MPI. Industry Update Q Asset Management Industry. Valuation Opinions & Transaction Advisory.

Transcription

1 Valuation Opinions & Transaction Advisory Industry Update Q Asset Management Industry

2 Contents* 02 Industry Overview Performance and Trends 03 In the News Ares Management LLC prepares for an IPO Carlyle looks to acquire a traditional asset manager Carlyle hires away Jamie Dimon s right-hand man Paul Capital winds down after its sale falls through Blackrock adds a portfolio manager with a strong track record Vanguard seeks permission to actively-managed ETFs Mohamed El-Erian resigns from PIMCO in surprise move 04 Key Indicators Industry Revenue Assets Under Management Personal Savings Rate Hedge Fund Assets and Net Asset Flow Number of Hedge Funds 07 M&A Overview U.S. Activity Highlighted Transactions Industry Trends Recent Transactions 09 Public Market Data Comparable metrics of selected public companies in the Asset Management Industry 11 About * This publication is also available in soft copy on the website: 1

3 Industry Overview This publication focuses on major events, developments and trends within the traditional (mutual funds, wealth managers) and alternative (hedge funds, private equity) segments of the Asset Management Industry. The Asset Management Industry is in the midst of a recovery: Revenue grew at an annual rate of 7.1% in the traditional space in the last five years through 2013 and 7.9% in the alternative space over the same period. Revenue for both traditional and alternative managers surpassed pre-recession highs in In the last twelve months the traditional and alternative asset manager stock prices are up 25.7% and 31.6%, respectively. Presently, the following trends are shaping the industry: The Traditional/Alternative Divide Begins to Blur: A new type of investment product is gaining popularity in the industry: hedged or alternative mutual funds. Alternative asset managers are beginning to offer their services in a mutual fund format, providing smaller retail clients with exposure to traditionally exclusive investment strategies. The Demographic Benefit: The aging populations of developed economies are contributing to greater AUM through pension funds and demand for capital preservation. The Regulatory Burden: The Dodd-Frank Wall Street Reform and Consumer Protection Act is set to take effect in mid-2015, leading to greater compliance costs. The Volcker Rule, contained within the act, will place restrictions on the ability of bank-holding companies to invest with private equity funds and hedge funds. As the stock price performance graph below suggests, the Asset Management Industry as a whole kept pace with the S&P 500 at the outset of the recovery and has outperformed over the last year. 300% Quarterly Benchmark Performance Traditional Asset Managers Alternative Asset Managers S&P % 200% 150% 100% 50% 0% Source: S&P Capital IQ. *Includes selected companies presented on pages Chart above is presented on an index basis: Q

4 In the News Los Angeles-based Ares Management LLC began preparations for an initial public offering. The firm, which oversees $74 billion in credit and private equity, would be the largest alternative manager to go public since Carlyle Group LP in The firm is looking to capitalize on a stock market rally which has pushedits public peers to near record highs. (Bloomberg, 3/27). Private equity giant Carlyle Group LP is shopping for a traditional asset manager as it attempts to gain greater exposure to retail investors, a more predicable revenue stream, and higher multiples for its stock. While they tend to generate higher earnings for each dollar invested, alternative asset managers such as Carlyle are typically more dependent on unpredictable performance fees than their traditional asset manager counterparts and are being punished by investors with lower multiples. (Reuters, 3/26). Carlyle Group LP hired Michael Cavanagh, formerly co-head of investment banking at JPMorgan, to become co-chief operating officer. The move came as a surprise to industry analysts as Cavanagh was widely considered to be a potential successor to Jamie Dimon as JP Morgan Chase CEO. The appeal of a lesser regulatory burden in the private equity industry may have been a significant draw for Cavanagh, who witnessed the intense scrutiny placed upon Jamie Dimon as JPMorgan grappled with the infamous London Whale trades and other investigations which cost the company nearly $20billion in settlements. (NewYork Times Dealbook 3/25). Paul Capital, which buys stakes in private equity funds, announced that it is winding down operations after a planned sale to Hamilton Lane fell through. Paul Capital struggled to raise capital for its latest fund in 2012 and soon after sought strategic options, leading to the planned sale to Hamilton Lane. The collapse of the deal illustrates the difficulty of closing private equity mergers, where complex economics and legacy holdings often create roadblocks in negotiations. (Wall Street Journal (3/18). Blackrock bolstered its roster by hiring Christopher Jones, formerly of JPMorgan Asset Management, to become chief investment officer for stocks in the Americas. At JPMorgan, Jones served as CIO for the firm s growth and small-cap U.S. equity team. Funds managed by Jones at JPMorgan included the Large Cap Growth Fund and Small Cap Growth Fund, which outperformed 82% and 83% of similarly managed funds,respectively,over the last five years. (Bloomberg, 3/17). Vanguard Group, Inc. has sought permission from regulators to open actively-managed ETFs. Permission would allow Vanguard to offer ETF share classes for its existing mutual fund offerings such as the $82 billion Wellington Fund. Actively-managed ETFs would provide investors the ability to buy and sell actively managed funds throughoutthe day on exchanges. (Bloomberg 3/7). In a surprise move, PIMCO CEO and co-chief investment officer Mohamed El-Erian announced his resignation from the firm. No explanation for the decision was provided. The resignation provides another blow to a firm already in distress. PIMCO saw its flagship Total Return Fund pay out $41 billion in redemptions in 2013 and lose its place as the world s largest mutual fund as investors soured on bonds in a rising interest rate environment. El-Erian was widely considered to be the successorto PIMCO founder, bond king Bill Gross. (CNN Money, 1/21). 3

5 Key Indicators $250 Asset Management Industry Revenue (in $billions) $200 $150 $100 $50 $- AAM Revenue TAM Revenue 30% Asset Management Industry Revenue % Change 20% 10% 0% -10% -20% -30% AAM Revenue % Change TAM Revenue % Change 7.0% Personal Savings Rate 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Sources: IBISWorld. 4

6 Key Indicators (continued) $25,000 Traditional Asset Management Total Net Assets (in $billions) $20,000 $15,000 $10,000 $5,000 $- $7,000 Alternative Asset Management AUM (in $billions) $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $- 30% Asset Management Industry AUM & Total Net Assets % Change 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% AAM AUM % Change TAM Total Net Assets % Change Sources: IBISWorld. 5

7 Key Indicators (continued) $3,000,000 Hedge Fund Industry Assets ($millions) $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $- $250,000 Hedge Fund Industry Net Asset Flow ($millions) $200,000 $150,000 $100,000 $50,000 $- $(50,000) $(100,000) $(150,000) $(200,000) 10,000 Number of Hedge Funds (ex. Fund of Funds) 9,000 8,000 7,000 6,000 5,000 4,000 Sources: HedgeFundResearch 6

8 M&A Overview U.S. Activity In recent quarters, growth in deal count has exceeded volume indicating a much more active middle market and smaller deal sizes. It also suggests that buyers are still hesitant to pull the trigger on larger deals. The average deal price amounted to roughly $15.7 million. According to a survey conducted by PricewaterhouseCoopers, dealmakers are continually placing a premium on deal certainty, agility and transparency. Highlighted Transactions Legg Mason Acquires QS Investors in Growth Effort Acquired By: Baltimore-based Legg Mason Inc. announced on March 4 that it had agreed to terms with New York-based QS Investors in a $41 million deal expectedto close in the first quarter of The move is the first piece of a growth-by-acquisition strategy indicated by new Legg MasonCEOJosephSullivan. Enterprise Value: $41 million, EV/AUM: 1.0% TriState Capital Bank Enters Investment Management Space with Chartwell Purchase Acquired By: Tristate Capital Holdings, Inc., holding company for Pittsburgh-based TriState Capital Bank, acquired private investment-manager Chartwell Investment Partners, L.P. for $60 million in a deal announced on January 3 rd. TriState Capital believes the deal will be synergistic, given its distribution capabilities and existing product offerings that can be combined with the advisory capabilities of Chartwell. Enterprise Value: $60 million, EV/LY Revenue: 2.4x, EV/AUM: 0.8% 7

9 M&A Overview (continued) Industry Trends $25.0 $20.0 $15.0 $10.0 $5.0 $16.8 $7.8 Industry M&A Activity (Announced Transactions) $20.1 Volume ($bn) $7.0 $1.4 Deal Count $2.1 $2.2 $ x 30.0x 25.0x 20.0x 15.0x 10.0x 5.0x 15.3x Median M&A EBITDA Multiples Median EBITDA Multiple Overall Median (13.3x) 33.0x 15.7x 12.5x 12.8x 12.0x 8.0x 20.7x $ YTD 0 0.0x YTD Recent Transactions Announced Date Buyer Target Target Description 3/4/2014 Legg Mason Inc. QS Investors LLC QS Investors LLC is an employee owned investment manager. 2/21/2014 Legal & General Investment Management America Inc. Global Index Advisors, Inc. Global Index Advisors, Inc. is an employee owned investment manager. 1/3/2014 Tristate Capital Holdings, Inc. Chartwell Investment Partners Chartwell Investment Partners is an employee owned investment manager. 11/24/2013 The Carlyle Group LP Diversified Global Asset Management Corporation Diversified Global Asset Management Corporation is an employee owned hedge fund sponsor. 10/1/2013 RCS Advisory Services, LLC Hatteras Funds Hatteras Funds is a privately owned investment manager. 9/9/2013 Richardson GMP Limited Macquarie Private Wealth Inc. Macquarie Private Wealth, Inc. is a venture capital firm and a privately owned investment manager. 9/3/2013 Fiera Capital Corporation Wilkinson O'Grady & Co., Inc. Wilkinson O'Grady & Co., Inc. is a privately owned investment manager. 9/3/2013 Fiera Capital Corporation Bel Air Investment Advisors, LLC and Bel Air Securities LLC As of October 31, 2013, Bel Air Investment Advisors, LLC and Bel Air Securities LLC were acquired by Fiera Capital Corporation. 8/15/2013 AllianceBernstein L.P. W.P. Stewart & Co., Ltd. WP Stewart & Co., Ltd is a publicly owned investment manager. 7/16/2013 Industrial Alliance Insurance and Financial Services, Inc. Jovian Capital Corporation Jovian Capital Corporation is a publicly owned investment holding company. Source: S&P Capital IQ. 8

10 Public Market Data (1) Company 3/31/ Week Enterprise AUM Mkt Cap/AUM EV/AUM EV/Revenue EV/EBITDA Market Cap/Earnings Consensus Growth (4) Close (2) High Low Value (EV) (3) 3/31/2014 YTD LTM NFY LTM NFY LTM NFY EBITDA EPS Traditional Asset Managers BlackRock, Inc ,600 4,400, % 1.3% 5.3x 5.0x 12.5x 11.6x 17.4x 16.8x 14.9% 13.2% Calamos Asset Management Inc , % 0.4% 0.4x 0.4x 1.4x 1.6x 15.2x 26.7x NA (20.1%) Cohen & Steers Inc ,644 49, % 3.4% 5.5x 5.3x 13.8x 13.1x 24.6x 21.8x 14.4% 17.2% Diamond Hill Investment Group Inc , % 2.8% 4.1x 3.9x 10.9x NA 17.3x NA NA 6.0% Eaton Vance Corp , , % 1.9% 3.8x 3.7x 10.5x 9.7x 21.7x 15.9x 10.0% 11.6% Federated Investors, Inc , , % 0.9% 3.7x 3.7x 12.8x 12.6x 20.7x 20.5x 7.0% 6.6% Franklin Resources Inc , , % 3.3% 3.5x 3.4x 9.1x 8.3x 15.4x 14.5x 12.7% 10.7% GAMCO Investors, Inc ,752 47, % 3.7% 4.2x NA 12.3x NA 16.5x 15.4x NA 9.8% Invesco Ltd , , % 2.6% 4.2x 3.9x 16.1x 12.8x 17.7x 17.4x 13.3% 15.1% Janus Capital Group, Inc , , % 1.0% 2.0x 1.9x 6.6x 5.9x 17.7x 14.6x 10.6% 17.2% Legg Mason Inc , , % 0.9% 2.1x 2.0x 11.0x 10.0x 20.5x 19.9x 13.8% 17.9% SEI Investments Co , , % 2.3% 4.4x 4.1x 17.7x 10.9x 19.6x 19.4x 30.3% 17.0% T. Rowe Price Group, Inc , , % 2.8% 5.6x 5.0x 11.2x 9.9x 19.5x 17.7x 14.8% 14.1% Virtus Investment Partners, Inc ,179 58, % 2.0% 2.9x 2.6x 8.9x 7.2x 19.0x 16.1x 26.7% 20.2% Waddell & Reed Financial, Inc , , % 4.4% 4.0x 3.5x 13.1x 11.0x 22.8x 19.5x 22.0% 20.1% Westwood Holdings Group Inc , % 2.3% 4.5x 4.2x 13.3x NA 24.9x NA NA 9.1% Median 196, % 2.3% 4.1x 3.7x 11.7x 10.0x 19.2x 17.6x 14.1% 13.7% Median EBITDA Multiples - Traditional Asset Managers 16.0x 14.0x 12.0x 10.0x 8.0x 6.0x 4.0x 2.0x 0.0x 14.1x 11.3x 11.2x 12.1x 12.0x 8.2x 9.4x 5.6x LTM Overall Median (11.2x) 9

11 Public Market Data (continued) (1) Company 3/31/ Week Enterprise Fee- Paying EV/AUM EV/Revenue EV/EBITDA Consensus Growth (4) Close (2) High Low Value (EV) (3) AUM YTD LTM NFY LTM NFY EBITDA EPS Alternative Asset Managers Apollo Global Management, LLC , , % 2.1x 3.2x 4.5x 5.7x (21.4%) (25.1%) Ashmore Group PLC ,806 45, % 5.3x 5.0x 7.7x 7.3x (7.7%) (10.0%) Fortress Investment Group LLC ,048 61, % 1.9x 1.8x 4.9x 3.9x 1.6% 11.3% Kohlberg Kravis Roberts & Co ,343 77, % 3.6x NM 10.2x NM NA (4.5%) Oaktree Capital Group, LLC ,174 71, % 3.0x 3.5x 7.2x 6.7x (9.6%) (14.6%) Och-Ziff Capital Management Group LLC ,838 39, % 4.2x 4.7x 6.1x 7.9x (0.5%) (5.2%) Partners Group Holding AG ,380 38, % 13.5x 11.6x 17.3x 18.3x 14.0% NA Polar Capital Holdings plc , % 6.0x 5.1x 17.6x 13.2x NA 18.2% Sprott Inc , % 5.9x 5.4x 27.6x 14.3x NA NA The Blackstone Group L.P , , % 6.0x 4.3x 15.0x 7.8x 41.4% 8.4% The Carlyle Group LP , , % 3.9x 3.0x 10.0x NM (1.5%) (5.9%) Median 61, % 4.2x 4.5x 10.0x 7.8x -1.0% -5.2% Notes: (1) Source: As reported by S&P Capital IQ. (2) Reported in local currency. (3) In millions of local currency. (4) Represents two-year analyst estimates. Definitions: Enterprise Value defined as market cap. + total debt + preferred equity cash and equivalents long-term investments AUM Assets Under Management YTD Year to Date LTM the latest twelve months. EBITDA adjusted earnings before interest, taxes, depreciation and amortization. NFY next fiscal year. EPS earnings per share. NA not available, NM not meaningful. 10

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