Category

Asset Management

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August 23, 2024 Valuation

Valuing Asset Managers

Read our updated complimentary whitepaper on valuing asset managers. 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, investment management firms exist in a narrow space between client allocations and the capital markets. They 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 risks and opportunities of a particular investment management firm is fundamental to developing a valuation.

May 17, 2024 Practice Management Transactions

Are Toxic Cultures the Silent Killers of the Asset Management Industry?

We’ve written about the external headwinds facing asset managers relative to other sectors of the investment management industry with scant reference to what actually causes many of them to fail: toxic cultures.  As valuation analysts, we’re more fixated on the quantitative measures of an asset management firm, like investment performance and client retention, so we often turn to actual industry participants to get the story behind the numbers.  Paul Black, CEO of WCM Investment Management, a $67 billion asset manager headquartered in Laguna Beach, California, provides great insights on the impact of culture on the viability of a money management firm.

April 19, 2024 Alternative Asset Managers Industry Trends

Market Resilience: Asset Managers Thrive Amidst Economic Volatility in 2023

Despite persistent inflation, elevated interest rates, and heightened geopolitical tensions, the asset management industry and the stock market as a whole saw a resurgence during 2023.  Our index of publicly traded asset management firms generally tracked the movement in the broader market, with stock prices for smaller asset managers (AUM under $250 billion) up 30.3% and large asset managers (AUM over $250 billion) up 22.0% over the year ended March 31, 2024, while the broader market (S&P 500) was up 29.9%. Read more about the market’s resilience and future outlook in this week’s post.

November 3, 2023 Active Management Industry Trends Margins and Compensation

Can Active Management Survive a Bear Market?

The recent analysis by Bloomberg highlights the potential for a bear market to intensify the challenges faced by active money managers, including fee pressures, asset outflows, and growing competition from passive investing strategies. Despite headwinds and the rising popularity of passive products, the resilience of some active management firms suggests a future where the industry might see less competition and more opportunity for alpha. Despite higher market caps than in 2008, asset management firms face a contraction in earnings multiples, suggesting a complex outlook that balances risks with the potential for restructuring and consolidation within the sector.

October 20, 2023 Alternative Asset Managers Industry Trends

Alt Managers Race Ahead

A Resurgent Year for Investment Management Firms

In the recent financial landscape, alternative asset managers have significantly outpaced other categories, particularly in the RIA sector, demonstrating resilience and impressive gains amidst market volatility. While traditional asset managers have seen some pressure, larger entities, especially those in private equity, experienced notable growth and stability, largely due to their robust structures and strategic partnerships. The current trends underscore the importance of understanding nuanced market shifts, what these developments mean for various asset managers, and investment approaches in an evolving economic climate.

August 11, 2023 Margins and Compensation Practice Management

A Little Less Conversation, A Little More Compensation

Compensation Structures for Investment Management Firms Whitepaper

Labor is the single largest expense for any investment management firm, but beyond that simple fact, there is surprisingly little similarity regarding how the thousands of wealth managers, asset managers, independent trust companies, and investment consulting firms pay their people.  Compensation studies show considerable variances in how much firms pay for certain positions, and the character of remuneration — salary, bonuses, equity compensation, benefits — varies as a function of firm history, economics, and culture.

July 7, 2023 Industry Trends Wealth Management

Q2 2023: RIAs Finish Strong Following June’s Bull Market

Steady Interest Rates Calm Investor Nerves, Boosting RIA Performance

The second quarter of 2023 saw share prices for asset and wealth management firms reflect the broader market’s growth, particularly following the S&P 500’s transition into a bull market in June. However, smaller asset managers underperformed compared to their larger counterparts and the S&P 500, while earnings multiples for publicly traded RIAs saw an 8.8% increase due to a favorable interest rate environment and higher AUM balances. The upcoming report on Q2 M&A activity is set to provide further insight into these trends, and while comparisons with closely held RIAs require caution, focusing on core business practices can offer protection from market volatility.

April 21, 2023 Current Events

Challenging Year Ahead for Asset Managers

Asset Management Firms Struggle as Market Downturn and Fund Outflows Persist

2022 was a tough year for the RIA industry and the stock market, as persistent inflation, rising interest rates, and geopolitical tensions shook the economy. Asset management firms felt the pressure, but what factors drove this decline and how did it impact the industry? Discover the challenges faced by both active and passive funds, and explore the outlook for asset managers in the face of an uncertain future.

March 16, 2023

The Relationship Between AUM Multiples and RIA Performance

AUM multiples are an often-cited valuation metric in the RIA industry as a back-of-the-envelope way to quickly estimate a firm’s value. The simplicity of AUM multiples is also the greatest pitfall. In our post this week we focus on the key drivers of AUM multiples and other ways to improve the value of your assets under management.

February 10, 2023 Current Events Industry Trends

Investment Management Is a People Business

Who’s in the Driver’s Seat?

Investment management is a people business, and there are aspects to a people business which do not yield to financial modeling. This week, Matt Crow addresses industry conundrums for which there are no easy answers.

February 3, 2023 Margins and Compensation Practice Management

Whitepaper Release: Compensation Structures for Investment Management Firms

For this week’s post we’re introducing our whitepaper on compensation structures for investment management firms. This whitepaper is designed to help you navigate the various compensation models to optimize firm growth and employee retention.

December 5, 2022 Industry Trends

Westwood Looks to Replace Lost AUM and Revenue with Salient Partners Acquisition

Two weeks ago, Westwood Holdings Group completed its acquisition of Salient Partners’ asset management business. The deal is expected to add $4 billion in AUM and $31 million in annual revenue to WHG, pricing the total consideration at 1.5% of AUM and just under 2x revenue. Masking losses through acquisitions is typically a risky proposition, but this may be an instance where it actually makes sense.

October 28, 2022 Industry Trends Wealth Management

Multiple Contraction Drives Returns for Publicly Traded Asset/Wealth Managers

While multiples for publicly traded asset and wealth managers have been hit hard this year, RIA valuations in the private market have been more resilient as a proliferation of professional buyers and capital in the space have supported deal activity and multiples. Nevertheless, market conditions are beginning to have an effect. Run rate performance for most firms is down significantly, and borrowing costs for leveraged consolidators are rising. The upward momentum in multiples that persisted throughout last year has stalled, and deal structures have started to shift more of the purchase price into contingent consideration to bridge increasingly divergent buyer and seller expectations. Read more about it in this week’s post.

October 14, 2022 Industry Trends

Asset Management Without a Net

This Time, There Is No Fed “Put”

As September of 2022 came to a close, asset management is experiencing one of the most challenging years in history.  Losses are both deep and widespread.  The consequence is a tough quarterly letter to pen to investors, a hit to revenue, and an even bigger impact on profitability.

September 16, 2022 Transactions Wealth Management

Reconciling Real-World Transactions With the Fair Market Value Standard

When business owners think about the value of their firm, they frequently think in terms of the dollar value that they believe they could sell the business for in an arms’ length transaction. However, the nuances of real world transaction terms in the investment management industry can often obscure what’s being paid for the business on a cash-equivalent basis. In this blog post, we explore various transaction structures employed in the industry and their relationship to fair market value.

July 29, 2022 Current Events Industry Trends Practice Management

Schwab’s 2022 Benchmarking Study Offers Insights Into the RIA Industry

How Does Your RIA Measure Up?

Schwab recently released its 2022 RIA Benchmarking Study.  The survey contains responses from over 1,200 RIAs representing $1.8 trillion in AUM to questions about firm operating performance, strategy, and practice management.  The survey is a great resource for RIA principals to see how their firm’s performance and direction measure up against the average firm.  In our blog post this week, we highlight some of the key results of the survey.

April 8, 2022 Industry Trends

Alt Managers Best the Market and Other Types of RIAs During a Rocky Twelve Month Stretch for the Industry

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.

March 4, 2022 Industry Trends

Do RIA Investors Prefer Growth Over Value?

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.

January 17, 2022 Alternative Asset Managers Industry Trends

Alt Managers Best the Market Along with Other Types of RIAs During a Strong Year for Investment Management Firms

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.

January 10, 2022 Industry Trends

Asset Management Firms See Strong Performance in 2021

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.

January 4, 2022 Current Events Wealth Management

RIA M&A Q4 Transaction Update

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.

October 18, 2021 Industry Trends Wealth Management

Asset / Wealth Management Stocks See Mixed Performance During Third Quarter

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.

October 11, 2021 Current Events Industry Trends

“Permanent” Capital Providers Offer a Different Type of RIA Investor

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.

July 12, 2021 Wealth Management

Asset / Wealth Management Stocks See Another Quarter of Strong Market Performance

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.