ebook essays pieces of the puzzle
Wednesday, April 9th, 2014
bull market baby

14 0409 zVRTS

In the last posting, we looked at an emerging roll-up in the broker-dealer world.  This time, we have a roll-up of sorts in the asset management world.

Virtus Investment Partners (VRTS) came into existence as a standalone stock on the last day of 2008, when it was spun off from The Phoenix Companies (PNX).  It probably didn’t seem like the greatest time to be out in the world on your own, but the tide turned a couple of months later.

According to last year’s 10-K, VRTS is “a provider of investment management products and services to individuals and institutions,” which operates “a multi-manager investment management business, comprised of affiliated managers and unaffiliated subadvisers, each having its own distinct investment style, autonomous investment process and brand.”  The products come in the usual packages:  open- and closed-end funds, variable insurance products, and separate accounts.

The stable-of-managers strategy has had a variety of incarnations, most notably Norton Reamer’s United Asset Management, which rose and fell an investing generation ago.  (Here’s a slide deck from the ill-fated Old Mutual acquisition of UAM.)  Affiliated Managers Group (AMG) and others are out there today.

The chart shows that assets (just under $60 billion at last report) and revenues have grown nicely, but pale in comparison to the performance of the stock.

A question:  How would you go about analyzing this company?  The investment environment has been essentially the same for its entire independent existence (other than the first few months).  Furthermore, organizations of this type depend on their component entities and on the financial terms that knit them together (or drive them apart); it’s very hard to build one that works well over time.

From the bottom up:  Is the product mix a good one, is the performance mix acceptable, and are the fees sustainable at their current levels?  (For what it’s worth, in the mutual fund realm, Morningstar considers VRTS’s fees “above average.”)

The stock is down about thirty percent from last May, after a straight-up, blow-off run.  What next?  You usually learn something important about asset management organizations — and confederations of them — when the environment changes.  Keep your eye on whether this bull market baby can prosper in more difficult times.  (Chart:  Bloomberg terminal.)