By Muralikumar Anantharaman

Profit likely tumbled for most companies in the industry as they suffered hits to their core business and incurred non-core and one-time charges. Some, such as Janus Capital Group Inc , could even post a loss, its first in five years.

"There has been a pretty significant earnings compression across the board, regardless of mix or positioning," said Michael Kim, an analyst at Sandler O'Neill and Partners, who forecast earnings on average to be down 60 percent year-over-year for seven fund companies he researches.

"The results are going to be pretty bleak and the outlook is not that much brighter going forward," Kim added.

BlackRock Inc , the largest publicly traded U.S. asset manager, kicks off the sector's earnings season when it reports fourth-quarter results on Wednesday.

Over the next two weeks, a string of companies, including AllianceBernstein Holding LP , Janus, Legg Mason Inc , Franklin Resources Inc , T. Rowe Price Group Inc , Invesco Ltd , Federated Investors Inc and Affiliated Managers Group Inc , will report earnings.

Some of the bigger companies have already signaled what to expect.

Earlier this month, AllianceBernstein, Franklin and Invesco reported preliminary estimates of assets under management that showed assets fell between 21.7 percent and 12.8 percent in the quarter to December 31. Money managers charge fees as a percentage of assets they manage for clients.

And State Street Corp, the world's largest money manager for institutions, reported on Tuesday that unrealized investment portfolio and commercial paper losses nearly doubled to $10 billion in the fourth quarter and net income slid 71 percent.

JOB CUTS

Fears of heavy losses at banks and a global recession after investment bank Lehman Brothers Holdings Inc went bankrupt in September caused global markets to convulse and panicky investors to flee from mutual funds.

The Standard & Poor's 500 index <.SPX> sank 23 percent in the fourth quarter. Investors pulled out $208 billion from stock and bond funds in the quarter, according to research firm Lipper Inc. The S&P index is off another 10.9 percent in 2009.

"With virtually all equity markets and asset classes posting dismal returns and outflows at high levels, we believe Q4 is likely to go down in the record books as the sharpest one-quarter decline in operating earnings for most asset managers," Keefe, Bruyette & Woods (KBW) said in a report.

One-time items and charges could also affect earnings.

Several companies, including BlackRock and Franklin, have written down values of seed capital investments -- companies putting their own money into new mutual funds and hedge funds -- in prior quarters, and expectations are that some of the firms could book new losses on them in the fourth quarter.

Companies may also have to take charges for the massive layoffs announced in the fourth quarter. The funds industry has announced cuts of about 4,500 jobs so far in order to cope with the lower asset levels.

Some may have to put up more capital to back ailing money-market funds that made riskier investments. The funds have been hurt by the declining values of holdings in asset-backed commercial paper due to the credit crisis and have been forced to step in and shield clients from losses.

NO BAILOUTS

Legg Mason has said it expects to take a charge of $632.5 million, or $4.48 a share, in the quarter ended in December for bailing out its money-market funds.

Janus could also take a fresh charge for supporting some of its money-market funds a year ago. Kim of Sandler O'Neill said the charge would contribute to a quarterly loss of 4 cents a share he estimates for Janus.

Shares of asset managers, in some cases, are down as much as three-fourths over the past year but they are not viewed as compelling buys for near-term investors.

"Given the volatility and uncertainty, we think there's no need to chase the stocks," KBW said.

But some investors had a more favorable view of the sector.

"We still like the asset management group because they are not getting any bailouts from the government. They are largely self-financed, with strong balance sheets and will be early participants in any market rally," said John Carey, manager of the Pioneer Fund, which owns Franklin and T. Rowe shares.

Companies Q4 estimates,(vs Q3) P/E share move

(Dec qtr, cents per shr) (1-yr, %)

Alliance 19 (73) 5.24 -71.37

BlackRock 102 (162) 14.78 -48.66

Federated 51 (56) 8.55 -58.57

Franklin 85 (130) 8.24 -44.32

Invesco 17 (33) 8.52 -55.52

Janus 2 (16) 6.00 -76.82

Legg -74 (-399) 0.00 -74.90

T. Rowe 26 (56) 12.23 -43.50