Registered Investment Advisors (RIAs) managed to post the greatest growth in advisor and firm count over the last decade despite facing a 13% decrease in total channel assets in 2022, according to The Cerulli Report—U.S. RIA Marketplace 2023.
The advisor headcount in the RIA marketplace expanded nearly 8.6% in 2022, which is twice the annualized rate of 4.4% over the past ten years. This growth is attributed to new RIA firms and breakaway teams continuing to tuck into large established RIAs.
According to the research, this trend will continue, but likely at lower annual growth rates as the pent-up pipeline during the COVID-19 pandemic begins to normalize.
The overall total firm count of retail-focused RIAs grew greater than 11% in 2022, mainly supported by a large amount of new independent RIAs (12.3%).
However, the RIA channel remains diverse and fragmented—93% of all RIAs manage less than $1 billion in assets under management (AUM), whereas firms above this threshold manage 71% of channel assets and employ 47% of advisors. Cerulli anticipates that asset growth and market share gains will continue to be concentrated among firms managing more than $1 billion in AUM.
“2022 continued to highlight the obstacles that many smaller firms face due to not having the resources or capacity to differentiate and foster inorganic growth in a challenging market. The largest RIAs will continue to dominate as breakaway teams leave employee-based models to join large established RIAs that offer more autonomy, without advisors needing to sacrifice resources they are accustomed to,” says Stephen Caruso, senior analyst at Cerulli.
The research indicates that future market growth will be supported by continued investments from private equity firms and industry consolidators, allowing these firms to capitalize on acquisition opportunities among growth-challenged firms with complementary processes, talent, and clients.
Pixabay CC0 Public DomainAutor: Alexas_Fotos en Pixabay
Despite predictions by many market participants, including us, that the relative setup for international equities was favorable entering 2023, the U.S. looks set to turn in outperformance versus the majority of other developed and emerging markets. However, we note that many indicators that led us to last year’s prediction remain stretched and that the MSCI EAFE Index has outperformed the S&P 500 since markets began rebounding in October 2022.
The primary driver of U.S. index returns in 2023 was the emergence of AI as a significant market driver and the resulting charge of the Magnificent Seven: Apple, Amazon, Alphabet, NVIDIA, Meta, Microsoft, and Tesla. As of mid-December, the Magnificent Seven had contributed about two-thirds of the S&P 500’s roughly 25% return, and the S&P’s remaining 493 stocks about one-third. As of mid-December, the top 10 stocks in the S&P 500 made up one-third of the index, a new high for the period of U.S. outperformance. The comparable numbers for the MSCI EAFE and ACWI ex USA indices are approximately 15% and 11%, respectively.
The Magnificent Seven began 2023 with a price-to-earnings ratio of about 20x and are wrapping up the year with a PE in line with their long-term average of about 28x. In other words, these companies began 2023 at a steep discount, which has been closed. Of their year-to-date return, more than half derived from the increase in their PE ratio and the remainder from robust earnings growth anchored in the explosion of interest and adoption of AI.
Heading into a new year, we see a disagreement between the U.S. equity and fixed income markets. As of late 2023, U.S. equities are priced at approximately 20 times earnings, which is 33% more expensive than the historical average of about 15 times earnings. Moreover, the financial markets anticipate earnings growth of about 12% this year. In other words, optimistic equity investors are willing to pay above-average valuations in anticipation of above-average growth.
However, the fixed income market is pricing in about 125 basis points of Fed easing in 2024 in anticipation of slower economic growth and perhaps the delayed recession many thought was possible in 2023. Market expectations for rate cuts were boosted in mid-December due to the dovishness surrounding 2023’s final FOMC meeting.
We find it difficult to reconcile these two outcomes: a robust economy supporting solid earnings growth and expensive valuations, but not an easier monetary policy. Or you have a weakening economy and likely recession that supports about 125 bps of Fed rate cuts but not robust earnings growth and historically expensive valuations. You can’t have it both ways.
This dichotomy, equity markets calling for growth and fixed income markets for recession, needs to be resolved, and investors may want to seek active equity returns until this situation settles. Given the mixed messaging from markets, we believe that quality and cash flow will be key for equities, and we favor businesses with durable models and the ability to navigate an environment with elevated levels of uncertainty and recession risk. Additionally, we believe active managers may be more agile in adapting to change through the coming year as financial markets rectify this bifurcation of expectations.
As the growth vs. recession situation resolves, and markets continue to digest a more normalized cost of capital (see the illustration above), we expect more modest returns for equity investors and an environment that may favor steadier income-generating stocks. While inexpensive capital of the past decade was a tailwind for companies with less cash flow today, but higher potential growth rates, the rapid rise in rates that began in March 2022 should support more mature companies with consistent cash flow profiles, strong moats and the ability to self-fund future growth. If this plays out as we expect, income will likely play an even more significant role than usual in total equity returns.
Investors are just emerging from a period of devastating inflation and performance in fixed income, and equity income portfolios that have produced growing income streams may be an excellent hedge against stubborn inflationary pressures in the U.S. and overseas. With fixed income markets still struggling in 2023, equity income has emerged as an attractive opportunity for investors, and we believe it offers attractive relative value and the opportunity to deflect any volatility stemming from the standoff between growth and a slowdown or even recession.
U.S. equities have outperformed international equities for much of the last 15-plus years. But we know from history that relative performance between U.S. and non-U.S. markets is cyclical.
At the end of last year, we noted several factors that in past markets (notably in the early 2000s) had led to a turn in international vs. U.S. performance. While that didn’t happen in 2023 due primarily to the catalyst of AI and the performance of the Magnificent Seven, we note that those factors are still present and at stretched levels:
Relative Valuations: The MSCI ACWI ex USA Index trades at a 33% 1-year forward P/E discount to the S&P 500, near the widest levels of more than 15 years of U.S. outperformance. While research has shown that although valuation differentials may have a low correlation to short-term returns, they have an increasing impact the longer the holding period.
The U.S. Dollar: The dollar is a significant factor in the relative performance of international equities, contributing about 40% of international outperformance in 2002-2007 and half of its underperformance since then. The U.S. Dollar Index (DXY) sits at its highest level since late 2002, around the last time international began to outperform the U.S.
Market Concentration and Breadth: As noted above, just seven stocks contributed roughly two-thirds of U.S. performance in 2023, and the top 10 stocks now constitute 32% of the S&P 500. The comparable numbers for the ACWI ex USA Index are about 20% of the total return from the top seven stocks and 11% of the market cap in the top 10 companies.
While we can’t time a turn in relative performance, we think it makes a strong case for rebalancing by U.S. investors who hold roughly 14% of their equity portfolio in international companies versus a 38% weight in the MSCI ACWI Index.
While value has outperformed in international year to date as opposed to the U.S., where growth has outperformed due to AI and the impact of the Magnificent Seven, there is no shortage of interesting Growth and Value investment themes outside the U.S. In AI, many leading “picks and shovels” investments are outside the U.S.—companies such as Taiwan Semiconductor and SK Hynix and semiconductor equipment makers ASML, BE Semiconductor Industries, and Disco. In the booming market for weight loss medications, Ozempic manufacturer Novo Nordisk’s headquarters are located in Denmark.
We like these names because we don’t have to select the “winners” but focus on the firms providing the tools all players need in the AI revolution. We believe many of the best firms and most attractive valuations are outside the U.S.
Opinion piece by Ben Kirby, CFA Co-Head of Investments and Managing Director at Thornburg Investment Management
Insigneo has announced the addition of financial advisors Patricia Holder and Nicole Spirgatis to its network.
Along with Renato Izaguirre as a Client Associate, they form Phoenix Private Client Group, a team dedicated to providing exceptional client service and expertise in Latin American markets, the press released said.
Holder and Spirgatis bring a combined 50 years of experience in financial services, specializing in Latin American markets.
Prior to joining Insigneo, they worked at Morgan Stanley, with Holder spending 25 years at the firm and holding advisory roles at Citi Smith Barney and Merrill Lynch. Spirgatis has a distinguished background at Merrill Lynch, Banco de Crédito del Peru, and Scotiabank.
“We are thrilled to join Insigneo and start this new chapter in our careers,” said Holder, Managing Director. “Our expertise in Latin American markets positions us to contribute significantly to Insigneo’s commitment to excellence. Together, we aim to navigate the complexities of wealth management, build lasting client relationships, and capitalize on opportunities in the dynamic international financial services industry.”
Holder and Spirgatis’ cultural fluency in Latin American markets highlights their ability to deliver tailored wealth management solutions. They recognize the importance of understanding local nuances to provide optimal client service, demonstrating their commitment to building relationships based on trust, expertise, and integrity, the firm added.
“We are excited to welcome Patricia and Nicole to Insigneo. Their experience and success in international markets align perfectly with our growth strategy,” said Jose Salazar, Market Head Miami-US. “Their addition strengthens our commitment to excellence and enhances our ability to serve clients in key markets.”
The addition of Phoenix Private Client Group is another milestone in Insigneo’s expansion efforts, reinforcing its position as a leading wealth management institution in the US and Latin America, the memo ends.
BNY Mellon Investment Management will highlight the virtues of the international context for equity investment at the IV Funds Society Investment Summit & Rodeo in Houston, exclusively for professional investors from Texas and California.
The event, scheduled for February 29th at the JW Marriott Houston by The Galleria, will feature James Lydotes, Head of Equity Income & Deputy CIO at Newton, presenting the BNY Mellon Global Equity Income strategy.
Lydotes will discuss the fund’s features, including “the goal of income and long-term capital growth from a portfolio of high quality global companies, the philosophy that dividend capitalization is the dominant source of long-term returns, and a disciplined and systematic buy/sell investment approach,” according to the information provided by the company.
Moreover, BNY Mellon attributes the strategy’s success to “buying companies with yields greater than 25% BM (FTSE World TR Index) and selling companies with yields below market.”
Additionally, through its boutique Newton, the American bank emphasizes the importance of investing in companies that meet profitability requirements, have sustainable dividends, and are traded at attractive valuations.
After the experts’ presentations, guests will be transported to the NRG Stadium to enjoy the Houston’s Livestock Show and Rodeo from the Funds Society’s private suite.
About James Lydotes
Lydotes is the Head of Equity Income at Newton and the Deputy Chief Investment Officer for Equities. He is also the lead portfolio manager for the Global Equity Income strategy. Additionally, he has been the primary manager for the Global Infrastructure Dividend Focus Equity and Global Healthcare REIT strategies since their inception in 2011 and 2015, respectively. He designed both income-oriented strategies to offer exposure to different themes within a risk-aware framework.
He joined Newton in September 2021, following the integration of Mellon Investments Corporation’s equity and multi-asset capabilities into the Newton Investment Management Group. Prior to joining Newton, he had 22 years of experience across multiple roles at Mellon Investments Corporation and The Boston Company Asset Management (both part of the BNY Mellon group).
J.P. Morgan released its 2024 outlook for the alternative investment landscape.
Uncertainty has remained a central theme in financial markets over the past several years. Surging inflation, rapid interest rate increases, slowing global growth, increased geopolitical risks and elevated stock and bond market volatility have all dramatically shifted the investment landscape, and alternative investments have not been immune.
To help investors take advantage of these market dynamics, J.P. Morgan asked experienced investment leaders from across its $213 billion Global Alternatives platform to share their 12- to 18-month outlooks on several alternative investment markets. Their insights into the trends, risks and opportunities influencing multi-alternatives strategies, core private infrastructure, private equity and commercial real estate are featured in individual papers within the research.
“The case for investing in alternatives remains as strong as ever,” said Anton Pil, Global Head of Alternatives for J.P. Morgan Asset Management. “These assets have historically helped investors diversify traditional portfolios by pursuing investment returns largely independent from publicly traded equity and bond markets, potentially helping to diversify portfolio correlations, lower overall volatility, expand investment income sources, mitigate inflation risk and enhance both absolute and risk-adjusted performance.”
Looking ahead into 2024, the firm expects to see growing demand for alternative investments driven by three broad themes: Displacement, Democratization and Diversification.
Displacement: Much of 2023 saw a slowdown in private market activity, which broadly pressured pricing in many alternative assets. This opened considerable investment value in some segments and could result in a compelling 2024 vintage, especially if the current interest-rate tightening cycle proves to be at or near its peak.
Democratization: Investment innovation continues to expand access to alternative investments through a growing range of strategies and structures available to a much broader number of investors.
Diversification: The investment markets of the past few years have shown the limits of relying solely on traditional stocks and bonds to provide adequate portfolio diversification in the current market cycle. Alternative investments can offer solutions to tap into new, dynamic investment opportunities designed to help better balance portfolio risk/return exposures.
More information about the research and J.P. Morgan’s alternatives offering can be found at the following link.
Morgan Stanley plans to eliminate several hundred jobs, in what would be the first measure of its kind under the presidency of Ted Pick, local press reported.
The cuts would affect less than 1% of the employees of the wealth management business, which has about 40,000 workers and is the firm’s largest unit, according to a person with knowledge of the matter, reported by the media AdvisorHub.
However, brokers and their support teams would not be affected by the layoffs, according to the specialized media citing the Wall Street Journal.
Among the employees who will be laid off are some from its self-directed E-Trade channel and its stock plan business, as well as management and sales positions, the report adds.
The press reports do not clarify if the positions will be related to the wirehouse’s international business section.
In June 2023, Morgan Stanley announced to its clients that it would make changes and increase requirements for international accounts with a main focus on some countries in Latin America.
This caused many advisors to leave the wirehouse for other firms such as Bolton, Insigneo, Raymond James, among others.
On the other hand, AdvisorHub recalls that the bank’s shares have been the worst-performing this year among its main American counterparts, with a drop of around 10%.
Last month, the company warned that it would take longer to achieve its profit margin targets in the wealth management unit and noted that the below-target results will last a bit longer.
The division, which was boosted for much of last year by higher net interest income, could see that benefit start to fade if the Fed begins to lower interest rates towards the end of this year, the report adds.
The unit’s new net assets remained below $50 billion for the second consecutive quarter in the last three months of 2023. This pace is lower than Morgan Stanley’s target of more than $300 billion per year.
BNY Mellon announced the launch of its next-gen ETF basket construction platform.
The new comprehensive platform will provide asset managers with a digital workflow, backed by start-of-day net asset value (NAV) data, to present vital market-making information to liquidity providers. This solution will support asset managers in valuing, creating, and publishing basket information more efficiently in the rapidly growing ETF market, allowing them to better serve their clients, according the firm information.
“Through evolving our technology platform, this ultra-transparent user portal connects market participants to ETFs at any point in the lifecycle and strengthens the broader ETF ecosystem,” said Christine Waldron, Global Head of Fund Services, BNY Mellon.
BNY Mellon collaborated with its clients to design and develop the new platform to address the evolving challenges of an ETF manager. Asset manager users of the platform will be able to customize and retrieve ETF baskets via API, as well as access the platform externally through the client gateway to view the workflow and status of outstanding processing exceptions.
This latest release builds on recent investments to improve ETF workflow, including delivery of the Intelligent Basket Builder custom negotiation tool and Asset Flow Analytics dashboard in 2022 and financial information exchange (FIX) protocol connectivity in 2023.
“This breakthrough in ETF technology can help greatly reduce complexity in the front-office ETF process,” said Bob Humbert, Global Head of ETF Product, BNY Mellon. “The result is a workflow which enables portfolio managers and support staff to fully focus on key objectives—to manage existing strategies more efficiently, generate ideas for new best-in-class ETF products and better serve liquidity providers and end investors.”
BNY Mellon’s ETF platform supports comprehensive technology across nearly 2,000 ETFs, presenting an all-in-one global solution for fund providers across the US, Europe, Canada, and APAC. It draws on BNY Mellon’s 240 years of experience and data from overseeing nearly $50 trillion in assets for our clients across the financial lifecycle – managing it, moving it, and keeping it safe.
KKR released “Loud and Clear,” a new Insights piece by Henry McVey, CIO of KKR’s Balance Sheet and Head of Global Macro and Asset Allocation (GMAA).
The research notes that family offices are allocating more to Alternatives, with 52 percent of assets allocated to Alternatives on average, up 200 basis points since 2020.
Based on a proprietary survey of more than 75 Chief Investment Officers (CIOs) who oversee over three billion dollars in assets, on average, the report examines how family office CIOs are leveraging their longer-term focus and owner/operator mentality to create a sustainable competitive advantage.
“We hear the message ‘Loud and Clear’ that this segment of the market is changing – and for the better,” said McVey. “These investors are diversifying across asset classes, and as they mature, they are getting better at harnessing the value of the illiquidity premium to compound capital. They are also using better hedging techniques and increasing both their desire and ability to lean into dislocations, strengths that we believe will position them to be at the winner’s table at the end of this cycle.”
In the report, McVey notes several key parallels between the asset allocation objectives of KKR’s Balance Sheet and those of the surveyed CIOs. These include a focus on compounding capital in a tax efficient manner to build wealth and investing behind key themes such as supply chain disruption, industrial automation, artificial intelligence and the ‘security of everything.’
Among the key findings of the survey is that in today’s investment landscape, alternatives are experiencing significant diversification, with a notable increase in allocations to Real Assets. Despite this, cash positions remain high at 9%, reinforcing the theory that many investors are not taking sufficient risk for current markets.
Family offices plan to increase their allocations to Private Credit, Infrastructure and Private Equity, to the detriment of Public Equities and Cash. This trend reveals a significant bifurcation in asset allocation approaches between family offices established in the last five years and those that had already scaled prior to COVID-19, with older family offices typically holding less cash and allocating more to Private Equity.
There are marked regional differences in asset allocation. U.S. family offices allocate less to traditional Private Equity compared to their counterparts in Latin America, Asia and Europe, while Asia-based family offices have relatively high allocations to Real Estate.
CIOs are looking for value-based private market opportunities, especially in the oil & gas and industrial sectors, contrary to conventional trends. Geopolitics is overtaking inflation as CIOs’ top concern, with more than 40% of respondents identifying geopolitics as the most important risk today. In addition, there is growing concern about the need for more resources to support both growth in assets under management and increased diversification across asset classes.
State Street has promoted Diana Donk to its team as ETFs sales for the US Offshore business.
Donk brings more than 15 years of experience in the financial services industry, specializing in ETFs, mutual funds, and business relationship management.
In her new role as Experienced ETF Sales VP, she leads the distribution of US ETFs to investors in the Andean Region and Eastern Canada, as well as UCITS ETFs to US Offshore clients.
She is responsible for “developing and executing sales strategies, creating and maintaining strong client relationships, and providing market and product insights,” as described on her LinkedIn profile.
Donk joined State Street in 2019 from J.P. Morgan Wealth Management, where she worked in for the US Offshore business.
Prior to J.P. Morgan, she began her career in her native Peru at CONFIDE as a Portfolio Manager from 2006 to 2010 and then spent nearly six years (2010-2016) at Inteligo, where she was a portfolio manager and Senior Product Manager for mutual funds in Lima.
She holds an MBA from Hult International Business School, a Master’s in Economics from Universidad del Pacífico, and has the CFA Level II certification.
Based in New York, she reports directly to Heinz Volquarts, Managing Director Head of Americas International for Canada and Latam at State Street.
Photo courtesyFred Bates, Managing Director at BECON IM
Barings will showcase the investment opportunities available in credit at the IV Funds Society Investment Summit in Houston.
The event, scheduled for February 29th at the JW Marriott Houston by The Galleria, will feature Fred Bates, Managing Director of BECON IM, presenting the Barings Global Senior Secured Bond Fund and Barings Private Credit Corporation strategies.
Regarding the Barings Global Senior Secured Bond Fund, it is “a developed markets bond fund with daily liquidity that invests exclusively in bonds that are senior in an issuer’s capital structure and are directly secured by collateral,” according to the firm’s description.
On the other hand, the Barings Private Credit Corporation is “a semi-liquid direct lending solution with variable rate managed by one of the sector’s largest private credit managers.”
After the experts’ presentations, guests will be transported to the NRG Stadium to enjoy the Houston’s Livestock Show and Rodeo from the Funds Society’s private suite.
Seats are limited, so Funds Society is asking professional investors from the US Offshore market of Texas and California interested in attending to complete their registration at the following link.
About Fred Bates
Frederick S. Bates is the Managing Director and co-founder of BECON IM, a third-party distribution company specialized in wholesale business development and sales to intermediaries across Latin America and US Offshore. BECON IM represents several world-class global asset managers throughout the Americas, including Barings, Neuberger Berman, Schafer Cullen, and New Capital. Prior to joining BECON IM, Bates amassed nearly 20 years of experience at MFS Investment Management and Fidelity, holding senior positions in the United States, Latin America, and Europe.
