Valuation Opinions & Transaction Advisory Industry Update Q4 2013 Asset Management Industry www.mpival.com
Contents* 02 Industry Overview Performance and Trends 03 In the News Global banks and asset managers return to the Asian hedge fund market Carlyle acquires Canadian hedge fund sponsor DGAM KKR raises capital for its first real-estate fund PIMCO s Total Return Fund hit with record redemptions A former SAC portfolio manager convicted SAC Capital pleads guilty Timothy Geithner joins Warburg Pincus Blackrock markets a new credit fund 04 Key Indicators Industry Revenue Assets Under Management Personal Savings Rate Hedge Fund Assets and Net Asset Flow Private Equity Capital Raised and Number of Funds Closed 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: www.mpival.com/newsletter.html. www.mpival.com 1
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 6.9% in the traditional space in the last five years through 2013 and 6.5% in the alternative space over the same period. Revenue for both traditional and alternative managers surpassed pre-recession highs in 2012. In the last twelve months the traditional and alternative asset manager stock prices are up 49.0% and 58.8%, respectively. Presently, the following trends are shaping the industry: Passive ETFs Challenge the Status Quo: While revenues in the traditional asset management sector have risen since 2011 on greater demand for professional investment services and lower expenses, the growth in passive exchange-traded funds has heightened competition and led to lower profits. The Demographic Benefit: The aging populations of developed economies are contributing to greater AUM through pension funds and demand for capital preservation. Markets Bolster Returns: The strong performance of worldwide equities in 2013, including record-high levels for the S&P500 and DJIA, have led to greater inflows of capital and higher returns for asset managers. 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, with the alternative asset managers showing the largest gains. 450.0% Quarterly Benchmark Performance Traditional Asset Managers Alternative Asset Managers S&P 500 400.0% 350.0% 300.0% 250.0% 200.0% 150.0% 100.0% 50.0% 0.0% Source: S&P Capital IQ. *Includes selected companies presented on pages 9-10. Chart above is presented on an index basis: Q1 2009. www.mpival.com 2
In the News Major global banks and asset managers such as Goldman Sachs Group, Inc., UBS AG and GLG Partners, Inc. are opening up hedge funds in Asia for the first time since the financial crisis of 2008. The move poses a threat to the smaller independent funds which have grown in the area since the crisis. (Bloomberg, 11/27). Alternative asset manager Carlyle Group LP acquired Diversified Global Asset Management Co. in a bid to expand its hedge fund business and diversify its operations which are heavily weighted toward leveraged buyouts. The deal is valued at $33 million and includes incentive agreements which could increase that number by as much as $70 million. The deal is expected to close in February 2014. (Bloomberg, 11/26). KKR raised $1.5 billion for its first real estate fund. The fund, KKR Real Estate Partners Americas LP, is expected to invest a majority of its assets in North America, along with a sizable portion in Western Europe. The fund plans to target both property-level equity and debt and businesses with sizeable real-estateholdings. (Bloomberg, 12/14). PIMCO s signature Total Return Fund was hit with $41 billion in redemptions in 2013, the most in its history. The fund returned -1.9% in 2013 as rising interest rates and the Federal Reserve s reduction in bond purchases adversely impacted bond holdings. Investors are pulling money out of traditional fixed-income funds across the board, as the three-decade bull-market for bonds may finallybe reversing. (Bloomberg, 1/3). Former SAC Capital portfolio manager Michael Steinberg was found guilty of insider trading charges in the latest development of the government s decade-long investigation into the hedge fund s affairs. Mr. Steinberg was accused of shorting shares of Dell and Nvidia after receiving insider tips related to the companies. (CNN Money, 12/18). On a related note, SAC Capital pled guilty to all federal charges and agreed to shutter its investment advisory business,leaving only employee-owned capital. (NewYork Daily News, 11/4). Former U.S. Treasury Secretary Timothy Geithner joined private equity firm Warburg Pincus, where he will serve as the company s president. The move continues the tradition of former Treasury Secretaries accepting lucrative Wall Street positions: Robert Rubin joined Citigroup after serving as Treasury Secretary in the Clinton administration and John Snow joined private-equity firm Cerberus following his service in the George W. Bushadministration. (NewYork Times Dealbook, 11/16). Blackrock began marketing its own credit hedge fund Blackrock Credit Alpha Fund in October. The Company is seeking $3 billion in capital in its attempt to grow the alternative investment side of its business and meet investor demand for diversification beyond traditional stocks and bonds. (Bloomberg, 12/19). www.mpival.com 3
Key Indicators $120 Asset Management Industry Revenue (in $billions) $100 $80 $60 $40 $20 $- 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. www.mpival.com 4
Key Indicators (continued) $25,000 Traditional Asset Management Total Net Assets (in $billions) $20,000 $15,000 $10,000 $5,000 $- $6,000 Alternative Asset Management AUM (in $billions) $5,000 $4,000 $3,000 $2,000 $1,000 $- 25% Asset Management Industry AUM & Total Net Assets % Change 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% AAM AUM % Change TAM Total Net Assets % Change Sources: IBISWorld. www.mpival.com 5
Key Indicators (continued) $3,000,000 Hedge Fund Industry Assets $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $- Assets ($millions) $250,000 Hedge Fund Industry Net Asset Flow $200,000 $150,000 $100,000 $50,000 $- $(50,000) $(100,000) $(150,000) $(200,000) Net Asset Flow ($millions) $300 Private Equity: Capital Raised & Number of Funds Closed $250 $200 $150 $100 $50 $- 500 450 400 350 300 250 200 150 100 50 0 Capital Raised ($billions) Number of Funds Closed Sources: HedgeFundResearch www.mpival.com 6
M&A Overview U.S. Activity In the fourth quarter, total U.S. volume and deal count were down approximately 5% and 9%, respectively, from Q3 2013. Despite slight improvements in Q3, deal activity pulled back slightly. Overall, the U.S. M&A market is still relatively quiet compared to pre-recessionary levels. This time last year in Q4, M&A was extremely busy with deals that were in motion to close on or before December 31 st, ahead of anticipated capital gains increases, which likely induced companies to accelerate plans. 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. Highlighted Transactions Investor Group Led by Lightyear Capital Acquires RidgeWorth Capital Management Acquired By: Asset manager RidgeWorth Capital Management, Inc. was acquired from SunTrust Banks Inc. by a group of investors led by private equity firm Lightyear Capital LLC and including employees of RidgeWorth on December 11, 2013 for $265 million. The transaction increases employee ownership of RidgeWorth, which hopes the resources of Lightyear Capital will enable an expansion of service offerings Enterprise Value: $265 million, EV/AUM: 0.5% Private Equity Giant Carlyle Acquires DGAM in Effort to Expand Hedge Fund Offerings Acquired By: The Carlyle Group LP acquired Canadian hedge fund sponsor Diversified Global Asset Management Corporation (DGAM) on November 24, 2013 for up to $103 million. The acquisition increases the size and product offerings of Carlyle Solutions, which manages $48 billion in multi-asset strategies. Enterprise Value: $103 million, EV/AUM: 1.5% www.mpival.com 7
M&A Overview (continued) Industry Trends $25.0 Industry M&A Activity (Announced Transactions) Volume ($bn) Deal Count 40 60.0x 56.8x Median M&A EBITDA Multiples Median EBITDA Multiple Overall Median (13.6x) $20.0 $15.0 $14.4 $16.8 $20.1 35 30 25 20 50.0x 40.0x 30.0x 33.0x $10.0 $5.0 $7.8 $7.0 $1.4 $2.1 $2.2 15 10 5 20.0x 10.0x 15.3x 12.5x 8.0x 15.7x 12.8x 12.0x $0.0 2006 2007 2008 2009 2010 2011 2012 2013 0 0.0x 2006 2007 2008 2009 2010 2011 2012 2013 Recent Transactions Announced Date Buyer Target Target Description 12/11/2013 Lightyear Capital LLC RidgeWorth Capital Management, Inc. RidgeWorth Capital Management, Inc. is a privately 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 principal investment firm. 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 Bel Air Investment Advisors LLC is an employee owned investment manager. 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. 7/15/2013 Aston Hill Financial Inc. Connor, Clark & Lunn Capital Markets, Inc. (nka:aston Hill Capital Markets Inc.) Connor, Clark & Lunn Capital Markets, Inc. is a privately owned investment manager. 5/8/2013 National Holdings Corporation Gilman Ciocia, Inc. Gilman Ciocia, Inc., together with its subsidiaries, provides financial planning, accounting, income tax preparation, and asset management services in the United States. Source: S&P Capital IQ. www.mpival.com 8
Public Market Data (1) Company 12/31/2013 52-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) 12/31/2013 YTD LTM NFY LTM NFY LTM NFY EBITDA EPS Traditional Asset Managers BlackRock, Inc. 316.47 323.00 208.77 56,279 4,096,356 1.30% 1.40% 5.7x 5.6x 13.6x 13.5x 19.3x 19.0x 12.3% 15.0% Calamos Asset Management Inc. 11.84 12.26 9.46 93 27,462 0.90% 0.30% 0.3x 0.3x 1.1x 1.2x 19.6x 23.6x (21.5%) (20.6%) Cohen & Steers Inc. 40.06 44.44 29.19 1,613 46,336 3.80% 3.50% 5.5x 5.4x 14.0x 14.4x 25.2x 26.0x 14.8% 5.3% Diamond Hill Investment Group Inc. 118.34 126.74 66.30 360 11,040 3.50% 3.30% 4.7x 4.5x 12.8x NA 19.1x NA NA 7.4% Eaton Vance Corp. 42.79 44.58 32.34 5,713 280,669 1.90% 2.00% 4.2x 3.7x 11.8x 9.9x 26.9x 17.1x 12.2% 14.8% Federated Investors, Inc. 28.80 30.87 20.68 3,047 366,715 0.80% 0.80% 3.4x 3.5x 10.8x 11.5x 17.7x 19.2x (2.3%) (2.2%) Franklin Resources Inc. 57.73 57.85 42.67 31,684 844,700 4.30% 3.80% 4.0x 3.7x 10.6x 9.4x 16.9x 15.3x 11.4% 11.5% GAMCO Investors, Inc. 86.97 88.38 44.51 1,949 43,507 5.20% 4.50% 5.2x NA 15.3x NA 22.4x 19.1x NA 26.4% Invesco Ltd. 36.40 36.79 25.46 20,223 745,500 2.20% 2.70% 4.4x 4.3x 17.2x 14.4x 19.9x 17.9x 20.6% 20.0% Janus Capital Group, Inc. 12.37 12.74 7.86 2,135 166,700 1.40% 1.30% 2.5x 2.5x 8.2x 8.1x 21.7x 20.4x 8.2% 10.5% Legg Mason Inc. 43.48 44.09 25.43 5,284 656,000 0.80% 0.80% 2.0x 1.9x 11.4x 10.9x -18.1x 18.9x 12.8% 20.2% SEI Investments Co. 34.73 34.97 23.68 5,398 218,530 2.70% 2.50% 5.0x 4.8x 20.8x 13.9x 21.2x 22.8x 31.4% 21.5% T. Rowe Price Group, Inc. 83.77 83.99 66.18 20,117 647,200 3.40% 3.10% 6.0x 5.8x 12.2x 11.7x 22.0x 21.2x 15.6% 14.5% Virtus Investment Partners, Inc. 200.05 248.89 121.22 1,485 55,007 3.30% 2.70% 4.1x 3.8x 13.8x 11.3x 29.1x 24.9x NA 51.2% Waddell & Reed Financial, Inc. 65.12 66.09 35.67 5,130 113,744 4.90% 4.50% 4.0x 3.8x 13.6x 12.9x 24.4x 22.8x 24.0% 24.3% Westwood Holdings Group Inc. 61.91 62.26 39.77 387 17,122 2.70% 2.30% 4.4x 4.4x 15.0x NA 29.1x NA NA 17.4% Median 192,615 2.7% 2.6% 4.3x 3.8x 13.2x 11.5x 21.5x 19.8x 12.6% 14.9% 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 13.2x 11.3x 11.2x 8.2x 9.4x 5.6x 2007 2008 2009 2010 2011 2012 2013 Overall Median (11.1x) www.mpival.com 9
Public Market Data (continued) (1) Company 12/31/2013 52-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 31.61 34.88 17.72 8,647 79,343 10.90% 3.4x 3.3x 6.0x 5.9x (21.4%) (25.1%) Ashmore Group PLC 4.01 4.36 3.19 2,347 10,394 22.60% 6.5x 5.7x 9.5x 8.3x (7.7%) (10.0%) Fortress Investment Group LLC 8.56 9.10 4.41 3,015 57,971 5.20% 2.6x 2.4x 7.8x 6.7x 1.6% 11.3% Kohlberg Kravis Roberts & Co. 24.34 25.87 15.38 11,036 73,612 15.00% 5.0x 4.9x 5.2x 4.4x NA (4.5%) Och-Ziff Capital Management Group LLC 14.80 15.06 8.73 6,634 36,780 18.00% 4.6x 4.1x 7.6x 7.1x (0.5%) (5.2%) Partners Group Holding AG 237.90 273.50 209.30 5,596 35,175 15.90% 10.1x 6.8x 16.1x 14.1x 14.0% NA Polar Capital Holdings plc 4.90 5.17 2.01 317 7,208 4.40% 4.1x 3.2x 10.5x 8.0x NA 18.2% Sprott Inc. 2.62 4.31 2.21 310 7,336 4.20% 2.5x 2.2x 6.5x 5.6x NA NA The Blackstone Group L.P. 31.50 31.94 15.93 29,605 188,650 15.70% 4.7x 4.2x 10.1x 10.4x 41.4% 8.4% Median 36,780 15.0% 4.6x 4.1x 7.8x 7.1x 0.6% -4.5% 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. www.mpival.com 10
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