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What has to happen in Investment Management

Model as of

This page changes Investment Management inside the complete MS model. Every other vertical, corporate programme and valuation assumption stays in the selected portfolio case.

MS forward model
Horizon
Consolidated fair value $250.33 all other verticals held in this portfolio case
Final-quarter revenue $2.29B 8% of company revenue
Explicit segment contribution $7.73B EBITDA less segment capex, before corporate items

The cycle has further to run and Morgan Stanley is over-capitalised into it. Investment Banking rose 58% across all three legs at once - advisory $798M, equity underwriting $851M, fixed income underwriting $788M - which is a reopened window rather than one hot product, and Equity net revenues were a record $6,300M. The balance sheet is not the constraint: 306 basis points and $18.0B of CET1 sit above an 11.8% Standardized requirement the Federal Reserve has confirmed holds until 1 October 2027, while the board reauthorised $20B of buybacks from the third quarter and raised the dividend 15% to $1.15. This case holds Institutional Securities near its record margin and lets Wealth Management sit above the 30% goal rather than reverting to it, at a 9.0% cost of equity and an 11.54x exit - a 15x P/E grossed down by tax. What it does NOT reach is a permanent re-rating onto a different business: $250.33 a share, +16.51%, an implied 4.707x tangible book, an all-time-high multiple on a franchise earning first-half-2026 returns.

Investment Management

Basis quarter$1.65B
Final quarter$2.29B
Implied CAGR+7%
Final revenue mix8%

Asset management and related fees on $2,004B of assets under management or supervision, plus performance-based income. $1,646M of net revenues in the basis quarter, 7.7% of the firm before eliminations and the smallest of the three segments, at a 24.54% pre-tax margin. Long-term net flows were +$7.5B, driven entirely by Alternatives and Solutions (+$12.7B) against Equity outflows of -$12.5B. This is the one line in the firm with a stable, mechanically identifiable quarterly shape.

Last four quarters
2025 Q3 $1.65B Reported
2025 Q4 $1.72B Reported
2026 Q1 $1.53B Reported
2026 Q2 $1.65B Reported
Asset management and related feesPerformance-based income and other
Sequential growth +1.0%/qtr decaying toward +1.2% 1.0% on a DESEASONALISED base of $1,720.1M, below the 2.28% deseasonalised trailing-eight mean; AUM is at a record $2,004B.
Investment Management

Latest: $2.29B (2031Q2E)

Period Value
2023Q1 $1.29B
2023Q2 $1.28B
2023Q3 $1.34B
2023Q4 $1.46B
2024Q1 $1.38B
2024Q2 $1.39B
2024Q3 $1.46B
2024Q4 $1.64B
2025Q1 $1.60B
2025Q2 $1.55B
2025Q3 $1.65B
2025Q4 $1.72B
2026Q1 $1.53B
2026Q2 $1.65B
2026Q3E $1.73B
2026Q4E $1.88B
2027Q1E $1.79B
2027Q2E $1.75B
2027Q3E $1.84B
2027Q4E $2.00B
2028Q1E $1.91B
2028Q2E $1.87B
2028Q3E $1.97B
2028Q4E $2.14B
2029Q1E $2.04B
2029Q2E $2.00B
2029Q3E $2.11B
2029Q4E $2.29B
2030Q1E $2.18B
2030Q2E $2.14B
2030Q3E $2.26B
2030Q4E $2.46B
2031Q1E $2.34B
2031Q2E $2.29B

Assumptions & reasoning

  • The 24.54% margin is PRE-TAX INCOME margin - $404M on $1,646M - net of $1,242M of segment non-interest expenses. The segment carries NO provision: firm $98M less Institutional Securities $71M less Wealth Management $27M leaves exactly nil. The supplement rounds the margin to 25%.
  • SEASONALITY APPLIED, and this is the only line in the firm that earns factors: [0.9924, 0.9569, 0.9909, 1.0598] by ratio to a CENTRED four-quarter moving average over 2023 Q3-2025 Q4, normalised to a mean of exactly 1.0000. Signal 0.1028 against a worst window spread of 0.0430 is 2.39:1. What decides it is the Q4 cluster - 1.0627, 1.0653, 1.0576 across three years, a spread of 0.0077, the tightest anywhere in the segment history.
  • Both estimators agree on rank and direction: ratio-to-year-mean gives [0.9607, 0.9505, 1.0001, 1.0887], Q4 highest and Q2 lowest in both. The two most recent March quarters confirm the fall-back, -2.5% sequential in 2025 Q1 and -10.8% in 2026 Q1. The basis quarter is therefore DESEASONALISED to $1,646M / 0.9569 = $1,720.1M before the growth driver runs, so growthQoQ is a trend rate and not a sequential print.
  • HONEST CAVEAT ON THE MECHANISM: it is not the obvious one. Performance-based income does NOT peak in Q4 ($61M in 4Q23, $88M in 4Q24, $71M in 4Q25, against $151M in 1Q25 and $117M in 3Q25); the Q4 lift sits in the asset-management-and-related-fees line itself (1,555 against 1,384 in 2024, 1,649 against 1,534 in 2025). Morgan Stanley does not explain it, so the pattern is carried as empirical and stable rather than as a disclosed mechanism, and it should be re-tested after 2026 Q4 prints.
  • The seasonality is nearly weightless in any case: the segment is 7.7% of firm net revenues and 5.5% of firm pre-tax income, so a 6% Q4 factor moves firm revenue by under half a point. Long-term net flows were +$7.5B against +$12.2B a year earlier, driven entirely by Alternatives and Solutions (+$12.7B) against a sixth consecutive quarter of Equity outflows (-$12.5B), which is why the terminal margin is set at 21.0% between the 21.11% 2024-25 blend and the 22.27% last-six blend.
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