Growth Investing Has Outperformed Value for Quite Some Time Now, and the Market’s Taking Notice
Significant underperformance relative to both the market and growth alternatives has led to continued outflows from institutional investors, which in turn has hampered AUM, revenue, and earnings growth despite relatively favorable market conditions. Since the multiple has also slid for these businesses, it appears that the market is anticipating more of the same. Against this backdrop, we address this post’s original question as to whether or not value managers are indeed undervalued at the moment.
Recent Capitulations for AMG and Focus Suggest Investors are Starting to Question Their Business Model
While it’s no secret that the last year has been especially challenging for the RIA industry, Affiliated Managers Group (AMG) and Focus Financial (FOCS) have underperformed most of their peers by a fairly significant margin in the last few months. AMG is down nearly 50% over the last year, and Focus has lost over 50% of its value since peaking last September. For this post, we’ll offer our take on the driving forces behind this decline.
M&A and Practice Management
Much of the sector’s recent press has focused on the current M&A environment as well as practice management issues for RIA firms, so we’ve highlighted some of the more salient pieces on these topics and a few others that are making news in the investment management industry.
Over the weekend, the Financial Times published an article touting the rising level of merger and acquisition activity in the U.S. wealth management industry. The piece echoed much of the typical commentary on the RIA industry’s prospects for deal activity: a large, profitable, but fragmented community of firms needing scale to develop the necessary technology infrastructure and serve sophisticated client needs. The article talked to leaders in several PE-backed consolidators and some M&A specialists in the space, all of whom talked their book in general agreement that valuations were strong and consolidation was on. What the article didn’t address is that while private equity has indeed been actively pursuing the investment management industry, the public markets seem to have lost interest.
Despite Recent Uptick, Investment Managers are Underperforming
Ordinarily, we’d expect investment manager stocks to outperform the S&P in a stock market rally. This isn’t always the case though. So far this year, most classes of RIA stocks have underperformed the market despite its relatively sharp increase through the first three months. The explanation isn’t necessarily obvious.
Much of the sector’s recent press has focused on the current market environment as well as practice management issues for RIA firms, so we’ve highlighted some of the more salient pieces on these topics and a few others that are making news in the investment management industry.
Most Traditional and Alternative Asset Managers in Bear Market Territory After Turbulent Year for Global Equities
Following a decade of (fairly) steady appreciation, RIA stocks finally capitulated with the market downturn and growing concerns over fee compression and asset flows. As a leading indicator, such a decline suggests the outlook for these businesses has likely soured over the last year or so.
Happy New Year to all our readers and subscribers! Here are the five most popular posts from 2018.
Mercer Capital RIA Holiday Quiz
As year-end approaches, we hope to spread some cheer with the greatest only asset management themed holiday quiz. Merry Christmas! We will be back in January.
Much of the sector’s recent press has focused on succession planning and M&A trends, so we’ve highlighted some of the more salient pieces on these topics and a few others that are making news in the asset and wealth management industries.
Earlier this month, Matt Crow and I attended the BNY Mellon / Pershing RIA Symposium in San Francisco. The conference was well attended, and the presentations were excellent despite the constant drone of fair wage protesting outside the hotel venue. For this post, we’ve elected to summarize some of these presentations and their potential implications for your business.
Deal Activity Continues to Accelerate Through the Third Quarter 2018
Asset manager M&A was robust through the first three quarters of 2018 against a backdrop of volatile market conditions. Several trends which have driven the uptick in sector M&A in recent years have continued into 2018, including increasing activity by RIA aggregators and rising cost pressures. Total deal count during the first three quarters of 2018 increased 45% versus the same period in 2017 and total disclosed deal value was up over 150%. In terms of both deal volume and deal count, M&A is on pace to reach the highest levels since 2009.
During the recent market cycle, asset managers have benefited from global increases in financial wealth driven by a bull market in most asset prices. These favorable trends in asset prices have masked some of the headwinds the industry faces, including growing consumer skepticism of higher-fee products and regulatory overhang.
Since their launch in 1993, exchange traded funds (ETFs) have steadily attracted assets from mutual funds and active managers that have struggled to compete on the basis of performance and overall tax efficiency. Now many industry observers believe that the same may very well happen to ETFs with the recent rise of direct index investing (DII). For this week’s post, we look into the pros and cons of DII and the implications for the investment management industry.
Despite the old maxim of a rising tide lifting all boats, the current markets are clearly more buoyant for wealth management firms than asset management firms. Many asset managers are trading at or near all-time lows from a valuation perspective, while financial advisory shops continue to accumulate client assets. For this week’s post, we’ll take a closer look at this trend, and what it means for the broader industry.
Asset manager M&A was robust through the first two quarters of 2018 against a backdrop of volatile market conditions. Several trends which have driven the uptick in sector M&A have continued into 2018, including revenue and cost pressures, RIA aggregators, and an increasing interest from bank acquirers. We discuss further in this week’s post.
Over the last several years, asset managers have benefited from global increases in financial wealth driven by a bull market in asset prices. However, favorable trends in asset prices have masked some of the headwinds the industry faces. Against this backdrop, we take a closer look at last quarter’s market performance through the lens of sector and size.
It’s been several months since Morgan Stanley and UBS departed from the Protocol for Broker Recruiting, and the industry is continuing to feel the ripple effects of their maneuver. Much remains to be seen, but many analysts expect more firms to abandon the protocol despite Wells Fargo’s and Merrill Lynch’s recent announcements to stick with it for now.
A rocky first quarter was particularly volatile for publicly traded RIAs. After reaching record highs in late January, most categories of publicly traded RIAs ended the quarter with negative returns.
Asset manager M&A was robust through the first quarter of 2018 against a backdrop of volatile market conditions. Several trends which have driven the uptick in sector M&A have continued into 2018, including revenue and cost pressures and an increasing interest from bank acquirers. We discuss further in this week’s post.
Publicly traded asset managers had a rough first quarter, as volatility returned to the market and major indices posted negative quarterly returns for the first time in over two years. While the overall drop in the market was relatively modest, stock price declines of publicly traded asset managers were generally more significant. It is not surprising that most asset managers have underperformed during periods of declining markets, since the reverse was true during 2017, when most asset managers outperformed the major indices.
Several topics were discussed at the CFA Institute’s Wealth Management Conference, most of which centered around financial planning, practice management, and servicing private clients with evolving needs and return requirements. Though we weren’t able to attend all the sessions, we did pick up on a few themes from our discussions with the attendees and other exhibitors. In this week’s post, we further discuss those themes.
Most of the sector’s recent press has focused on the tax bill’s impact on RIAs, so in addition to our own writings on the matter, we’ve highlighted some of the more salient pieces we’ve come across regarding the tax bill as it relates to the asset management sector.
Favorable market conditions over the last year have lifted RIA market caps to all-time highs yet again as AUM balances continue to climb with the major indices. Is the press wrong about some of the problems facing the industry or is there more to the story?