performance, product
                          Price       $(2.77)
                          27.01                      $(1.23)
                                                                      $(2.10)
                                                                                         $(1.04)       $(0.21)                                                              breadth and global client base, IVZ
        Bear 18.57
                                                                                                                                                                            could suffer from continued retail
                                                                                                                      $(4.22)
                                                                                                                                                                            investor de-risking (2/3 of AuM is
                                   Asset wtd.       Net flows       Operating           Fee rates   Net buybacks    Valuation
                                                                                                                                         Dividends                          retail).
                                  market return                      margin                                         multiples
                                                                                                                                                                           Lack of margin expansion despite
                         Bull           8%              8%              40%              52.1bps        1.2%             15x                    $0.97
 Inputs                  Base           5%             4%               37%              50.3bps        0.2%             14x                    $0.83                       strong market returns & inflows.
                         Bear           0%             0%               33%              48.6bps       -0.9%             11x                    $0.69




                                                                                                                                                                                                                11
                                                                                                                            MORGAN                           STANLEY        RESEARCH

                                                                                                                            January 4, 2013
                                                                                                                            US Asset Managers




BlackRock Inc. (BLK, $213.35, Overweight, PT $237)
Risk-Reward View: Positive Operating Leverage Drives EPS Growth                                                                                                          Why Overweight?
                                                                                                                                                                          We view BLK as well positioned for
    $350

                                                                                                                                                                           growth given strength in multi-asset
     300                                                                                                                      $299.00 (+40%)
                                                                                                                                                                           and alternatives and market-leading
     250
                                                                                                                                                                           ETF platform, and see significant
                                                                                                   $ 213.35                   $237.00 (+11%)                               upside vs current share price.
     200                                                                                                                                                                  In the near-term, we view BLK’s
                                                                                                                                                                           institutional-heavy client mix and ETF
                                                                                                                              $165.00 (-23%)
     150                                                                                                                                                                   market leadership as providing
                                                                                                                                                                           downside support against any
     100                                                                                                                                                                   prolonged period of long-term asset
                                                                                                                                                                           outflows from retail channels.
        50                                                                                                                                                                We view BLK’s relatively resilient
                                                                                                                                                                           product platform, scale and breadth
        0
        Jan-11                    Jul-11               Jan-12                   Jul-12              Jan-13              Jul-13                        Jan-14
                                                                                                                                                                           as a positive amid a volatile backdrop
               Price Target (Jan-14)                           Historical Stock Performance                       Current Stock Price   WARNINGDONOTEDIT_RRS4RL~BLK.N~
                                                                                                                                                                           where equity mutual fund outflows
Source: Morgan Stanley Research, ThomsonReuters                                                                                                                            persist.
 Price Target $237                                Derived from 14x target p/e (in line with group avg but well below historical 20x) on
                                                                                                                                                                         Key Value Drivers
                                                  base case NTM EPS, as long-term barbell structural advantages offset by
                                                  near-term ETF pricing uncertainty and questions surrounding organic growth rate.                                        We see substantial organic growth in
 Bull                  15x Bull Case              Stronger flow pipeline (+9%). Increased risk-taking brings flows to higher fee                                           higher fee products where BLK is a
 Case                  NTM EPS of                 products, including active equity & alternatives. Equities return 10% NTM.                                               market leader such as alternatives
 $299                  $17.94                     Operating margin of 42%. PT via 15x bull EPS + 11% cost of capital.                                                      and multi-asset, and positive
                                                                                                                                                                           operating leverage in lower fee ETF
 Base                  14x Base Case +3% net inflows. Inflows led by iShares, multi-asset, & fixed income; offset by
 Case                  NTM EPS of                 outflows from active equity. Equities return 7.5% in NTM. Non-GAAP operating
                                                                                                                                                                           products.
 $237                  $15.24                     margin ~41%. PT via 14x base case EPS + 11% cost of capital.                                                            We forecast iShares ETF AuM CAGR
                                                                                                                                                                           of 17% from 2011-15, vs industry
 Bear                  12.5x Bear                 Net outflows (-2%) as investors de-risk substantially. Investors pull out of
                                                                                                                                                                           growth of 22%, driving substantial
 Case                  Case NTM                   equities (mainly active), with fixed income ETF inflows a partial offset. Equity
                                                                                                                                                                           operating leverage and north of $8
 $165                  EPS of $11.87              market down 2% in NTM. Expenses fall 11% from base, op. margin drops to 40%.
                                                                                                                                                                           EPS by 2015 (~46% of firm total).
                                                  Capital requirements an uncertainty (related to MMF reform or potential SIFI
                                                  designation). PT via 12.5x bear EPS + 11% cost of capital.                                                             Potential Catalysts
Bear to Bull Waterfall                                                                                                                                                    Continued growth in ETF AuM driving
 Impact ($/share)                                                                                                                                                          operating margin higher, given highly
             Bull 298.74
                                                                                                                   $19.92                                                  scalable nature of platform.
                                                                                         $7.58        $3.44                                                               Stronger-than-expected ongoing
                                                                       $7.72
                                                      $13.61                                                                                                               share repurchases.
                                        $9.56
     Target 236.90
                               Curr.
                                                                                                                                                                         Risks to Our Price Target
                               Price
                              213.35
                                       ($24.80)
                                                     ($12.94)
                                                                                                                                                                          Larger than expected share loss in
                                                                      ($5.84)
                                                                                         ($7.25)      ($1.66)                                                              ETFs; lack of positive operating
         Bear 164.65                                                                                              ($19.76)                                                 leverage if markets decline.
                                                                                                                                                                          Regulatory uncertainty, including
                                    Asset wtd.       Net flows      Operating        Fee rates     Net buybacks   Valuation
                                   market return                     margin                                       multiples
                                                                                                                                 Dividends                                 potential for money fund reform, could
                       Bull                8%            9%             42%          23.3bps           1.4%        15.0x           $6.45                                   cause BLK to hold more capital.
 Inputs               Base                 5%            3%             41%          22.6bps           -0.1%       14.0x           $6.45
                      Bear                 -2%          -2%             40%          21.9bps           -1.4%       12.5x           $6.34




                                                                                                                                                                                                             12
                                                                                                               MORGAN                             STANLEY         RESEARCH

                                                                                                               January 4, 2013
                                                                                                               US Asset Managers




Blackstone Group (BX, $16.16, Overweight, PT $20)
Risk-Reward View: Earnings Power Growing via Strong Fundraising                                                                                            Why Overweight?
    $30
                                                                                                                                                            We forecast 14% fee-paying AuM growth in
                                                                                                                                                             2010-15 (vs 27% LTM) to continue driving
     25                                                                                                             $25.00 (+55%)
                                                                                                                                                             up steadier fee-related earnings and expect
                                                                                                                                                             that shareholders will be paid a 6% divi
     20                                                                                                             $20.00 (+24%)                            yield in 2013 as realizations begin to pick
                                                                                        $ 16.16                                                              up
     15                                                                                                                                                     Near-term, we expect BX shares to see a
                                                                                                                                                             lift as realizations begin to pick up, first in
     10                                                                                                             $10.00 (-38%)                            Real Estate (where we estimate $2.90
                                                                                                                                                             value of future carry), and then in Private
                                                                                                                                                             Equity
        5
                                                                                                                                                            Longer-term, we view BX’s diversified
                                                                                                                                                             platform as an attractive one-stop-shop for
       0
       Jan-11               Jul-11              Jan-12                Jul-12            Jan-13             Jul-13                       Jan-14               pensions & sovereign wealth funds
             Price Target (Jan-14)                      Historical Stock Performance                 Current Stock Price   WARNINGDONOTEDIT_RRS4RL~BX.N~     increasingly looking for diverse solutions
Source: Morgan Stanley Research, Thomson Reuters                                                                                                             with fewer GPs.
 Price Target $20                         We base our price target on 50/50 split of long-term metrics – DCF ($17,
                                                                                                                                                           Key Value Drivers / Catalysts
                                          using 11.8% WACC, 1% terminal growth rate) & sum-of-parts ($22) – and
                                          then back into implied ENI multiple.                                                                              Near-term: pick-up in realizations driving
 Bull                DCF/SOTP:            Markets rebound as macro backdrop improves and capital markets                                                      distributable earnings higher – first via Real
 Case                ~10x 2013e           open. Fundraising & capital deployed ~25% above base case; returns in line                                          Estate (2013-14), then PE (2014-15) –
 $25                 ENI of $2.55         with historical; ramp to full corp. tax: 2015-18.                                                                   critical for share outperformance vs market
 Base                DCF/SOTP:            Below historical mkt returns, but ramp in fundraising. Substantial
                                                                                                                                                              and vs peers
 Case                ~9x 2013e ENI growth in HF Solutions, PE and Real Estate; capital deployed in line with                                                Intermediate-term: crossing hurdle in BCP
 $20                 of $2.15             recent years; higher in Real Estate; ramp to full corp. tax: 2015-18.                                               V fund deployed 2005-2011 (we est late
 Bear                DCF/SOTP:            Recession. Negative near-term marks result in negative carry; returns well
                                                                                                                                                              2014), strong performance of BCP VI
 Case                2013e ENI of         below historical; fundraising and capital deployment deteriorate                                                  Long-term: increased allocations to
 $10                 $0.25                substantially; ramp to full corp. tax: 2013.                                                                        alternatives by pension and SWFs, as well
                                                                                                                                                              as consolidation of GP relationships, a key
Implied Returns: BX share price implies PE/RE returns just above 8% hurdle                                                                                    driver of long-term AuM growth for BX
rates (we forecast ~15-16%, historical gross IRRs are 20-25% for PE & RE)
                                                                                                                                                           Risks to Our Price Target
                                                                                          Incremental
  Fee-related      Investments &              Market implied                             value of future
   earnings            cash      Accrued carry future carry                              carry (MS est)                                                     Weak realization activity & distributable
                                                                                                                                                             earnings could cause BX to underperform
                   Net cash/(debt), Carry accrued but                                        5.78
  NTM fees on
 AuM (8-10 year
                   20% discount on   unrealized, at                                                                                                          peers with stronger realizations
                     investments     20% discount
 lock-up) at 16x
     multiple                            1.46
                                                            1.46                                                                                            BCP V fund failing to cross hurdle rate (vs
                        1.95
     11.29                                                                                                                                                   management guidance of 1.8-2.0x return of
                                                                                                             21.94                                           capital) a risk to 2014-15 earnings
                                                                               16.16
                                                                                      RE = $2.90
                                                                                      PE = $2.61
                                                                                     BAAM = $0.87
                                                                           = Current Credit = $0.86 = MS SOTP
                                                                          share price                      valuation




                                                                                                                                                                                                        13
                                                                                                           MORGAN                              STANLEY            RESEARCH

                                                                                                           January 4, 2013
                                                                                                           US Asset Managers




Oaktree Capital Group, LLC (OAK, Overweight, $45.70, Price Target $55)
Risk-Reward View: Near-Term Distributions, Long-Term AuM Growth                                                                                          Why Overweight?
                                                                                                                                                          2011-15 fee-paying AuM growth (3% est)
    $70
                                                                                                                 $65.00 (+42%)
                                                                                                                                                           lags peers as large ‘08 funds roll off, but
     60
                                                                                                                                                           OAK has room for growth in open-end near
                                                                                                                 $55.00 (+20%)
     50
                                                                                                                                                           term, closed-end longer term.
                                                                                    $ 45.70
                                                                                                                                                          Potential for significant near-term
     40                                                                                                                                                    distribution ramp (starting 1Q13) as Opps
                                                                                                                                                           VIIb (financial crisis era distressed fund)
     30                                                                                                          $29.00 (-37%)                             begins realizing carried interest.
                                                                                                                                                          Complement to Overweight-rated BX: both
     20                                                                                                                                                    benefit from up-cycles (BX more
                                                                                                                                                           pro-cyclical), but 41% of OAK AuM in
     10
                                                                                                                                                           counter-cyclical strategies (distressed &
                                                                                                                                                           real estate) provides fundraising upside if
      0
      Jan-11              Jul-11            Jan-12               Jul-12             Jan-13              Jul-13                        Jan-14               market dislocation increases.
           Price Target (Jan-14)                   Historical Stock Performance                   Current Stock Price
                                                                                                                                                         Key Value Drivers
                                                                                                                        WARNINGDONOTEDIT_RRS4RL~OAK.N~




Source: Morgan Stanley Research, Thomson Reuters

 Price Target $55                       We base our price target on 50/50 split of DCF ($52, using 11.8%       We estimate 3% fee-paying AuM CAGR in
                                        WACC, 1% terminal growth) & sum-of-parts ($57), and back into           2011-15, driven by 12% growth in
                                        implied dist earnings (DE) and econ net income (ENI) multiples.         open-end funds, 9% in Evergreen (HFs),
 Bull              ~10x 2013e           Markets rise as macro backdrop improves, capital markets
                                                                                                                and flattish closed end.
 Case              DE; 19x ENI          improve. Fundraising & capital invested 15-25% above base case;        Expect OAK to remain an industry leading
 $65                                    returns slightly below historical; ramp to full corp. tax in 2015-18.   value credit manager, while expanding
 Base              ~9x 2013e            Below historical fund returns, $5B average closed-end                   platform in real estate, European
 Case              DE, 15x ENI          fundraising 2012-14. Open-end fund inflows; capital deployed            opportunities, and open-end funds.
 $55                                    in-line w/ recent years; ramp to full tax in 2015-18.                  Increasing allocations to alternatives by
 Bear              ~8x 2013e            Difficult exit/return environment. Low near-term marks result in        pensions and SWFs key for driving
 Case              DE                   lower realizations & carry, returns well below historical average;      alternatives/OAK AuM growth.
 $29                                    closed-end fundraising & capital deployment same as base as            Ramp to full corp. tax rate in 2015-18
                                        counter-cyclical strategies benefit from market dislocations; ramp      based on our working assumption that
                                        to full corp. tax in 2013.
                                                                                                                carried interest will be under scrutiny.
What the Market Implies: current share price implies ~9-10% gross IRR for
closed-end funds (vs historical ~19% and our 14% forecast)                                                                                               Potential Catalysts
                                                                                                Incremental                                               Market dislocation resulting in outsized
  Fee-related      Investments &              Market implied                                   value of future
                                                                                                                                                           fundraising in distressed, real estate, and
   earnings            cash      Accrued carry future carry                                    carry (MS est)
                                       Carry accrued                                                                                                       European credit.
                   Net cash/(debt),
  NTM fees on                          but unrealized,
 AuM (8-10 year
                   15% discount on                                                                11.76
 lock-up) at 16x
                     investments      at 15% discount                                                                                                    Risks to Our Price Target
     multiple                                                 4.34
                                           7.24                                                                                                           Global macro concerns pressure
                       10.12                                                                  MS total value of                                            alternative asset mgr shares, although
                                                                                               future carry =
     24.01                                                                                                               57.46                             OAK could benefit in certain ways.
                                                                                                   $16.09
                                                                                  45.70
                                                                                                                                                          Pro-cyclical market could result in faster
                        We estimate $16.09 value of future
                        carry (inclusive of higher carry tax                                                                                               growth for traditional PE firms vs OAK.
                        assumption), $11.76 higher than                                                                                                   Carry taxation likely to remain a key
                        market implies.                                       = Current                             = MS SOTP                              investor concern amid US budget talks.
                                                                             share price                             valuation




                                                                                                                                                                                                    14
                                                                                                                         MORGAN                             STANLEY         RESEARCH

                                                                                                                         January 4, 2013
                                                                                                                         US Asset Managers




Federated Investors (FII, $21.52, Underweight, PT $22)
Risk-Reward View: Fee Waivers Persist + MMF Reform Overhang                                                                                                             Why Underweight?
                                                                                                                                                                         We believe FII should trade at a
    $35

                                                                                                                                $32.00 (+49%)
                                                                                                                                                                          discount while low rates continue to
     30
                                                                                                                                                                          drive money fund fee waivers (¾ of
     25
                                                                                                                                                                          AuM and ½ of gross revs) and
                                                                                               $ 21.52                                                                    potential for MMF reform remains a
                                                                                                                                $22.00 (+2%)
     20                                                                                                                                                                   formidable overhang.
                                                                                                                                                                         We feel the mkt underestimates the
     15                                                                                                                                                                   duration & impact of mmkt fee waivers
                                                                                                                                $12.00 (-44%)                             in this persistent low-rate env’t (on the
     10                                                                                                                                                                   back of an open-ended QE3). We
                                                                                                                                                                          believe waivers persist through YE15.
        5
                                                                                                                                                                         Once rates do rise and fee waivers
                                                                                                                                                                          abate, we believe FII may see
       0
       Jan-11                Jul-11                Jan-12             Jul-12                   Jan-13                  Jul-13                       Jan-14
                                                                                                                                                                          outflows from money market funds as
              Price Target (Jan-14)                     Historical Stock Performance                             Current Stock Price   WARNINGDONOTEDIT_RRS4RL~FII.N~
                                                                                                                                                                          investors re-risk (although they may
Source: Morgan Stanley Research, ThomsonReuters                                                                                                                           not be as rate sensitive as in past
 Price Target $22                           Derived from 11.5x target P/E on base case NTM EPS (vs historical 14x), as mmkt                                               cycles); unclear as to whether FII can
                                            fee waivers remain high and growth in equity/FI platforms takes time.                                                         retain these clients via shifts to its
 Bull                 13x Bull Case         Fixed income and money funds drive inflows (+9%). inflows to all asset                                                        fixed income or equity platforms.
 Case                 NTM EPS of            classes as investors re-risk. Equities return 10% in the NTM as margin rises to
                                                                                                                                                                        Key Value Drivers
 $32                  $2.24                 44%. PT via 13x bull case EPS + 11% cost of capital
                                                                                                                                                                         We expect continued inflows into FII’s
 Base                 11.5x Base            5% inflows. fixed income-led inflows (slight inflows also to equity) and investors
 Case                 Case NTM              look to get some yield but limit risk exposure. Fee waivers trim NTM EPS by 40c.
                                                                                                                                                                          equity platform, led by Strategic Value
 $22                  EPS of $1.76          Equity funds return 7.5% over NTM. 42% margin. PT via 11.5x base case EPS +                                                   Divi & Prudent Bear funds, though
                                            11% cost of capital                                                                                                           Prudent Bear obviously affected by
                                                                                                                                                                          extended bull market.
 Bear                 10.5x Bear            Capital Buffer + slight inflows (+1%): Assumes FII must hold 50bps of capital
                                                                                                                                                                         Longer term, we believe FII will be on
 Case                 Case                  against prime money funds, raised over ~5 years. Low rates lead to -64c NTM
                                                                                                                                                                          the lookout for accretive acquisitions
 $12                  NTM EPS of            EPS impact. Outflows from equity and mmkt offset slight fixed income inflows.
                      $1.04                 Equities drop 2% in the NTM as operating margin declines to 37%. PT via 10.5x
                                                                                                                                                                          to diversify global product breadth.
                                            bear case EPS + 11% cost of capital                                                                                         Potential Catalysts
Bear to Bull Waterfall                                                                                                                                                   Positive: stronger macro data and mkt
Impact ($/share)                                                                                                                                                          perception of rate hikes sooner than
                                                                                                                                                                          expected could significantly reduce
               Bull 31.89
                                                                                                                         $3.73                                            impact of fee waivers vs our ests.
                                                                     $1.07             $0.32             $0.20                                                           Negative: any onerous requirements
                                                       $1.39
                                        $3.17                                                                                                                             (capital buffer, floating NAV)
                              Curr.                                                                                                                                       stemming from money market fund
            Target 22.00      Price
                              21.52                                                                                                                                       regulation – still in discussion stages –
                                        $(3.71)
                                                      $(1.36)                                                                                                             could negatively impact FII.
                                                                    $(0.74)
                                                                                   $(1.02)

              Bear 11.67
                                                                                                         $(2.35)
                                                                                                                        $(1.15)
                                                                                                                                                                        Risks to Our Thesis/Price Target
                                                                                                                                                                         Upside surprises could include
                                      Asset wtd.      Flows       Operating      Fee rates             Net            Valuation         Dividends                         accretive M&A or stronger than
                                      mkt return                   margin                           buybacks          multiples
                      Bull                2%            9%            44%        19.7bps                -0.2%              13x                 $1.20
                                                                                                                                                                          expected equity/fixed income flows.
 Inputs              Base                 1%            5%            42%        17.7bps                -1.1%              12x                 $1.06                     FII shares could outperform peers in
                     Bear                 0%            1%            37%        15.0bps            -30.0%                 11x                  $0.92                     bear mkt.



                                                                                                                                                                                                               15
                                                                                                                        MORGAN                             STANLEY         RESEARCH

                                                                                                                        January 4, 2013
                                                                                                                        US Asset Managers




Janus Capital (JNS, $9.07, Underweight, PT $8)
Risk-Reward View: Challenging Fundamentals with Fading Technicals                                                                                                      Why Underweight?
      $16
                                                                                                                                                                        Fundamental outlook for flows and
      14
                                                                                                                                                                       negative performance fees remain
                                                                                                                                                                       challenged, as JNS equity funds have
      12                                                                                                                                                               underperformed ytd and equity outflows
                                                                                                                               $11.50 (+27%)
                                                                                                                                                                       have intensified.
      10                                                                                       $ 9.07
                                                                                                                                                                        With Dai-ichi reaching its ~20% max stake
        8                                                                                                                       $8.00 (-12%)                           (under current agreement), we believe
                                                                                                                                 $7.00 (-23%)                          valuation basis should now revert back to
        6
                                                                                                                                                                       fundamentals; we don’t view an outright
        4                                                                                                                                                              acquisition as likely in the near-term.
                                                                                                                                                                        Stock trades at a premium to peers, which
        2
                                                                                                                                                                       we view as fully valued when combining
       0
                                                                                                                                                                       fundamentals & implied Dai-ichi support.
       Jan-11                Jul-11                Jan-12             Jul-12                   Jan-13                 Jul-13                        Jan-14
             Price Target (Jan-14)                      Historical Stock Performance                            Current Stock Price   WARNINGDONOTEDIT_RRS4RL~JNS.N~
                                                                                                                                                                       Key Value Drivers
Source: Morgan Stanley Research, ThomsonReuters                                                                                                                         Improving equities performance is key to
 Price Target $8                            Derived from analysis of P/E vs EPS CAGR vs peers and 25% probability of full                                               stemming negative performance fees &
                                            M&A by Dai-ichi Life of Japan. Lower than historical 19x as outflows continue, but                                          outflows.
                                            supported somewhat by strategic alliance with Dai-ichi.
                                                                                                                                                                        Base case assumes performance fee
 Bull                 13x Bull Case         Flows turn positive (+5%). Equity flows turn positive in 3Q13, perf fees in 2014.                                           positive by 2016 (-$71mm in 2013 &
 Case                 NTM EPS of            Equities return ~12% in NTM as operating margin climbs to 34%. PT via 13x bull                                              -$25mm in 2014) and return to positive net
 $11.50               $0.79                 case EPS + 11% capital cost.                                                                                                inflows by 2H13.
 Base                 11.5x Base            Slight outflows, but improve vs LTM (-2%). Equity flows remain negative, FI                                                 Continued build-out of new products such
 Case                 Case                  flows positive. Negative performance fees reduce NTM EPS by -8c. Equities                                                   as fixed income key for returning to net
 $8                   NTM EPS of            return 7% over the NTM. Operating margin of 31%. PT via 11.5x base case EPS                                                 inflows.
                      $0.62                 + 11% capital cost.
                                                                                                                                                                       Potential Catalysts
 Bear                 Premium               Outflows continue (-3%), as does de-risking. Equities drive outflows as FI
                                                                                                                                                                        Dai-ichi increasing involvement in JNS
 Case                 multiple on           inflows minimally offset. Negative performance fees persist & reduce NTM EPS by
                                                                                                                                                                        (potential M&A), or upsizing distribution
 $7                   NTM EPS of            -9c. Equities lose ~2% during the NTM. 30% operating margin. PT via 11x bear
                                                                                                                                                                        agreement with JNS.
                      $0.48                 case EPS + 30% acquisition premium.
                                                                                                                                                                        Increase (or decrease) in risk tolerance of
Bear to Bull Waterfall                                                                                                                                                  US equity retail investors, as JNS equity
Impact ($/share)                                                                                                                                                        outflows have intensified and ETFs have
                                                                                                                                                                        taken more share from overall mutual
                                                                                                                        $1.32                                           funds.
                Bull 11.40
                                                                                                                                                                        Increased capital mgmt via debt pay down
                                                                                       $0.40            $0.05
                                                                     $0.84
                                                                                                                                                                        ($289M paid down in the last 2 years),
                              Curr.                                                                                                                                     elevated divi, or increased buybacks (only
                              Price                    $0.49
                              9.07      $0.45                                                                                                                           after current agreement with Dai-ichi
            Target 7.86
                                                                                                                                                                        expires).
                                        $(0.48)                     $(0.06)
              Bear 6.85
                                                      ($0.07)                                                                                                          Risks to Our Price Target
                                                                                   $(0.21)              $(0.05)        $(0.13)
                                                                                                                                                                        Risks to upside or downside skewed to
                                      Asset wtd.     Net flows    Operating      Fee rates            Net            Valuation          Dividends                       performance of equity funds and resulting
                                      mkt return                   margin                          buybacks          multiples
                  Bull                  10%             5%            34%              50.8                 0%            13x                 $0.36
                                                                                                                                                                        impact on performance fees and flows.
 Inputs           Base                    7%            -2%           31%              49.8                 0%            12x                 $0.32
                  Bear                   -1%            -3%           30%              48.7                 -2%           11x                 $0.26




                                                                                                                                                                                                                  16
                                                                                                                          MORGAN                               STANLEY   RESEARCH

                                                                                                                          January 4, 2013
                                                                                                                          US Asset Managers




AllianceBernstein (AB, $17.99, Equal-weight, PT $19.50)
Risk-Reward View: More Balanced – Bond Inflows, Equity Outflows                                                                                                     Why Equal-weight?
    $30
                                                                                                                                                                     While we still view institutional equity
                                                                                                                                                                      performance and flows as a significant
     25                                                                                                                 $25.00 (+39%)
                                                                                                                                                                      headwind, we see risk-reward as more
                                                                                                                                                                      balanced given recent success in retail
     20                                                                                   $ 17.99                       $19.50 (+8%)                                  fixed income and cost cuts driving
                                                                                                                                                                      positive operating leverage.
     15
                                                                                                                                                                     Long term, we view continued build-out
                                                                                                                        $11.50 (-36%)                                 of product platform (fixed income, index,
     10
                                                                                                                                                                      asset allocation) and sustained
                                                                                                                                                                      performance success, as critical to
      5                                                                                                                                                               driving inflows and earnings growth.
                                                                                                                                                                     Our 12x target P/E (vs 13.5x group avg)
     0                                                                                                                                                                incorporates our view that 2012-14 EPS
     Jan-11                Jul-11                Jan-12             Jul-12                Jan-13               Jul-13                       Jan-14
          Price Target (Jan-14)                       Historical Stock Performance                       Current Stock Price   WARNINGDONOTEDIT_RRS4RL~AB.N~
                                                                                                                                                                      growth is driven more via cost cutting,
                                                                                                                                                                      with full turnaround in flows and
Source: Morgan Stanley Research, Thomson Reuters
                                                                                                                                                                      revenues a longer-term dynamic. We
 Price Target $19.50                          Derived from 12x target P/E on base case NTM EPS (vs peers’ 13-14x,                                                     also note lower mkt-implied multiples for
                                              on lower quality growth with more potential risks).                                                                     broker dealers (Bernstein Research
 Bull               13x Bull                  Strong inflows (+8%). Inflows at robust levels as retail fixed income is
                                                                                                                                                                      Services ~16% of 2011 revs).
 Case               NTM EPU of                joined by institutional. Equity market returns 10%. Operating margin                                                  Key Value Drivers
 $25                $1.72                     steady at 21%. PT via 13x bull case EPU + 11% cost of capital
                                                                                                                                                                     Continued build-out of fixed income
 Base               12x Base                  Return to inflows (+3%). Fixed income/retail drive inflows in 4Q12,
                                                                                                                                                                      product platform and retaining AuM
 Case               NTM EPU of                flows stay positive through 2013. Equities return 7.5%. Operating
                                                                                                                                                                      originated in retail channels outside the
 $19.50             $1.46                     margin of 21%, PT via 12x base case EPU + 11% cost of capital
                                                                                                                                                                      US keys to offsetting equity outflows.
 Bear               10.5x Bear                Steady rate of outflows (-7%) persists. Underperformance                                                               Positive operating leverage as the
 Case               NTM EPU of                continues & redemptions return at high rates. Equity returns slightly                                                   company right-sizes expenses and
 $11.50             $1.00                     negative over NTM. Operating margin declines to 18%. PT via 10.5x                                                       potentially returns to net inflows, driving
                                              bear case EPU + 11% cost of capital
                                                                                                                                                                      13% 2012-14 EPS CAGR.
Bear to Bull Waterfall                                                                                                                                              Potential Catalysts
 Impact ($/share)
                                                                                                                                                                     Quicker equity performance
                                                                                                                                                                      bounce-back could lead to higher flows
                                                                                                                    $1.90
              Bull 24.84
                                                                                                                                                                      vs our base case.
                                                                                                      $1.10
                                                                     $0.48
                                                                                      $0.74                                                                          Conversely, any significant shift in
                                       $0.68          $0.44
                                                                                                                                                                      investor demand away from fixed
                             Curr.
              Target 19.50 Price       $(1.09)                                                                                                                        income could lead to weaker flows than
                             17.99                    $(0.94)
                                                                                                                                                                      our base case assumptions.
                                                                    $(2.64)
                                                                                      $(0.82)
                                                                                                     $(0.64)                                                        Risks to Our Price Target
              Bear 11.71
                                                                                                                   $(1.66)
                                                                                                                                                                     Stronger-than-expected equity markets,
                                     Asset wtd.       Flows       Operating      Fee rates             Net       Valuation                    Cash
                                     mkt return                    margin                           buybacks     multiples
                                                                                                                                                                     faster-than-expected rebound in
                                                                                                                                              Dist.

                    Bull                 7%               8%           21%           43.0bps          1.9%               13x                $1.71
                                                                                                                                                                     performance and inflows could all lead
 Inputs            Base                  5%               3%           21%           41.8bps          0.0%               12x                $1.45                    to stronger EPS growth and a higher
                   Bear                  0%               -7%          18%           40.5bps          -2.0%              11x                 $0.99                   P/E vs our expectations.
Source: Company Data, Morgan Stanley Research




                                                                                                                                                                                                             17
                                                                                                                      MORGAN                             STANLEY         RESEARCH

                                                                                                                      January 4, 2013
                                                                                                                      US Asset Managers




Franklin Resources, Inc. (BEN, $129.79, Equal-weight, PT $151)
Risk-Reward View: Equal Weight; Long Term Beneficiary of Re-Risking                                                                                                  Why Equal-Weight?
                                                                                                                                                                      While we believe BEN will be a
    $250

                                                                                                                                                                       long-term winner among asset
     200                                                                                                                                                               managers given diversified global
                                                                                                                          $191.00 (+47%)
                                                                                                                                                                       platform and strong fund
                                                                                                                                                                       performance, we view recent rally as
     150                                                                                                                  $151.00 (+16%)
                                                                                              $ 129.79                                                                 providing as less favorable
                                                                                                                                                                       risk/reward.
                                                                                                                          $103.00 (-21%)                              We estimate that BEN will realize
     100
                                                                                                                                                                       2.4% organic growth during CY13,
                                                                                                                                                                       yielding 9% EPS CAGR in C2012-14,
        50                                                                                                                                                             which merits a peer group average
                                                                                                                                                                       P/E multiple in our view.
                                                                                                                                                                      We view BEN as a primary beneficiary
        0
        Jan-11                  Jul-11               Jan-12              Jul-12               Jan-13                Jul-13                        Jan-14
                                                                                                                                                                       of any sustained retail equity
               Price Target (Jan-14)                       Historical Stock Performance                       Current Stock Price   WARNINGDONOTEDIT_RRS4RL~BEN.N~
                                                                                                                                                                       re-risking given strong distribution
Source: Morgan Stanley Research, ThomsonReuters                                                                                                                        platform and comprehensive product
 Price Target $151                               Derived from 13.5x target p/e on base case NTM EPS (vs historical 16x),                                               offering.
                                                 roughly in line with group target avg.
                                                                                                                                                                     Key Value Drivers
 Bull                  15x Bull Case             Strong inflows (+8%). Global fixed income flows come roaring back and
 Case                  NTM EPS of                investor re-risking buoys equity flows. Equities return 11% in the NTM, with                                         Modest organic growth – towards
 $191                  $11.49                    margin greater than 60%. PT via 15x bull EPS + 11% cost of capital.                                                   upper end of peer group – near term
                                                                                                                                                                       growth led by hybrid and fixed income
 Base                  13.5x Base                2% net inflows. Modest fixed income & hybrid inflows continue, coinciding
                                                                                                                                                                       platforms, longer term led by
 Case                  Case NTM                  with a slow turn to equity inflows. Equity market returns 7% in NTM, as
 $151                  EPS of $10.09             margin near 60%. PT via 13.5x base case EPS + 11% cost of capital.
                                                                                                                                                                       global/int’l equity.
                                                                                                                                                                      Flows into Luxembourg-based SICAV
 Bear                  11.5x Bear                Outflows (-6%). Outflows led by equity products, and compounded by                                                    product suite – roughly 20% of total
 Case                  Case                      global taxable bond outflows as US taxable bond and hybrids offer minimal
                                                                                                                                                                       AuM –beginning to worsen, a drag on
 $103                  NTM EPS of                offset. Equity markets lose 2% over NTM as operating margin falls to 59%.
                                                                                                                                                                       overall platform flows.
                       $8.06                     PT via 11.5x bear case EPS + 11% cost of capital.
                                                                                                                                                                      Strong net cash position & focus on
Bear to Bull Waterfall                                                                                                                                                 returning capital to shareholders
Impact ($/share)                                                                                                                                                       should support stock.

                                                                                                                   $19.13
                                                                                                                                                                     Potential Catalysts
             Bull 191.10

                                                                                     $6.16          $0.78
                                                                                                                                                                      Enhanced return of capital to
                                                       $5.23
                                                                      $5.14                                                                                            shareholders, via increasing
                                         $3.65
     Target 151.00                                                                                                                                                     dividends and share buybacks
                               Curr. $(11.18)                                                                                                                         Accretive acquisitions to build out
                               Price                   $(8.41)
                              129.79                                 $(5.27)                                                                                           domestic equities or alternatives;
                                                                                    $(5.12)        $(0.53)
                                                                                                                                                                       cash on balance sheet provides
         Bear 102.60                                                                                               $(17.89)                                            potential resources to pursue.
                                   Asset wtd.        Net flows     Operating      Fee rates         Net          Valuation
                                    market                          margin                       buybacks        multiples           Dividends
                                                                                                                                                                     Risks to Our Price Target
                                     return
                       Bull                7%             8%           60%        64.4bps              2.6%         15x                    $1.38
                                                                                                                                                                      Volatile performance of Templeton
 Inputs               Base                 5%             2%           59%        63.1bps              2.0%         14x                    $1.18                       Global Bond Fund - and any resulting
                      Bear                -1%            -6%           58%        61.3bps              1.4%         12x                    $0.92                       outflows from weakness - could
Source: Company Data, Morgan Stanley Research                                                                                                                          pressure our organic growth and EPS
                                                                                                                                                                       estimates.



                                                                                                                                                                                                             18
                                                                                                                    MORGAN                           STANLEY         RESEARCH

                                                                                                                    January 4, 2013
                                                                                                                    US Asset Managers




Legg Mason, Inc. (LM, $26.09, Equal-weight, PT $29)
Risk-Reward View: Inflection Points in Flows & Growth Longer-Term                                                                                                Why Equal-weight?
                                                                                                                                                                  While we view LM as one of the more
    $45


     40
                                                                                                                          $39.00 (+49%)
                                                                                                                                                                   global franchises under coverage and
                                                                                                                                                                   able to deliver on most client demand
     35
                                                                                                                                                                   themes, we believe key catalysts are
     30
                                                                                              $ 26.09                     $29.00 (+11%)                            longer term and short-term execution
     25
                                                                                                                                                                   risk keeps us on the sidelines.
                                                                                                                                                                  Longer term, we expect LM’s fixed
     20                                                                                                                                                            income flows (via WAMco) to benefit
                                                                                                                          $17.00 (-35%)
     15
                                                                                                                                                                   from improved performance and
                                                                                                                                                                   demand for global yield, but could be
     10
                                                                                                                                                                   offset by increased indexing.
        5                                                                                                                                                         Now that expense base streamlining
                                                                                                                                                                   is complete, we look for stepped up
       0
       Jan-11                 Jul-11                 Jan-12              Jul-12               Jan-13             Jul-13                       Jan-14
                                                                                                                                                                   capital management efforts and shift
               Price Target (Jan-14)                       Historical Stock Performance                    Current Stock Price   WARNINGDONOTEDIT_RRS4RL~LM.N~
                                                                                                                                                                   towards acquiring complementary
Source: Morgan Stanley Research, Thomson Reuters                                                                                                                   pieces (potentially int’l equity and/or
 Price Target $29                                Derived from 13x target P/E on base case NTM operating EPS (vs 17-18x                                             alternatives), as a potentially more
                                                 historical): we assign a discount to group multiple given fixed income skew with                                  attractive entry point down the road.
                                                 outflows, but then factor in a multiple credit for DTA.
                                                                                                                                                                 Key Value Drivers
 Bull                  15x Bull Case             Return to inflows (+2%). Fixed income inflows return immediately, though
 Case                  NTM operating equities flow out until C1Q14. Equities return ~10% over the NTM. Operating                                                  Sustained stronger performance:
 $39                   EPS of $2.35              margin rises to 21%. PT via 15x bull case EPS + 11% cost of capital.                                              after a period of poor relative
 Base                  13x Base Case Net outflows continue, slightly worsening vs LTM (-2%). Outflows continue
                                                                                                                                                                   performance, LM is back in the middle
 Case                  NTM operating primarily from equity (but also fixed income) and overall LT outflows slightly worse                                          of the peer group and its biggest
 $29                   EPS of $1.98              than LTM. Equities return ~7.5% in the NTM as operating margin approaches                                         affiliate, WAMco, has improved
                                                 20%. PT via 13x base case EPS + 11% cost of capital.                                                              greatly; we look for an inflection point
 Bear                  12x Bear Case Prolonged struggle in equity and fixed income flows (-5%). Outflows across                                                    for positive flows in late CY13.
 Case                  operating EPS             all asset classes as investors fail to re-risk and WAMco turnaround sputters.                                    LM’s global distribution franchise
 $17                   of $1.24                  Equities lose -2% over the NTM. Margin dips to 16%. PT via 12x bear case EPS +                                    could be a key differentiator in the
                                                 11% cost of capital.                                                                                              future as product platform build-out
                                                                                                                                                                   continues; 40% of AuM held by int’l
Bear to Bull Waterfall                                                                                                                                             clients should increase in our view.
Impact ($/share)                                                                                                                                                 Potential Catalysts

             Bull 39.14
                                                                                                              $5.22                                               Addition of an alts and/or global equity
                                                                                                                                                                   affiliate could help round out LM’s
                                                                                    $0.89        $0.30
                                                                    $1.77                                                                                          product set.
                                                      $0.91

        Target 28.64
                                       $1.41
                                                                                                                                                                  Margin expansion as flows turn corner
                             Curr.
                             Price                                                                                                                                 and expense mgmt remains tight.
                             26.09     $(3.97)
                                                      $(0.84)
                                                                                                                                                                 Risks to Our Price Target
                                                                   $(4.43)
            Bear 16.54                                                             $(1.32)       $(0.15)
                                                                                                             $(1.38)                                              Downside: lower cost saves, not
                                     Asset wtd.     Net flows    Operating        Fee rates       Net      Valuation
                                                                                                                                                                   sustaining WAMco performance,
                                      market                      margin                       buybacks    multiples         Dividends                             indexation of core/core plus products.
                                       return
                      Bull                5%             2%          21%          34.1bps          5.8%       15x                $0.55
                                                                                                                                                                  Upside: stronger than expected flows
 Inputs              Base                 4%            -2%          20%          33.7bps          4.7%       13x                $0.55                             as WAMco & Permal seize on investor
                      Bear                1%            -5%          16%          32.9bps          3.6%       12x                $0.55                             demand for yield and alternatives.



                                                                                                                                                                                                       19
                                                                                                                       MORGAN                           STANLEY         RESEARCH

                                                                                                                       January 4, 2013
                                                                                                                       US Asset Managers




T. Rowe Price Group, Inc. (TROW, $66.99, Equal-weight, PT $71)
Risk-Reward View: Consistently Strong Flows, Reflected in P/E Multiple                                                                                              Why Equal-weight?
    $100                                                                                                                                                             We expect best in class inflows at
        90                                                                                                                    $90.00 (+34%)
                                                                                                                                                                      TROW (inflows 42 out of past 44 qtrs)
                                                                                                                                                                      and view execution risk as minimal
        80
                                                                                                                                                                      (as seen in strong op margins), but at
                                                                                              $ 66.99                          $71.00 (+6%)
        70                                                                                                                                                            ~17x P/E it’s already priced into stock.
        60                                                                                                                                                           Going forward, we expect TROW’s
                                                                                                                               $52.00 (-22%)                          flows to remain top of group, although
        50
                                                                                                                                                                      it faces a few headwinds: 1) skew to
        40
                                                                                                                                                                      retail client base; 2) concentration of
        30                                                                                                                                                            AuM in domestic equity; 3) US-centric
        20                                                                                                                                                            clients; and 4) volatile inst’l flows.
                                                                                                                                                                     Lack of a global client footprint leaves
        10
                                                                                                                                                                      TROW playing more of a market
        0
                                                                                                                                                                      share game in a mature US market –
        Jan-11                   Jul-11               Jan-12             Jul-12               Jan-13                 Jul-13                      Jan-14
               Price Target (Jan-14)                       Historical Stock Performance                        Current Stock PriceWARNINGDONOTEDIT_RRS4RL~TROW.O~
                                                                                                                                                                      albeit a game at which TROW is good.
Source: Morgan Stanley Research, ThomsonReuters                                                                                                                      We derive our target price by using a
 Price Target $71                                Derived from 17x target P/E on base case NTM EPS (highest in group, but                                              17x P/E multiple (vs OW-rated BLK,
                                                 below historical 21.5x), based on inflows at top of group.                                                           next highest, at 14x & group avg at
 Bull                  19x Bull Case             Stronger flow pipeline (+9%). Equity inflows continue as US retail clients                                           13.5x).
 Case                  NTM EPS of                re-risk & bond flows remain strong. Pent up institutional demand triggers
                                                                                                                                                                    Key Value Drivers
 $90                   $4.27                     positive flows. Equities return 10% over NTM. Operating margin hits 49%.
                                                                                                                                                                     Given concentration of client base in
                                                 PT via 19x bull EPS + 11% cost of capital.
                                                                                                                                                                      US retail, we view sterling
 Base                  17x Base Case Strong relative flows in a tough industry backdrop (+5%). Target date                                                            performance as a must for TROW to
 Case                  NTM EPS of                funds drive inflows as retail paces inflows and institutional flows turn slightly                                    continue to deliver in order to maintain
 $71                   $3.78                     positive. Equities return ~7.5% during the NTM. Operating margin hits 46%.                                           or take share in the US market.
                                                 PT via 17x base case EPS + 11% cost of capital.

 Bear                  15x Bear Case Slight outflows (-1%) driven by institutional channel. Outflows from
                                                                                                                                                                    Potential Catalysts
 Case                  NTM EPS of                institutional clients, plus slight retail outflows, as uncertainty dominates the
                                                                                                                                                                     Given outsized exposure to US
 $52                   $3.11                     macro backdrop. Equities lose 2% over the NTM. Margin dips to 44%. PT                                                equities, we view TROW as primary
                                                 via 15x bear case EPS + 11% cost of capital.                                                                         beneficiary of any substantial,
                                                                                                                                                                      sustained rally in US equity mkt, in
Bear to Bull Waterfall
                                                                                                                                                                      terms of both flows and appreciation
Impact ($/share)
                                                                                                                                                                      of assets under mgmt.
             Bull 90.13                                                                                               $9.49                                          Lower volatility with improving macro
                                                                                                                                                                      conditions could result in increased
                                                                     $3.49
                                                                                    $1.24          $0.38                                                              growth for TROW’s mutual funds.
                                        $1.80
                                                       $2.33                                                                                                         Institutional channel reverses recent
       Target 71.40
                            Curr.                                                                                                                                     trend of outflows with strong inflows.
                            Price
                            66.99      $(6.70)
                                                      $(2.49)
                                                                                                                                                                    Risks to Our Price Target
                                                                    $(2.27)         $(0.97)        $(0.19)                                                           Risks to upside and downside based
         Bear 51.86                                                                                                  $(6.91)
                                                                                                                                                                      on equity market returns – likely to
                                                                                                                                                                      benefit (or negatively impact) TROW
                                     Asset wtd.      Net flows    Operating       Fee rates    Net buybacks        Valuation
                                    market return                  margin                                          multiples         Dividends                        more than peers as a result of its US
                          Bull             8%             9%            49%        48.3bps              1.2%         19x               $      1.50                    retail equity skew.
 Inputs               Base                 6%             5%            46%        47.6bps              0.5%         17x               $      1.50
                       Bear                -1%           -1%            44%        46.8bps              0.1%         15x               $      1.49




                                                                                                                                                                                                          20
                                                                                                                           MORGAN                             STANLEY         RESEARCH

                                                                                                                           January 4, 2013
                                                                                                                           US Asset Managers




Waddell & Reed Financial Inc. (WDR, $35.91, Equal-weight, PT $37)
Risk-Reward View: Strong Performance, Wait for Further Diversification                                                                                                    Why Equal-weight?
    $60                                                                                                                                                                    We’re optimistic that WDR’s product
                                                                                                                                                                            and channel diversification efforts can
     50
                                                                                                                                                                            drive organic growth at or above peer
                                                                                                                                  $48.00 (+34%)
                                                                                                                                                                            group average, but note significant
                                                                                                                                                                            headwinds in outflows from Asset
     40                                                                                        $ 35.91
                                                                                                                                  $37.00 (+3%)                              Strategy (30% of AuM) & lower
                                                                                                                                                                            margins associated with fast-growing
     30
                                                                                                                                                                            Wholesale channel.
                                                                                                                                  $25.00 (-30%)
                                                                                                                                                                           We estimate ~10% 2012-14 EPS
     20                                                                                                                                                                     CAGR, roughly in line with peer group
                                                                                                                                                                            average, driving our view that WDR
     10                                                                                                                                                                     should trade at group avg multiple.
                                                                                                                                                                           Fund performance remains strong
       0                                                                                                                                                                    (72% of AuM in top 2 Lipper qrtls),
       Jan-11                 Jul-11                 Jan-12              Jul-12                Jan-13                    Jul-13                        Jan-14               which bodes well for future organic
            Price Target (Jan-14)                          Historical Stock Performance                            Current Stock Price   WARNINGDONOTEDIT_RRS4RL~WDR.N~

                                                                                                                                                                            growth as Asset Strategy becomes
Source: Thomson Reuters, Morgan Stanley Research
                                                                                                                                                                            less of a concentration risk over time.
 Price Target $37                                Derived from a 13.5x target p/e (in line with peer group avg, below historical
                                                 17x avg) on base case NTM EPS.                                                                                           Key Value Drivers
 Bull               15x Bull Case                Strong inflows (+7%). Investor re-risking leads to the return of equity                                                   We forecast middle-of-the-road
 Case               NTM EPS of                   inflows, as fixed income products continue strong organic growth. Steady                                                   organic growth (2.3% for 2013),
 $48                $2.89                        growth in all three distribution channels. Equities return ~10% in the NTM,                                                driven primarily by fixed income and
                                                 with margin reaching 29%. PT via 15x bull case EPS + 11% cost of capital.                                                  smaller equity products with strong
                                                                                                                                                                            performance (e.g. MidCap Growth),
 Base               13.5x Base                   Modest (+2%) net inflows. Inflows led by fixed income products, as slight
 Case               Case NTM                     equity outflows minimally offset. Wholesale channel continues to drive
                                                                                                                                                                            offsetting Asset Strategy outflows.
 $37                EPS of $2.44                 organic growth. Equity market returns 7.4% in NTM, as margin reaches                                                      We expect 55% of AuM growth from
                                                 26%. PT via 13.5x base case EPS + 11% cost of capital.                                                                     2012-14 to come in Wholesale (75%
                                                                                                                                                                            over past nine years), which could
 Bear               12x Bear Case Outflows (-8%). Intensifying outflows from Asset Strategy as a result of
                                                                                                                                                                            pressure the firm’s 30% operating
 Case               NTM EPS of                   market volatility and slowing fixed income inflows. Equity markets down 2%
                                                                                                                                                                            margin target in the near term.
 $25                $1.87                        in the NTM. Operating margin declines to 24%. PT via 12x bear case EPS +
                                                 11% cost of capital.                                                                                                     Potential Catalysts
Bear to Bull Waterfall                                                                                                                                                     Strong ytd performance of Asset
                                                                                                                                                                            Strategy funds, coupled with any
 Impact ($/share)
                                                                                                                                                                            increased investor risk tolerance,
                                                                                                                           $4.81
          Bull 48.07                                                                                                                                                        could significantly stem outflows.
                                                                                      $1.02              $0.20
                                                                                                                                                                           Successful launch of new products
                                                                       $2.83
                                                                                                                                                                            drive further diversification.
                                                        $1.42
                                       $1.16
        Target 36.63
                          Curr.
                          Price
                                                                                                                                                                          Risks to Our Price Target
                          35.91                                                                                                                                            Upside: 30% operating margin in
                                       $(3.81)
                                                       $(2.55)
                                                                                                                                                                            near/medium-term; stemming Asset
                                                                      $(1.81)        $(0.31)             $(0.13)                                                            Strategy outflows and/or accelerating
          Bear 24.90                                                                                                       $(3.11)                                          inflows into newer products.
                                   Asset wtd.         Net flows     Operating       Fee rates     Net buybacks           Valuation
                                                                                                                                                                           Downside: acceleration of Asset
                                                                                                                                           Dividends
                                  market return                      margin                                              multiples                                          Strategy outflows, slowing growth in
                       Bull               9%                  7%        29%         61.0bps              0.8%            15x                $       1.20
                                                                                                                                                                            successful fixed income products.
 Inputs            Base                   7%                  2%        26%         59.8bps              0.2%            14x                $       1.12
                    Bear                 -1%               -8%          24%         59.1bps              -0.3%           12x                $       1.08
                                                                                                                                                                            Sensitive to equity market returns
Source: Company Data, Morgan Stanley Research                                                                                                                               given ~80% of AuM in equities.



                                                                                                                                                                                                               21
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                                                                                                                           January 4, 2013
                                                                                                                           US Asset Managers




WisdomTree, Inc. (WETF, $6.66, Equal-weight, PT $8)
Risk-Reward View: Pure Play Growth Stock Priced Appropriately                                                                                                        Why Equal-weight?
    $14                                                                                                                                                               WETF is a small cap, pure-play on the
                                                                                                                                                                       powerful structural growth of ETFs.
       12
                                                                                                                          $11.50 (+73%)
                                                                                                                                                                       We forecast WETF AuM CAGR of
                                                                                                                                                                       ~30% through 2016 as it takes share
       10
                                                                                                                                                                       of the rapidly growing ETF industry,
                                                                                                                                                                       but remain Equal-weight given
        8                                                                                                                  $8.00 (+20%)
                                                                                             $ 6.66                                                                    valuation (21x normalized earnings)
        6                                                                                                                                                              and volatility of flows/EPS.
                                                                                                                                                                      We est a 100% core (ex NOL benefit)
        4                                                                                                                                                              EPS CAGR 2011-16. Similar to other
                                                                                                                            $3.50 (-47%)
                                                                                                                                                                       growth companies, WETF’s EPS
        2
                                                                                                                                                                       trajectory relies largely on continued
                                                                                                                                                                       AuM growth and margin expansion
        0
        Jan-11               Jul-11           Jan-12                  Jul-12                 Jan-13              Jul-13                      Jan-14                    over time.
             Price Target (Jan-14)                     Historical Stock Performance                        Current Stock PriceWARNINGDONOTEDIT_RRS4RL~WETF.O~         We derive a $8 target price for WETF
Source: Thomson Reuters, Morgan Stanley Research                                                                                                                       by utilizing a 25x target P/E multiple
  Price Target $8                           Derived from a 25x multiple on discounted “normalized” (2016) EPS, which we                                                on 2016e normalized EPS. Target
                                            estimate via a regression of P/E vs flow rates (inflowing asset mgrs only).
                                                                                                                                                                       P/E driven by regressing WETF flows
  Bull                ~66x Bull Case        Flow rate persists near 2011-12 levels (+34% in 2013). Strong inflows                                                      vs organic growth rates of inflowing
  Case                2013 Core EPS         across all asset classes (27% higher than base case). Equities return ~10%.                                                traditional asset mgrs.
  $11.50              of 18c                2013 operating margin of 34%.
                                                                                                                                                                     Key Value Drivers
  Base                ~55x Base Case 27% est inflows for WETF in 2013. Equities grab majority of flows; active                                                        Continued rapid adoption of ETFs,
  Case                2013 Core EPS         products draw inflows as well. Equity mkt returns 7.5%/yr. Operating margin
                                                                                                                                                                       along with WETF’s ability to capture
  $8                  of 15c                scales to 31% in 2013.
                                                                                                                                                                       share of this growing market.
                                                                                                                                                                      Ability to expand operating margins
  Bear                ~37x Bear Case        Organic growth (+9%) below industry (22%) as product adoption slows.                                                       with economies of scale and
  Case                2013 Core EPS         Organic growth slows significantly across asset classes, notably equity,
                                                                                                                                                                       successful fund launches.
  $3.50               of 10c                currency and alternatives. Equity market returns slightly negative (-2%).
                                            Scale benefits not fully realized as 2013 margin reaches just 24%.                                                       Potential Catalysts
Core EPS excludes the impact of NOL carry forwards.                                                                                                                   Removal of investor-perceived
Bear to Bull Waterfall                                                                                                                                                 overhang created by recently filed
                                                                                                                                                                       shelf.
   Impact ($/share)
                                                                                                                                                                      ETF growth above our forecast driven
                                                                                                                                                                       by increased share grab or successful
                                                                                                      $0.72               $0.20
                 Bull 11.50                                                                                                                                            new product launches (either new
                                                                                   $0.81
                                                              $1.25                                                                                                    asset classes or geographies).
                                            $0.52
            Target 8.00                                                                                                                                              Risks to Our Price Target
                                 Curr.
                                 Price
                                                                               c
                                                                                                                                                                      Risks to upside / downside include
                                 6.66      ($1.46)
                                                                                                                                                                       changes in investor demand for
                                                             ($1.91)                                                                                                   WETF products (via competition or
                 Bear 3.50
                                                                                   ($1.11)            ($0.01)         ($0.01)                                          investor preference shift); changes in
                                                                                                                                                                       fund perf, as well as extreme overall
                                         2013 asset         2013 net             2013           2013 fee rates      2013 net
                                         wtd. market         flows             operating                            buybacks                                           equity mkt perf (especially EM).
                                           return                               margin
                          Bull              10%               34%                   34%               55.2bps                -0.5%
       Inputs           Base                 7%               27%                   31%               54.7bps                -1.1%
                         Bear               -2%                 9%                  24%               53.9bps                -1.3%
Source: Company Data, Morgan Stanley Research




                                                                                                                                                                                                          22
                                                                                                       MORGAN                             STANLEY             RESEARCH

                                                                                                       January 4, 2013
                                                                                                       US Asset Managers




KKR & Co (KKR, $15.51, Equal-weight, PT $17)
Risk-Reward View: Positioned for Growth, but Longer Term                                                                                              Why Equal-weight?
                                                                                                                                                       KKR is a blue chip alternatives manager
    $30

                                                                                                                                                        with strong historical performance and
     25                                                                                                                                                 fundraising track record, poised to benefit
                                                                                                              $24.00 (+55%)
                                                                                                                                                        from what we believe will be structurally
     20                                                                                                                                                 higher allocations to alternative assets by
                                                                                  $ 15.51                     $17.00 (+10%)
                                                                                                                                                        pensions & sovereign wealth funds.
     15                                                                                                                                                However, we believe faster growth is a
                                                                                                                                                        longer-term dynamic as KKR rounds out
     10                                                                                                       $10.00 (-36%)
                                                                                                                                                        its product platform. We believe KKR will
                                                                                                                                                        grow assets faster when raising
                                                                                                                                                        second-generation funds in new
      5
                                                                                                                                                        strategies, as many LPs like to see track
                                                                                                                                                        records before getting in.
      0
      Jan-11              Jul-11           Jan-12              Jul-12              Jan-13            Jul-13                        Jan-14             Key Value Drivers
           Price Target (Jan-14)                 Historical Stock Performance                  Current Stock Price   WARNINGDONOTEDIT_RRS4RL~KKR.N~




Source: Morgan Stanley Research, Thomson Reuters                                                                                                       Successful launch and performance of
                                                                                                                                                        new strategies in long/short equity, real
 Price Target $17                     We base our price target on 50/50 split of long-term metrics –
                                                                                                                                                        estate, and credit are essential for
                                      DCF ($16, using 12.2% WACC, 1% terminal growth rate) &
                                      sum-of-parts ($18) – and then back into implied ENI multiple.                                                     projected faster growth in fundraising for
                                                                                                                                                        successor funds.
 Bull              DCF/SOTP:          Markets rebound as macro backdrop improves and capital
                                                                                                                                                       Keys to getting more positive include
 Case              ~9x 2013e          markets open. Fundraising & capital invested 25-35% above base
 $24               ENI of $2.80       case; returns in-line w/ historical; ramp to full corp. tax: 2015-18.
                                                                                                                                                        continued expansion of LP base (530
 Base              DCF/SOTP:          Below historical mkt returns, but ramp in fundraising.                                                            current to 1,000 goal) and increased
 Case              ~8x 2013e          Substantial growth in Private & Public Markets (more long-term);                                                  cross-sell.
 $17               ENI of $2.09       capital deployed in-line with recent years; ramp to full tax: 2015-18.                                           Structurally higher allocations to
 Bear              DCF/SOTP:          Recession. Negative near-term marks result in negative carry,                                                     alternatives by pensions and sovereign
 Case              2013e ENI of       returns well below historical average, fundraising and capital                                                    wealth, as well as consolidation of GP
 $10               ($0.50)            deployment deteriorate substantially; ramp to full corp. tax: 2013.                                               relationships, key for driving higher
Market Assuming PE Returns of ~12%, Below Our Conservative                                                                                              industry growth.
Forecast of ~14-15%: historical KKR gross IRRs are ~21-26% for PE
                                                                                                                                                      Potential Catalysts
                                                                                             Incremental
  Fee-related      Investments &              Market implied                                value of future                                            Closing of KKR’s latest flagship North
   earnings            cash      Accrued carry future carry                                 carry (MS est)                                              America buyout fund (we est. $8B final
                                                                                                2.55
  NTM fees on      Net cash/(debt), Carry accrued but                                                                                                   close in ‘13 vs $6B raised to date).
 AuM (8-10 year    20% discount on   unrealized, at         3.21
 lock-up) at 16x     investments     20% discount                                                                                                      Successful launch of new strategies –
     multiple
                        7.12             0.84                                                                                                           including real estate, hedge funds, hedge
                                                                                                                                                        fund-of-funds, direct lending, high yield
                                                                                                                     18.06
                                                                                15.51   MS total value of                                               mutual funds.
      4.35                                                                               future carry =                                                2006 Fund generating cash carry.
                                                                                             $5.75
                        We estimate $5.75 value of                                                                                                    Risks to Our Price Target
                        future carry (inclusive of higher
                        carry tax assumption), $2.55                       = Current                            = MS SOTP                              European banking, sovereign debt or
                        higher than market implies.                       share price                            valuation                              other macro worries deepen, prolonging
                                                                                                                                                        subdued capital markets activity, lowering
                                                                                                                                                        exit expectations. Netting hole for 2006
                                                                                                                                                        Fund extends beyond our 1Q13 forecast.




                                                                                                                                                                                               23
                                                                                                       MORGAN                            STANLEY              RESEARCH

                                                                                                       January 4, 2013
                                                                                                       US Asset Managers




Carlyle Group LP (CG, $26.28, Equal-weight, Price Target $29)
Risk-Reward View: Global, Diverse Platform, but Carry Drives Valuation Why Equal-weight?
    $45                                                                                                                                               We view CG (along w/ BX) as having the
                                                                                                                                                       industry’s broadest product breadth. CG
     40                                                                                                       $40.00 (+52%)
                                                                                                                                                       always has “product on the shelf” across
     35                                                                                                                                                products and geographic regions, setting
                                                                                                                                                       itself up well to benefit from increased LP
     30
                                                                                  $ 26.28                     $29.00 (+10%)
                                                                                                                                                       allocations to alternative assets.
     25                                                                                                                                               However, CG derives a larger portion of its
     20
                                                                                                                                                       earnings from carried interest than peers
                                                                                                                                                       (more volatile stream) and smaller portion
     15
                                                                                                                                                       from fee-related earnings (which investors
     10
                                                                                                              $11.00 (-58%)                            assign more value to); this keeps us on the
                                                                                                                                                       sidelines.
      5
                                                                                                                                                      Keys to getting more positive: a less
      0                                                                                                                                                volatile, more pro-cyclical environment,
      Jan-11              Jul-11           Jan-12              Jul-12              Jan-13            Jul-13                       Jan-14
                                                                                                                                                       potentially driving a valuation paradigm
           Price Target (Jan-14)                 Historical Stock Performance                  Current Stock Price
                                                                                                                                                       shift for alt managers (i.e. more value on
                                                                                                                     WARNINGDONOTEDIT_RRS4RL~CG.O~




Source: Morgan Stanley Research, Thomson Reuters
                                                                                                                                                       carry), helping CG re-rate vs. peers.
 Price Target $29                     We base our price target on 50/50 split of long-term metrics –
                                      DCF ($30, using 11.8% WACC, 1% terminal growth rate) &                                                         Key Value Drivers
                                      sum-of-parts ($29) – and then back into implied distributable        We estimate 8% CAGR in fee-paying AuM
                                      earnings (DE) and/or economic net income (ENI) multiples.             in 2011-15: 6% growth in CPE, 18% in
 Bull              DCF/SOTP:          Markets rise as macro backdrop improves, capital markets
                                                                                                            GMS, 5% in Real Assets, and 5% in Fund
 Case              ~8x 2013e          improve. Fundraising & capital invested ~25% above base case;         of Funds.
 $40               DE, 10x ENI        fund distributions ~25% above base, returns slightly below           Expect CG to remain an industry leading
                                      historical; ramp to full corp. tax: 2015-18.                          blue chip alternatives manager while
 Base              DCF/SOTP:          Below historical mkt returns, growth in fundraising continues.        continuing expansion: new geographies,
 Case              ~10x 2013e         Flagship fundraises drive fundraising growth, capital deployed and    hedge funds, fund-of-funds.
 $29               DE, 10x ENI        fund distributions in-line w/ 2010-11; ramp to full tax: 2015-18.    Structurally higher alternative allocations
 Bear              DCF/SOTP:          Recession. Low near-term marks result in lower realizations &         by pensions and sovereign wealth and
 Case              ~11x 2013e         carry, returns well below historical average, fundraising & capital   consolidation of GP relationships key for
 $11               DE                 deployment ~25-30% below base; ramp to full corp. tax: 2012.          driving future AuM growth.

What’s In the Price: we estimate that CG implies gross IRRs in-line w/ our                                                                           Potential Catalysts
14-15% forecast for PE, below historical 17-27% range                                                                                                 A more robust capital markets cycle –
                                                                                                                                                       leading to increased exit activity for CG
                                                                                             Incremental
  Fee-related      Investments &              Market implied                                value of future                                            investments sitting on gains – could
   earnings            cash      Accrued carry future carry                                 carry (MS est)                                             provide upside to our dividend forecasts.
                   Net cash/(debt), Carry accrued but
                                                                                                                                                      Accretive M&A or partnership agreements
  NTM fees on                        unrealized, at                                             2.98
 AuM (8-10 year
                   20% discount on
                                     20% discount
                                                           13.76                                                                                       to expand platform, potentially in hedge
                     investments
 lock-up) at 16x
     multiple
                                                                                                                                                       fund of funds or int’l energy private equity
                                                                                                                                                       businesses.
                                         3.12                                                                        29.26
      7.95              1.45                                                    26.28                                                                Risks to Our Price Target
                                                                                        MS total value of                                             Ongoing global macro concerns likely to
                                                                                         future carry =                                                pressure alternative asset mgr shares.
                        We estimate $16.74 value of
                                                                                             $16.74
                        future carry (inclusive of higher                                                                                             Carry taxation likely to remain a key
                        carry tax assumption), $2.98                       = Current                            = MS SOTP                              investor concern in election season, esp.
                        higher than market implies.                       share price                            valuation
                                                                                                                                                       given CG’s valuation skew to carry.




                                                                                                                                                                                                24
                                                                                MORGAN         STANLEY         RESEARCH

                                                                                January 4, 2013
                                                                                US Asset Managers




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                                                                                                                                                    25
                                                                                              MORGAN            STANLEY           RESEARCH

                                                                                              January 4, 2013
                                                                                              US Asset Managers




                              Coverage Universe    Investment Banking Clients (IBC)
                                             % of                   % of % of Rating
Stock Rating Category            Count       Total     Count Total IBC Category
Overweight/Buy                   1103           37%           436          41%           40%
Equal-weight/Hold                1301           44%           497          46%           38%
Not-Rated/Hold                    108            4%            27           3%           25%
Underweight/Sell                  478           16%           111          10%           23%
Total                           2,990                        1071
Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual
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.
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                                                                                             MORGAN           STANLEY            RESEARCH

                                                                                             January 4, 2013
                                                                                             US Asset Managers




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                                                                                       MORGAN    STANLEY            RESEARCH




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Industry Coverage:US Asset Managers

Company (Ticker)                              Rating (as of) Price* (01/03/2013)


Matthew Kelley
AllianceBernstein Holding L.P.                E (10/26/2012)                  $17.99
(AB.N)
BlackRock Inc. (BLK.N)                       O (05/23/2012)                 $213.35
Carlyle Group LP (CG.O)                      E (06/12/2012)                  $26.28
Federated Investors, Inc. (FII.N)            U (11/07/2011)                  $21.52
Franklin Resources Inc. (BEN.N)              E (10/26/2012)                 $129.79
Invesco (IVZ.N)                              O (11/07/2011)                  $27.01
Janus Capital Group Inc. (JNS.N)             U (11/13/2012)                   $9.07
KKR & CO. L.P. (KKR.N)                       E (11/07/2011)                  $15.51
Legg Mason Inc. (LM.N)                       E (07/27/2012)                  $26.09
Oaktree Capital Group, LLC                   O (05/22/2012)                  $45.78
(OAK.N)
T. Rowe Price Group, Inc.                     E (11/07/2011)                  $66.99
(TROW.O)
The Blackstone Group L.P. (BX.N)             O (11/07/2011)                   $16.16
Waddell & Reed Financial Inc                 E (12/14/2012)                   $35.91
(WDR.N)
WisdomTree Investments, Inc.                  E (09/12/2012)                   $6.66
(WETF.O)

Stock Ratings are subject to change. Please see latest research for each company.
* Historical prices are not split adjusted.




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