Corporate Valuation, Investment Management

July 18, 2016

Asset Managers of All Shapes and Sizes Continue to Underperform the Broader Indices

Nowhere to Hide

Piggybacking off our post from a couple of weeks back, the downward trend in asset manager pricing has persisted for another quarter, no matter how you slice it. Publicly traded trust banks, alt managers, mutual funds, and traditional RIAs are all down over the last year, with hedge funds and PE firms leading the plunge. Rising compliance costs, fee and margin compression, asset outflows on active strategies, and stalling growth prospects are all culprits for the overall decline, but alternative asset managers have definitely been hit the hardest over the last year. RIA-2Q16-Type-Indices As a matter of practicality, it shouldn't be surprising that the most expensive asset class with the worst overall performance would eventually be shunned by investors. This trend is really just a microcosm or more exaggerated example of what's going on across the entire asset manager landscape – individual and institutional investors no longer have to accept high fees and chronic underperformance, so they're turning their attention to passively managed products or indexing strategies to boost their effective return. John Oliver certainly didn't do the industry any favors with his 20 minute rant on advisor fees in his Last Week Tonight episode from a few weeks back. There was also virtually no size effect. Most every asset manager from GROW (U.S. Global) to TROW (T. Rowe Price) has struggled to keep pace with the broader indices. No matter the asset base, a low-fee, passively biased environment is not conducive to most asset managers of any size, shape, or form. Add rising regulatory costs and a market that's not exactly undervalued, and you get multiple contraction and a bear market for RIAs. RIA-2Q16-Size-Indices So what's the market trying to tell us about the future of this business? Probably that fee compression, asset outflows, rising compliance costs, and heightened market volatility will likely have an adverse effect on future earnings for some time to come. For alternative asset managers, the market seems to be pricing in more pronounced cuts to their fee structure and/or continued outflows. It might also signal a buying opportunity for industry participants looking to add scale since most RIAs have finally gotten cheaper after years of steady growth following the last financial crisis. AMG's recent acquisition seems to be at least partially motivated by recent declines in hedge fund valuations. Further consolidation seems inevitable and might be the most viable way to restore a depleted asset base and profit margin. We'll keep you apprised on deal-making trends in future posts.

Continue Reading

When RIA Owners Disagree on Value
When RIA Owners Disagree on Value

Choosing the Appraiser, the Process, and the Rules of Engagement

Valuation disputes among RIA owners require more than a defensible appraisal—they also require a clear process for selecting a qualified, independent appraiser and establishing fair rules of engagement. Thoughtful dispute-resolution provisions can help parties reach a credible conclusion even when perspectives on value differ.
RIA Valuation Insights Blog Investment Management
Read Now about When RIA Owners Disagree on Value
Mercer Capital to Sponsor the Association of Trust Organizations 2026 Annual Meeting
Mercer Capital to Sponsor the Association of Trust Organizations 2026 Annual Meeting
Mercer Capital is pleased to sponsor the Association of Trust Organizations’ 2026 Annual Meeting, taking place September 21-23, 2026, at the Grand Hyatt Deer Valley in Park City, Utah. Matt Crow, Brooks Hamner, and Zach Milam will attend on behalf of the firm.The 2026 Annual Meeting is a 1.5-day conference designed exclusively for the trust industry and will feature more than 13 hours of roundtables, panels, and networking. One of the featured sessions is Tuesday afternoon’s Session VI, “What Makes a Trust Company Worth More? Building Value Before the Deal,” which will be moderated by Matt Crow. The panel will explore the factors that drive valuation, how buyers and sellers evaluate opportunities, and what firms can do today to maximize enterprise value.Matt Crow, CFA, ASA, is the CEO of Mercer Capital and leads the firm’s Investment Management Industry team. He works with RIAs, independent trust companies, broker-dealers, and investment consulting firms on valuation matters related to corporate planning and reorganization, transactions, employee stock ownership plans, tax issues, and intangible asset valuations. Matt is also a frequent contributor to Mercer Capital’s RIA Valuation Insights blog.Brooks Hamner, CFA, ASA, is a Senior Vice President and a senior member of Mercer Capital’s Investment Management Industry team. He provides valuation services to RIAs, independent trust companies, asset managers, wealth management firms, broker-dealers, and investment consultants, and he also advises clients buying or selling their business.Zach Milam, CFA, is a Vice President and a senior member of Mercer Capital’s Investment Management Industry team. He has experience in corporate planning and reorganizations, financial reporting, fairness opinions, litigation support, employee stock ownership plans, and estate and gift tax planning and compliance matters.Mercer Capital regularly works with RIAs, independent trust companies, broker-dealers, and other investment management clients on valuation and advisory matters, and the firm looks forward to connecting with attendees in Park City. Visit the conference website to learn more about this year’s Annual Meeting: https://trustorgs.com/annual-meeting/.
The Margin RIA Buyers Actually Underwrite
The Margin RIA Buyers Actually Underwrite

Why the Post-Closing Cost Structure Matters More Than the Historical Margin

RIA buyers often focus less on a seller’s historical margin than on the earnings the business can generate after closing under the buyer’s operating model. Differences in integration strategy, cost structure, and platform capabilities can lead buyers to underwrite materially different margins and values.
RIA Valuation Insights Blog Investment Management
Read Now about The Margin RIA Buyers Actually Underwrite

Cart

Your cart is empty