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How do you analyze asset managers like OAK?


muscleman
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Are they generally valued on some multiple of AUM? Do they generally trade with high correlation to the stock index? How do you identify good asset manager stocks vs bad ones?

 

In general they trade at a multiple of AUM; however since fees vary widely versus twenty years ago that greatly impacts the valuation.  A sub-advisor earning 30 bps or a fixed income manager earning 40-50 bps is not near the same as an equity manager at 80-120 bps.  ETF have even lower fees, hedge funds much higher.  Then you factor in operating margin.  Traditionally average 30-35% but some are clearly take a bigger piece of the pie than others.  So basically I guess it is really based on free cash flow and not AUM.  :)

 

Look at fund performance (actual investing) and fund flows (which shows how good the marketing is).   

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Its a combination of:

 

Fee-related earnings at a higher multiple (maybe 15x)

Incentive-related earnings at a lower multiple (maybe 5-10x)

Value of the balance sheet investments in their own funds or others (OAK owned a part of Doubleline which is quite valuable)

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Its a combination of:

 

Fee-related earnings at a higher multiple (maybe 15x)

Incentive-related earnings at a lower multiple (maybe 5-10x)

Value of the balance sheet investments in their own funds or others (OAK owned a part of Doubleline which is quite valuable)

 

What do you think of AB? The PE is just 13.

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I’m not very familiar with AB but I believe they’re a traditional asset mgr. and have very limited incentive fees. Looks like they have $2.30 in trailing EPS and about $5 in cash per share so you’re paying about 12x earnings for a business (active mgmt.) that doesn’t have a ton of tailwinds. I would try to model what happens if their average mgmt. fee gets cut in half and see what you would pay then because fees are definitely not going up. If you’re comfortable with earnings after fees cut in half, then I think you’re buying a traditional asset mgr. conservatively. I don’t have the same immediate concerns about fee compression for alternative mgrs. although if returns stay low long enough everyone likely gets squeezed.

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