As we do every quarter, we take a look at some of the earnings commentary of pacemakers in asset management to gain further insight into the challenges and opportunities developing in the industry.
A weekly update on issues important to the Investment Management industry
As we do every quarter, we take a look at some of the earnings commentary of pacemakers in asset management to gain further insight into the challenges and opportunities developing in the industry.
As part of the analyst community that closely follows developments in the investment management industry, we were disappointed (but not surprised) that Focus Financial Partners pulled their S-1, again, and found a private equity recap partner instead of going public. Picking up on last week’s blog theme, Focus likes to tout their strategy of building an international network of efficiently connected wealth management firms as an “unfair advantage”, but it appears that their real capability is finding capital when necessary to avoid a public offering. Stone Point Capital and KKR bought 70% of the company, enabling prior private equity partners, affiliates who had sold their firms to Focus in exchange for stock, and employees with equity compensation to monetize their positions while Focus remains private.
Last week, Matt Crow and I presented at RIA Institute’s 3rd Annual RIA Central Investment Forum, and this question was asked to the crowd of 70+ industry participants in attendance. Only about half the audience raised a hand. This comes after another delay last week, further extending the rule, now set to go into effect June 9th. Even most of those at the conference who thought it would eventually become law thought this deadline was too ambitious. So why the delay?
Since I gave up politics for Lent this year, I’ve had more time to keep up with the deeper recesses of the financial press, which led me to Warren Buffett’s annual letter to the shareholders of Berkshire Hathaway. Buffett’s prose is a literary genre unto itself; a remarkably plain-spoken approach to making even the most complex and dull aspects of investment management simple and entertaining. If all “management letters” were penned as well, shareholders might actually read them. Perhaps that’s why they aren’t.
As we do every quarter, we take a look at some of the earnings commentary of pacemakers in asset management to gain further insight into the challenges and opportunities developing in the industry.
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.
Though probably not as historic as Plymouth landing or even the Eddie Murphy comedy, Henderson’s purchase of Denver RIA Janus Capital last month is a rare sign of confidence in active managers that have been losing ground to passive investors for quite some time. The era of ETFs and indexing has dominated asset flows for quite some time, so this transaction seems to counter the recent trend.
The purpose of this blog is to consider the implications of the election for the investment management industry, which is no easy feat. The Trump campaign was generally heavy on rhetoric and light on policy details. The investment management industry rarely came up, other than when Trump suggested that he would advocate taxing carried interest returns as ordinary income. He never mentioned, for example, the DOL’s Fiduciary Rule, which is set to phase in three months after the inauguration. The clearest indication of what a Trump presidency means to financial services, so far, appears to be its impact on the banking industry.
As we do every quarter, we take a look at some of the earnings commentary of pacemakers in asset management to gain further insight into the challenges and opportunities developing in the industry. Some of the trends this quarter include the Department of Labor’s Fiduciary Rule, passive management favoritism, and industry consolidation.
Barring some extraordinary circumstance, in one week Hillary Clinton will be elected the 44th president of the United States. Her election will mean a lot of different things to a lot of different people, but since this blog is called RIA Valuation Insights, we’ll narrow the focus of this outlook on her upcoming term as president to the possible impact on the investment management community.
Banks looking to diversify their revenue stream with investment management fee income would be well advised to study TriState Capital’s acquisition-fueled buildout of its RIA, Chartwell. The Pittsburgh depository started with an internal wealth management arm, bought $7.5 billion wealth manager Chartwell Investment Partners in early 2014, picked up the $2.5 billion Killen Group in late 2015, and last week announced the acquisition of a $4.0 billion domestic fixed income platform strategy from Aberdeen Asset Management.
When firms of similar size join forces to get a bigger footprint, solve leadership issues, stop advisors from competing with each other, etc. – realizing those benefits is the easy part. The hard work happens because different firms have different histories, and different histories create different cultures. Blending cultures can be awkward, as in MOEs (mergers of equals). This guest post, by Jeff Davis, provides a checklist of dos and don’ts for MOEs that will ring true in the investment management community.
Focus Financial Partners started preparing documents to file an initial public offering. While it may seem like a good idea on paper, we have many questions about the Focus IPO including: why now, how much, and how is this not a roll-up?
By now you’ve probably read the SEC’s proposed rules on Adviser Business Continuity and Transition Plans. Most of the proposed rule simply codifies a reasonable standard for practice management at an RIA. Certain of the proposal’s requirements, such as IT management and being able to conduct business and communicate with staff and clients in the event of a natural disaster, are likely to be met with turn-key solutions from vendors. Of more interest is how the requirement for a “transition plan” in the event of the death or incapacitation of an advisory firm owner will be implemented.
Management calls are usually, for the most part, fairly mundane. It’s usually not a good sign for a call to be “interesting”, and this quarter we picked up on several “interesting” themes.
Often branded as an industry bellwether for its size and breadth of services, BlackRock has been as solid as the name would imply given the recent fallout in asset manager valuations. How has it found an opportunity despite industry headwinds and the sideways market?
Last week, Affiliated Managers Group (ticker: AMG) announced the completion of its investment in three alternative asset managers – Capula Investment Management LLP, Mount Lucas Management LP, and Capeview Capital LLP. This post discusses this transaction against the dim alternative asset management market environment.
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?
Black swan events and the very nature of the asset management business illustrate the importance of contingent consideration in RIA acquisitions for prospective buyers. The volatility associated with equity managers means AUM and financial performance can swing widely with market conditions, so doubling down on a one-time payment for an RIA can be extremely risky, particularly at high valuations. Of course, the market can just as easily pivot in the buyer’s favor after the deal closes, but gaining Board approval for such gambles is an exercise in futility if insurance is available in the form of contingent consideration.
Our quarterly summary of analyst calls is as revealing as usual, as pacemakers in the asset management sector review this quarter’s performance and how it may shape the year ahead. Madeleine Harrigan highlights four RIA market trends discussed by expert analysts.
Year-end 2015 closed out a quarter of elevated market volatility and falling asset prices in the traditional asset management industry. The year was marked by a rising flight to passive strategies and overall falling net inflows that pressured margins, causing many managers to take a hard look at their expenses and compensation structures going into 2016. Looking ahead, traditional asset managers are also facing headwinds from a slowdown in the global market, and a subdued (but cautiously optimistic) outlook at home. As we did last quarter, we take a look at pacemakers in the traditional asset management industry and outline four key themes we believe are expected to define 2016.
The Global Investment Performance Standards (GIPS®) were adopted by the CFA Institute in 1999 and are widely accepted among the international investment management industry. GIPS are a set of ethical principles based on a standardized, industry-wide approach that apply to investment management firms and are intended to serve prospective and existing clients of investment firms. While compliance by investment firms is voluntary, many investors consider GIPS compliance to be a requirement for doing business with an investment manager. Alternative managers have lagged behind the industry in claiming compliance with GIPS, but changes in the industry suggest GIPS compliance is becomingly increasingly important.
Tri-State Capital Holdings, Inc. (traded on the Nasdaq as TSC) bought The Killen Group, a $2.5 billion manager of the Berwyn mutual funds, for about six times EBITDA. More specifically, TSC paid Killen $15 million cash up front (based on trailing EBITDA of $3.0 million), plus an earn-out paying 7x incremental EBITDA (which could add another $20 million to the transaction price). So, best case scenario for Killen is for them to deliver about $6 million in EBITDA and get paid $35 million (!).
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.
