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.
A weekly update on issues important to the Investment Management industry
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.
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?
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.
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.
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.
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.
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.
Much like Porsche discovered fifty years ago, many banks are responding to regulatory changes by opting for a hybrid model that pairs trust and wealth management operations with traditional banking. The advantages of banks developing their investment management operations are pretty easy to see: it produces a more stable and diverse revenue stream, it provides more touch points for customer relationships, and it can substantially improve a bank’s return on equity.
Of course, opportunity is a two way street, and banks looking to venture into investment management, especially by acquisition, typically encounter a couple of major obstacles: balance sheet dilution and culture clash. Both of these challenges arise from the main difference between traditional banking and asset management. Whereas banking is asset heavy and personnel light, asset management requires not much of a balance sheet, but plenty of expensive staffing. It’s a significant difference that can only be managed head on.
Last week, Brooks Hamner and I spoke at Bank Director’s Acquire or Be Acquired Conference in Scottsdale about how banks can build value through their trust and wealth management businesses. Our session got a great response, probably because we were some of the only speakers offering the banking community some hope. How then do you ensure that a trust not become an earnings-dilutive cauldron of liability?
In this post, we have included the slide-deck from our presentation, “Valuing a Trust & Wealth Management Franchise” from Bank Director’s 2016 Acquire or Be Acquired conference. Even with the present market instability, banks have an interesting opportunity to expand their financial services while diversifying their revenue streams with asset management. We sense some growing demand for sophisticated trust services, and a lot of RIAs in the wealth management space see banks with existing trust departments as a complementary environment to sell into.
