ESG Investing Comes of Age Despite (or Maybe Because of) Trump

Investment strategies that screen for environmental, social, and governance criteria (ESG) is a still developing product niche that has, until recently, been more about talk than action. The pitch is that investing in businesses that demonstrate broad-based corporate responsibility provides a pathway to management teams who think long term, mitigate risk, and lead their industries. The beauty of an investment product like ESG is client stickiness.

Gimme Shelter: Brexit Just Accelerates Downward Trend in RIA Valuations

Brexit’s full impact on the market is still to be determined, but a quick review of asset manager pricing reveals a valuation gap with the broader equity market that opened over the past twelve months, got much worse in June, and even accelerated over the past week. Sifting through the noise at quarter end, we pose, if market valuations in the industry are getting a haircut, what does that mean?

What is Normal Compensation at an Asset Management Firm? (Part 2)

Investment management is a talent business, and that talent commands a substantial portion of firm revenue which often exceeds the allocation to equity holders. While there is no perfect answer as to what an individual or group of individuals should be compensated in an RIA, we can look to market data and compensation analysis, measured against the particular characteristics of a given investment management firm’s business model, to make reasonable assumptions about what compensation is appropriate and, by extension, what level of profitability can be expected.

Look out below! As capital market valuations apex, so too will RIA margins

Few industries are as susceptible to market conditions as the typical RIA. With revenues directly tied to stock indexes (in the case of equity managers) and a relatively high percentage of fixed costs, industry margins tend to sway with market variations. While the concept of operating leverage is not new to anyone in the asset management industry, it is easy to forget how easy it is for margins to collapse in a market downturn.

Put In An Order for More AAPL – But First, Let Me Take a Selfie!

Investment management firms too often mature as a cult of personality, as more than a handful of shops have built success around the talents, habits, and preferences of a strong-willed founder. But what builds success in an RIA doesn’t necessarily perpetuate it, and oftentimes the focus on the individual is at the expense of the institution.

Does Size Matter for RIAs?

Smaller asset managers outperformed their larger brethren over the last year. Still, it’s important to remember that our smallest sector of asset managers (AUM under $10 billion) is the least diversified and therefore most susceptible to company-specific events. Its strength is more attributable to DHIL’s (~80% of the market-weighted index) outsized gain in market value rather than any indication of investor preference towards smaller RIAs.

Why Banks Are Interested in RIAs

As noted in Mercer Capital’s presentation to the 2014 Acquire or Be Acquired conference sponsored by Bank Director entitled Acquisitions of Non-Depositories by Banks, the relatively high margins associated with asset management is one of the many reasons that banks and other finance companies have been so interested in RIAs over the last few years. Powered by a fairly steady market tailwind over the last few years, many asset managers and trust companies have more than doubled in value since the financial crisis and may finally be posturing towards some kind of exit opportunity to take advantage of this growth.