Asset Management Industry Spotlight Valuation, Dealmaking, and Market Trends

Asset Management Industry Spotlight Valuation, Dealmaking, and Market Trends

November 15, 2022

This year has seen ongoing volatility in economies and markets worldwide. Contradicting macroeconomic market indicators are resulting in a complex environment for businesses and investors to navigate. Some of the current challenges are due to decades-long macroeconomic trends such as aging demographics; others are driven by more recent events such as upticks in geopolitical conflict and instability. Our latest report focuses on what you need to know about dealmaking in asset management as well as key trends in valuation approaches given the state of this year’s economy.

This report examines:

A Comprehensive Understanding of the Macroeconomic Environment

The global economic and market environment remains complex. Traditional indicators are proving contradictory, due to both the unique circumstances wrought by the COVID-19 pandemic and the long-awaited impact of slow-moving macroeconomic trends such as aging demographics. However, inflation remains high, leading to ramifications for consumer sentiment and supply chain segments, with more impacts likely to come. Inventories continue to choke storage supply, thereby skewing indexes of manufacturing activity and inventory ratios. Geopolitical sentiment is worsening, as conflict and delicate diplomatic overtures around areas of contention exacerbate tensions worldwide.

Asset Management Dealmaking Trends

Asset management has experienced firsthand the impact of roiling financial markets in the year to date, though this has not necessarily resulted in a significant decline in dealmaking. Key drivers of dealmaking emerged in the form of consolidation & expansion as well as access to alternatives. As 2022 winds down with no end in sight to an unpredictable array of market challenges, accurate and appropriate valuation methods to ensure successful transaction closure will prove vital.

Case Studies of Key Transactions in the Asset Management Industry

This year saw a number of significant transactions within asset management, and many present a key insight into this market. For example, an early purchase this year revealed that the PE push into fintech continues into subsegments, while empowering traditional financial advisers remains a robust theme—as opposed to relying solely on automation. Another showcased that traditional banks are paying up for additional, improved tech capabilities, as well as expanding client bases.

Valuation Considerations for Asset Management Firms

Given the increasing complexity and diversity of fee structures employed in the asset management industry, valuations of stakes in alternative asset management firms require a commensurate level of discretion in determining the appropriate valuation methodology. In practice, this often requires practitioners to bifurcate the value of the different earnings streams of the business. This framework is beneficial for pricing and evaluating market transactions, as it provides a more flexible and robust analysis that enables comparisons across different alternative asset management platforms.

A Framework for Analyzing Management and Incentive Fee Income

The starting point for the valuation of an alternative asset manager usually relates to analyzing current and projected revenue streams in the form of management and incentive fees for each underlying fund managed by the enterprise. The strategy, product, and stage of an alternative asset manager’s underlying funds are the primary determinant of the relevant approach.