Publicly traded hedge fund managers and PE firms almost doubled in value during 2021 before nearly giving it all back in the first quarter. In this week’s post, we also examine the performance of other classes of RIAs and comment on the current market for privately held RIAs.
What Public Company and Transaction Data Multiples May Tell Us About RIA Investor Preferences
This week we look to understand why private market multiples for RIAs have consistently embodied more optimism than that of their publicly traded peers. In doing so, we identify RIA investor preferences unique to the industry, and why such multiples may even be misleading indications of your firm’s value.
Publicly traded hedge fund managers and PE firms nearly doubled in value during 2021. In this week’s post, we review the investment manager performance in 2021 by sector and AUM size and provide implications for your RIA in 2022 based on the results.
The asset management industry fared well in 2021 against a backdrop of rising markets and improved net inflows. Strong performance in equity markets was a major contributor to this performance. In addition, 2021 saw modest organic growth, although there were significant variances by asset class. In this week’s post, we discuss these issues and present our outlook for the industry.
Aggregators Continue to Drive Deal Volume in 2021
Deal count is projected to reach new highs in the fourth quarter of 2021 as market activity continues to gain momentum, likely rounding out another record-breaking year for the RIA industry. In keeping with the rest of 2021, deal volume was driven by secular trends and supportive capital markets. As market activity remains robust, competition for deals continues to favor RIA aggregators such as Mercer Advisors, Mariner Wealth Advisors, Wealth Enhancement Group, and Focus Financial Partners (FOCS), to name a few. In this week’s post, we provide more information about the aggregators and offer our thoughts for the future.
After a Strong Summer, Public Asset Managers See Stock Prices Dip as Market Pulls Back in September
RIA stocks saw mixed performance during the third quarter amidst volatile performance in the broader market. In September, the S&P 500 had its worst month since March 2020, and many publicly traded asset and wealth management stocks followed suit.
In this week’s post, we illustrate what this means for your RIA and give a prediction on the outlook of the RIA industry.
Beginning With No End in Mind
The rise of “permanent capital” providers is both in response to and appropriate for the current environment of premium entrance multiples in the RIA space. While making a permanent capital investment doesn’t eliminate the depressive effects of current valuations on returns, it does help to mitigate them.
Absent self-imposed pressure to generate an exit within the foreseeable future, RIA investors can focus on opportunities for sustainable and growing distributions – the real value of investing in investment management.
Publicly Traded Asset / Wealth Managers See Continued Momentum Through Second Quarter as Market Backdrop Improves
On balance, the outlook for RIAs has generally improved with market conditions over the last several months. AUM has risen with the market over this time, and it’s likely that industry-wide revenue and earnings have as well. With markets near all time highs, most RIAs are well positioned for strong financial performance in the back half of the year. This week’s post details the past performance and outlook for traditional asset and wealth managers, alternative asset managers, as well as aggregators and multi-boutiques.
When Do You Need A Fairness Opinion?
Fair is often the first-four-letter word that most children learn, and it often leads to more arguments than other choice words. Although children eventually learn that life is not always fair, we spend a lot of time ensuring that major economic events are. Transactions are rarely straightforward, and as the pace of M&A activity in the investment management community continues to accelerate, more shareholders are scrutinizing both the pricing and terms of transactions. In this post (and in the next), we explain when you should consider getting a Fairness Opinion and what that involves.
Publicly Traded Asset/Wealth Managers See Continued Momentum Through First Quarter as Market Backdrop Improves
The outlook for RIAs depends on a number of factors. Investor demand for a particular manager’s asset class, fee pressure, rising costs, and regulatory overhang can all impact RIA valuations to varying extents. The one commonality, though, is that RIAs are all impacted by the market. The impact of market movements varies by sector, however. On balance, the outlook for RIAs has generally improved with market conditions over the last several months. AUM has risen with the market over this time, and it’s likely that industry-wide revenue and earnings have as well. The first quarter was generally a good one for RIAs, but who knows where the rest of 2021 will take us.
Is human input in investment management a feature, or a bug? Our experience has been that human input finds unique solutions, secures and strengthens relationships, and ultimately provides clients with the best outcomes. Algorithms can be great tools, so long as their user has great skills.
Value Stocks Are Finally Besting Growth, But Is It Sustainable?
Growth-style investments have outpaced their value counterparts by a considerable margin since the Financial Crisis of 2008 and 2009. Propelled by an 11-year bull market from 2009 to 2020 and additional lift to tech stocks in a work-from-home environment, growth investing dominated value-oriented equities until just a few months ago. Now, the long-running trendline appears to be rolling over.
Asset Management Industry Outlook
Over the last decade, investors have generally earned a higher net return by investing in passive vehicles rather than actively managed funds. Passive market share is now greater for U.S. equity investing than active. While large asset managers (i.e. BlackRock), are protected by sheer scale, how do small/mid-sized asset managers stay relevant in this environment?
Are Sustainable Investments the Future of Investment Management?
The market for sustainable investments has grown to over $12 trillion in the U.S. and the movement of investable assets into sustainable strategies is expected to accelerate. In this week’s post, we link to the newly published 2020 Alternative Asset Manager Update authored by Taryn Burgess, CFA, ABV. The update reviews the growth of sustainable investing over the last decade and considers the valuation implications for your RIA.
Falling Asset Prices Threaten Profitability as Spotlight Turns to Relative Performance
Active managers have generally underperformed their benchmarks over the past 10 years, which has driven outflows into low-fee passive products. The extreme financial market volatility and dispersion over the last two months has created major price dislocation and the potential to generate outperformance. The current environment may well be the time for active managers to prove themselves by protecting clients’ assets relative to index performance and justifying their fees.
A Few Things RIAs Need to Know
We’ve hesitated to put together a whitepaper on succession planning because so many people have already written excellent commentary on the topic. Nonetheless, when we surveyed what had been written about succession for RIAs, we didn’t see the kind of … Continued
Asset and Wealth Manager M&A Keeping Pace with 2018’s Record Levels
Through the first half of 2019, asset and wealth manager M&A has kept pace with 2018, which was the busiest year for sector M&A over the last decade. M&A activity in the back half of 2019 is poised to continue at a rapid pace, as business fundamentals and consolidation pressures continue to drive deal activity. Several trends, which have driven the uptick in sector M&A in recent years, have continued into 2019, including increasing activity by RIA aggregators and rising cost pressures.
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.
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.
Is the Decline in Active Management a Result of Increased Competition or Mediocre Performance?
While market declines are a threat to the profitability and valuations of any asset management firm, active managers face the additional threat of relative underperformance driving outflows, even in periods of rising markets. Low fee passive strategies have become increasingly popular due in part to both the perceived underperformance of active managers and an increasing focus on fees. But to what extent have active fund outflows been driven by mediocre performance versus competition from passive strategies, and what is the impact on asset management firm valuations?
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.
John Bogle’s Legacy Endures with the Prominence of Passive Investing
This week we say goodbye to perhaps the greatest advocate of passive investing. John Bogle’s contributions to indexing strategies and ETF investing have had huge impacts on both active and passive management, which we’ll address in this week’s post.
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.
Most traditional asset managers (also sharing the TAM initials), a similarly consistent, yet overlooked subset of the RIA industry, are in bull market territory over the last year in the face of fee compression and continued outflows from active equity products.