Rolling Up the Mid-Market

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Institutional and Venture Funds have had a sharp reversal in fortunes over the past eighteen months, coming off the post-pandemic high to face the harsh reality of a severe recession, uncertain macroeconomic conditions, and a plunge in valuations of tech stocks. Despite this, Hedge Funds and Asset Management firms have largely outperformed other institutional investors, relying on alternative strategies and making unconventional bets. Wealth and Asset manager Alvarium Tiedmann, which recently merged through a $1.4 billion SPAC deal, is looking to disrupt the mid-market with its range of services and newfound scale. Can the investment firm outperform the market and deliver returns amidst macro headwinds and uncertainty? 

Mega Merger

Alvarium Tiedmann, which went public through a with Cartesian Growth Corporation, was formed as a result of three investment firms coming together. This includes Tiedmann Advisors, Alvarium, and TIG. Let's take a closer look at each company to understand the collective prowess of the company. 

Founded in 1999, Tiedmann Advisors is a US multi-focused family office providing advisory services to ultra-high net worth individuals, entrepreneurs, and foundations with $28 billion in assets under advisory and 145 investment professionals working in the team. On the other hand, Alvarium, founded in 2009, manages $24 billion in assets with 260 professionals. The company offers wealth and asset management services, bespoke solutions, and merchant focused on the innovation economy.

The final piece of the puzzle that closes out the trio is TIG, an alternatives management firm focused on delivering uncorrelated returns founded in 1980. TIG has $8 billion in assets under management, with 36 professionals working. All in all, the combined firm is a powerhouse, with $60 billion in assets under advisement and 450 investment professionals spread out across 23 major financial cities globally. 

While now might be a strange time to go public (given the slowdown in public markets, macroeconomic uncertainty other headwinds), Alvarium Tiedmann is banking on several trends and market opportunities for future growth. According to a survey from the Federal Reserve, the top 1% of Americans gained a record $6.5 trillion in wealth in 2021, with collective assets reaching $45.9 trillion.

Furthermore, investment advisors should see a boom over the next decade due to retiring Baby Boomers and Gen X investors. Experts anticipate that $70 trillion of wealth will be transferred to Millenials, Gen Z, and charities. Both addressable markets will seek out independent advisors like Alvarium Tiedmann since they prefer lower-risk, independent, and customized advisory services that are aligned and integrated with their needs. 

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Differentiating Strategy 

Alvarium Tiedmann offers four fund strategies, which include low volatile strategies like Event-Driven Merger Arbitrage and Real Estate Bridge Lending and exposure to overlooked sectors and markets like European Equities, Asian Credit, and Special Situations. Alvarium Tiedmann says that its strategies have largely outperformed the MSCI Global Index and HFRI Institutional Equity Hedge Index (which measures the performance of hedge funds with at least $500 million in assets under management). Complementary to this, the firm also has a Long Indexed Income in the UK, focusing on inflation-protected income and capital growth (especially beneficial to investors over the past two years).

More specifically, the firm has identified over 2,000+ funds with Assets under management between $500 million and $5 billion. Alvarium Tiedmann has a successful track record of acquiring mid-market investment advisory and wealth management firms like Presidio Capital Advisors, Holbein, and Salisbury Partners, implying that rolling-up services could continue to pay off in the future. 

Financials and Valuation 

Alvarium Tiedmann has faced a challenging macroeconomic backdrop over the past quarter, with revenues and assets under advisement staying flat and margins taking a hit. In the third quarter of 2022, the company had $60 billion in assets under advisement, up 3% compared to the same quarter in 2021. Predictably, asset management saw growth, while the wealth management segment declined due to plunging valuations across public and private markets. Revenues stayed flat at $171 million year on year, while margins dropped due to the impact of valuations declining in public markets. EBITDA declined from $50 million in the third quarter year to date to $43 million. 

The company is targeting a growth of assets under advisory in the high single digits. Cross-selling opportunities coupled with eliminating redundancies should result in the company growing its revenues at its target of low-teens, with EBITDA reaching a target of mid-30s percentage. However, the company will likely struggle to achieve growth in the near term, considering the market headwinds and uncertainty. The company's balance sheet remains solid to weather a few quarters of uncertainty, at $133 million in debt (1.9x LTM EBITDA) and $41 million in cash. Once the economy rebounds and margins expand, the firm should be able to use the free cash flows to pay out dividends and buy back stock to unlock value. 

Bottom Line 

Source: Rolling Up the Mid-Market