Transaction Advisory, Investment Management

July 25, 2016

BlackRock Sees Opportunity in Challenging Environment for Asset Managers

A Whole New World

Often branded as an industry bellwether for its size and breadth of services, BlackRock (ticker: BLK) has been as solid as the name would imply given the recent fallout in asset manager valuations. In last week’s earnings call, CEO Larry Fink attributes the company’s recent success to “the differentiating platform we have built at BlackRock over the past 28 years…, the diversity of our product offerings, the risk capabilities of Aladdin, [and] the market insights offered by the BlackRock Investment Institute.”

BlackRock-Asset-Management-LTM Specifically, BLK benefited from $126 billion in net inflows over the last year as many RIAs have leaked client assets to passive funds and robo-advisors. BlackRock is clearly gaining market share within the industry and currently manages $4.9 trillion in client assets. This scale has allowed it to make the necessary investments in technology and talent to continue the upward growth trajectory in a sideways market. In addition, BlackRock has also recently invested in ETF businesses to take advantage of the rising popularity of indexing strategies. In essence, BlackRock has used its size (and balance sheet) to evolve with the industry and gain market share in the process. Still, the last twelve months have been anything but a magic carpet ride for most industry participants. A low yield environment dominated by ETFs and passive products has not been conducive to many RIAs, especially active managers like Pzena and Legg Mason, which are down 31% and 43%, respectively, over the six months ended June 30, 2016. Traditional-Asset-Managers-LTM-0616As we discussed last week, investors are growing increasingly intolerant of the high fee/low performance combination, so both traditional and alternate asset managers are feeling the heat. Mounting regulatory pressures are additional headwinds as the Financial Stability Oversight Council is currently reviewing six areas of the asset management business for potential enhancements to regulatory oversight – liquidity and redemption, leverage, securities lending, data and disclosure, operational risk of service provider concentrations, and resolvability and transition planning. The SEC is also assessing the sector’s systemic risk exposure and should finalize three proposals on mutual fund and ETF regulation at some point this quarter. While the current trend toward passive investing hasn’t shown any signs of strain, we don’t foresee active management ever going away for good. In fact, best-in-class stock and bond pickers should build market share as enterprising investors seek the few diamonds in the rough (last Aladdin reference, I swear) that have actually outperformed their relevant benchmark. Depressed valuations may induce further consolidation, so this trend could ease the number of stand-alone active management firms as competitively priced passive strategies continue to collect AUM. With over 11,000 RIAs and aging owner demographics, such consolidation is probably long overdue.

Continue Reading

The Cost of Staying Independent
The Cost of Staying Independent

Sometimes Doing Nothing Is the Riskiest Choice

Remaining independent requires RIA owners to invest in future leaders, fund an ownership transition, and share authority. Delaying those commitments can increase risks for founders, employees, and clients, even when the business continues to perform well.
RIA Valuation Insights Blog Investment Management
Read Now about The Cost of Staying Independent
Skeletons in the Data Room: What Can Haunt an RIA Sale
Skeletons in the Data Room: What Can Haunt an RIA Sale
Client concentration, an aging client base, weak organic growth, founder dependence, and questionable earnings adjustments can complicate an RIA sale. Identifying and addressing these issues before due diligence helps owners protect transaction value and negotiate from a stronger position.
RIA Valuation Insights Blog Investment Management
Read Now about Skeletons in the Data Room: What Can Haunt an RIA Sale
Alternative Asset Managers Face a Reset in Public Market Valuations
Alternative Asset Managers Face a Reset in Public Market Valuations
Alternative asset managers experienced a significant contraction in public-market valuation multiples through September 2026 despite continued growth in assets under management and revenue. The divergence between operating growth and market performance highlights the importance of profitability, recurring revenue, and firm-specific fundamentals when assessing asset management businesses.

Cart

Your cart is empty