A weekly update on issues important to the Investment Management industry
Recently, SEC Chair Mary Jo White gave a keynote speech to attendees of the SEC’s and Rock Center’s Silicon Valley Initiative, an event bringing together regulators, academics and entrepreneurs to discuss issues affecting venture capital and private equity within Silicon Valley. Although the audience may have been targeted, White’s speech provides insight into the SEC’s concern over the lack of transparency, governance and oversight in the PE and VC industries.
Often branded as an industry bellwether for its size and breadth of services, BlackRock has been as solid as the name would imply given the recent fallout in asset manager valuations. How has it found an opportunity despite industry headwinds and the sideways market?
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.
Last week, Affiliated Managers Group (ticker: AMG) announced the completion of its investment in three alternative asset managers – Capula Investment Management LLP, Mount Lucas Management LP, and Capeview Capital LLP. This post discusses this transaction against the dim alternative asset management market environment.
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?
Black swan events and the very nature of the asset management business illustrate the importance of contingent consideration in RIA acquisitions for prospective buyers. The volatility associated with equity managers means AUM and financial performance can swing widely with market conditions, so doubling down on a one-time payment for an RIA can be extremely risky, particularly at high valuations. Of course, the market can just as easily pivot in the buyer’s favor after the deal closes, but gaining Board approval for such gambles is an exercise in futility if insurance is available in the form of contingent consideration.
As mutual fund flows continue to favor passive strategies, some active fund managers are beginning to look to alternative asset classes to augment returns and generate sustainable alpha. Since open-end funds need to calculate NAV on a daily basis, the inclusion of illiquid venture capital investments in liquid funds shines a brighter spotlight on fair value measurement.
In an industry characterized by constant pressure to adapt to market conditions and offer highly specialized client service, many financial advisors still spend a significant portion of their time acquiring new clients rather than collaborating with other professionals. According to Philip Palaveev in his recent book The Ensemble Practice, the majority of financial advisory practices still function as “solos,” or one individual against the entire market. This practice is inherently problematic in its lack of sustainability and the problems it poses for an owner who desires to leave a legacy post-retirement.
Our quarterly summary of analyst calls is as revealing as usual, as pacemakers in the asset management sector review this quarter’s performance and how it may shape the year ahead. Madeleine Harrigan highlights four RIA market trends discussed by expert analysts.
The closest we get to detective work at Mercer Capital is when we’re jointly retained to resolve a shareholder disagreement over a buy-out. Whether we’ve been court-appointed or mutually chosen by the parties to do the project, we’ve done enough of these over the years to learn that the process matters as much as the outcome. In this post, we discuss our process for handling such engagements.
