RIA Valuation Insights

April 25, 2016 Practice Management

Is Your Buy-Sell Agreement Purpose Built?

An Introduction to the Topic for Investment Management Firms

This post launches a series on buy-sell agreements, specifically as they pertain to RIAs. Buy-sell agreements are peculiar contracts between shareholders with a very specific purpose: to provide for the transition of ownership and liquidity in a business, usually in case of a specific event. Outside of a particular event, buy-sell agreements usually sit on a file server or in a desk drawer, and no one thinks about them, until a need arises to pull out the agreement – at which point no one can think about anything else.

April 18, 2016 Industry Trends Transactions

Stagnating Growth May Trigger More Dealmaking for Asset Managers

Some of our recent musings on mutual fund outflows and multiple contraction may actually have positive implications for RIA deal-making in 2016 and beyond. The maturation of the mutual fund industry and active fund managers will likely spur consolidation and buying opportunities for those looking to add scale. With valuations and market caps down over the last eighteen months or so, the affordability index has gotten a lot better for many of these businesses.

April 11, 2016 Asset Management

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.

April 4, 2016 Industry Trends

Asset Manager Valuations Mixed After a Rocky Q1

From a valuation perspective, it appears that alternative asset managers fared the best in Q1. However, closer inspection reveals a bleak quarter for the publicly traded hedge funds and private equity firms in our alternative asset manager index.

March 28, 2016 Alternative Asset Managers

Exits Overview: 2015 Market Imbalance Drives Down IPOs

2015 was a peak for private equity, but as 2015 unfolded, so did a growing imbalance between the public and the private markets. In this post, we consider recent trends and wonder – what’s next for VC?

March 21, 2016 Practice Management

Business Divorces at RIA Firms

Many times, conflicts with shareholders are unavoidable and are the natural bi-product of ownership transition and firm evolution. In these instances, a carefully crafted buy-sell agreement (“BSA”) can resolve these disputes in a fair and equitable manner (from a financial point of view) if the valuation process avoids common pitfalls. In this post, we discuss these pitfalls and how to keep your buy-sell agreement free of surprises.

March 14, 2016 Margins and Compensation

What is Normal Compensation at an Asset Management Firm?

Part 2

Investment management is a talent business, and that talent commands a substantial portion of firm revenue which often exceeds the allocation to equity holders. While there is no perfect answer as to what an individual or group of individuals should be compensated in an RIA, we can look to market data and compensation analysis, measured against the particular characteristics of a given investment management firm’s business model, to make reasonable assumptions about what compensation is appropriate and, by extension, what level of profitability can be expected.

March 7, 2016 Margins and Compensation

RIA Compensation and Valuation: A Conundrum of Brobdingnagian Proportions

Part 1

A tradeoff in an investment management firm’s business model is that of compensation expense versus profit margin. Compensation is almost always the largest expense on an RIA’s income statement and, of course, has a direct impact on net income. In light of that, we consider two business models and the effect on value.

February 29, 2016 Practice Management Transactions

Success and Succession Offers Targeted and Often Unexpected Insights on Internal Ownership Transition at RIAs

As the Baby Boomer generation continues to age toward retirement, many “founder-centric” asset management firms face the prospect of internal succession. The recent book “Success and Succession,” by David W. Bianchi, Eric Hehman, Jay Hummel, and Tim Kochis, is written from the perspective of three individuals who have experienced successful ownership transitions. The book provides some interesting insights into the logistical, financial, and emotional process that internal succession entails through colorful accounts of past triumphs and train wrecks.

February 22, 2016 Current Events

Earnings Calls 4Q15

Year-end 2015 closed out a quarter of elevated market volatility and falling asset prices in the traditional asset management industry. The year was marked by a rising flight to passive strategies and overall falling net inflows that pressured margins, causing many managers to take a hard look at their expenses and compensation structures going into 2016. Looking ahead, traditional asset managers are also facing headwinds from a slowdown in the global market, and a subdued (but cautiously optimistic) outlook at home. As we did last quarter, we take a look at pacemakers in the traditional asset management industry and outline four key themes we believe are expected to define 2016.