Category

Asset Management

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June 17, 2019 Industry Trends

Are Value Managers Undervalued?

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.

April 29, 2019 Industry Trends

RIAs Still Reeling from Last Year’s Sell-Off

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. 

April 15, 2019

Valuations of Asset Managers Are Slow to Recover

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?

February 18, 2019 Industry Trends Wealth Management

What We’re Reading on the RIA Industry

Q1 2019

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.

February 4, 2019 Current Events

RIP to the Father of Index Investing

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.

August 13, 2018 Industry Trends Wealth Management

The Haves and Have-Nots of the RIA 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.

July 17, 2017

Why TAMs (Traditional Asset Managers) Continue to Thrive Despite Industry Headwinds

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.

May 1, 2017 Industry Trends Trust Companies

Q1 Shows Glimmer of Hope for Active Managers and Continued Gains for Trust Banks

The First Quarter 2017 Asset Management newsletter has been released. This quarter’s newsletter focuses on the mutual fund sector, which has been plagued by asset outflows into ETFs and other passive strategies for most of the last decade. The first two months of this year do, however, offer a ray of hope as 45% of U.S. based active managers beat their relevant benchmark, resulting in February being the first month of inflows into active products since April 2015.

April 18, 2017

Active Management Down But Not Out

Fresh off a 111-82 KO from the San Antonio Spurs on Saturday, our hometown Memphis Grizzlies are certainly battered but not totally eliminated from this year’s NBA title race. As this post goes to press, we still don’t know the outcome of Game 2, but it will undoubtedly be an uphill climb for the Grizz as it usually is against their divisional foes in Central Texas. Still, the Spurs/Grizz rivalry over the last ten years has not been nearly as one-sided as the battle for fund flows between active and passive investors in the ETF era.

February 6, 2017

Valuing RIAs

In essence, RIAs may be both highly profitable and prospectively ephemeral. Balancing the particular risks and opportunities of a given asset management firm is fundamental to developing a valuation. If you haven’t already, read our whitepaper covering this balancing act in this week’s post.

January 30, 2017 Current Events Margins and Compensation

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.

January 16, 2017 Industry Trends

Asset Manager Valuations Mixed at the Start of 2017

A quick glance at year-end pricing of publicly traded asset managers reveals a continued skid in cap factors for mutual fund providers offset by some multiple expansion for traditional and alternative asset managers.

August 15, 2016 Industry Trends

The Market is Bearish on AUM Growth, but What if the Market is Wrong?

We have written at length about bearish signs in the RIA space, and valuation metrics seem to generally reflect a reduced growth outlook. We wonder, though, if things are really that bad. While, we suspect there is, over all, some phantom fee compression in the industry as assets are allocated to passive instruments and active managers who charge more don’t get the RFP they once would have, the other two themes focus on demographics and market outlook which are not, necessarily, bearish for the investment management space.

July 5, 2016 Current Events Margins and Compensation

Brexit Just Accelerates Downward Trend in RIA Valuations

Gimme Shelter

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?

April 11, 2016

Mutual Fund Providers Down Sharply as ETFs Continue to Gain Ground

So far this month, the sports world has seen two incredible streaks finally come to an end – Golden State suffered its first regular season home defeat in 54 games, and Real Madrid snapped FC Barcelona’s 39 game unbeaten run in last weekend’s Clasico match-up. Both teams are still poised to retain their respective NBA and La Liga titles this year and break numerous records in the process, assuming their top producers continue their recent form. One streak that remains, albeit less reportedly, is passive funds’ dominance over their active counterparts over the last year.

November 9, 2015 Practice Management

Asset Manager Valuation and Rules of Thumb

The shorthand method of valuation in many industries has long been some kind of “rule of thumb,” usually a multiple of some measure of gross scale or activity. In this post, we consider the pitfall of relying strictly on a rule of thumb.

November 2, 2015 Transactions

Asset Manager M&A Continues Ascent Despite Sell-Off

Despite the recent setback in the markets, RIA transaction activity posted solid gains for Q3 and into the month of October. The market’s stabilization since the last correction has clearly boded well for sector M&A, and the future appears bright – as long as security pricing holds up.

August 31, 2015 Practice Management

The Valuation of Asset Management Firms

In this week’s blog, we present a new whitepaper with some summary thoughts on the valuation of RIAs. Understanding the value of an asset management business requires some appreciation for what is simple and what is complex. On one level, a business with almost no balance sheet, a recurring revenue stream, and an expense base that mainly consists of personnel costs could not be more straightforward. At the same time, asset management firms exist in a narrow space between client allocations and the capital markets, and depend on revenue streams that rarely carry contractual obligations and valuable staff members who often are not subject to employment agreements. In essence, RIAs may be both highly profitable and prospectively ephemeral. Balancing the particular risks and opportunities of a given asset management firm is fundamental to developing a valuation.

July 6, 2015

Mutual Fund Trends in Q1 2015

So, as always, the outlook for mutual fund providers hinges on market performance and asset flows. Any continuation of the recent market momentum would certainly be a bonus for mutual fund providers whose net-of-fee performances are competitive with comparable ETF products. Another market downturn, on the other hand, would likely hasten asset flows out of equities and into fixed income or money market funds with lower fees to their sponsors.