RIA Valuation Insights

A weekly update on issues important to the Asset Management industry


Are Asset Manager Valuations Headed Higher or Lower in 2016? – Barring Basis Risk, Barron’s is Bullish

Despite 195 nations signing onto the Paris Climate Conference commitment to clean energy last week, it looks like Santa will be stuffing most asset managers’ stockings with coal this Christmas. Hopefully it’s at least low-sulfur.

December has been a rough slog for the RIA space. So far it’s mostly been attributed to the cracks in high yield credit. With junk bonds stumbling shortly after Thanksgiving, managers with large high yield offerings are feeling the Grinch. One standout example: WDR. Waddell & Reed’s Ivy High Income Fund has suffered huge outflows this year. Pile outflows with asset devaluation and WDR’s stock has gotten crushed, losing almost a quarter of the company’s equity market cap so far this month (!).

Updated: Valuation Best Practices for Venture Capital and Private Equity Funds

The International Private Equity and Venture Capital Valuation (IPEV) Guidelines were developed in 2005 to set out recommendations on best practices in the valuation of private equity investments. The IPEV Board is made up of leading industry associations from around the world, including the National Venture Capital Association (NVCA) and the Private Equity Growth Capital Council (PEGCC) in the United States. In October 2015, the IPEV Board published draft amendments to the existing guidelines that, if approved, will go into effect at the beginning of 2016.

Asset Managers Cast a Wary Eye on PE Valuations in the Aftermath of the Square IPO

Investment managers who expected the Square IPO to settle the debate on high private equity valuations have been, so far at least, thoroughly disappointed. Square, Inc. went public on November 17 at just $9 per share and opened debate in a venture community wary of high valuations on whether or not investment terms can compensate for high prices. In other words, do special investor provisions designed to protect late round investors from frothy PE valuations do more harm than good? In our last post on IPOs, we discussed the current imbalance between the public and private markets, in which an exuberance of private equity capital has driven up private valuations and created a dislocation between the privately established value of the firm and the publicly achieved value available at IPO. As a consequence of this phenomenon, IPO activity fell to new lows in the third quarter, as 16% of IPOs downsized their debuts. Square is one of a growing number of companies resorting to equity protections in order to attract late-stage investors, often at the expense of employees and earlier investors.

What Industry Leadership is Saying about Asset Management: 3Q15 Earnings Calls

As the dust settles in the aftermath of the third quarter, we take a look at several earnings calls from pace makers in the RIA industry. Changes in the character of the financial markets is driving change in firm business models, and out of this we see a few common themes that we expect will play a role in shaping the industry going forward.

A Few Thoughts on Valuing Investments in Startups

Concurrent with Madeleine Harrigan’s post last week about IPOs being the new private equity downround, the financial reporting group at Mercer Capital published an interview with the head of the group, Travis Harms, on the difficulties mutual funds face in valuing level 3 assets (think Square). The following is an excerpt from that interview.

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