Huatei Securities is ready to cash out of AssetMark, after it hits $100-billion of AUM and $2-billion in market cap, according to reports

Huatei Securities is ready to exit AssetMark after promising to leave it as an autonomous unit, then having second thoughts after lackluster returns over its seven years. 

Its shares (EMK) have not budged since its 2019 IPO. They closed up a penny today (Dec. 20) at $28.88, up 0.03%. They have traded in a tight range, $22.58 to $33, over the past 52 weeks.

The Nanjing, China, colossus has hired a Wall Street advisor to oversee the sale of its Concord, Calif., holding. It owns 70%, or about $1.4 billion in stock, Bloomberg reports. 

Morgan Stanley is the advisor, according to a follow-on Citywire article.

Chinese investments in U.S. firms cooled in 2023, according to an E&Y report.

The apparent sale attempt of AssetMark comes after the company crested $100 billion in managed assets and established itself as the top turnkey asset manager.

But the TAMP market is competitive and margins have been affected in the ongoing squeeze of investment management in general. 

Stunning price

Envestnet shares (ENV) have also struggled in the headwinds. They were off 12 cents today, closing at $48.53, down 0.25%. The stock has ranged between $33.12 and $69.22 over the past 52 weeks. 

And Orion just poached AssetMark's CEO, Natalie Wolfsen, in an attempt to bolster its own TAMP, formerly Brinker.

At the time Huatei bought into AssetMark in 2016, the Concord, Calif, management firm had about $29 billion of AUM. It  commanded a then “stunning” price of $768 million from a sale by Genstar and Aquiline. See: Charles Goldman's turnaround of Genworth castoff leads Chinese investor to pay stunning price

Huatei was flush with cash after it had just completed it own ‘H shares’ IPO in May 2016.

Those two PE firms bought it for $412 million in 2013. See: Genworth's TAMP is bought up by two private-equity firms for $412 million

On the market

Then CEO Charles Goldman said the Huatei deal was structured to ensure that AssetMark maintained the same level of autonomy. Four of AssetMark's nine directors are from Huatei, including its chairwoman.

Goldman exited in 2021, after leading an AssetMark IPO two years earlier. See: AssetMark suddenly parts ways with president/CEO Charles Goldman; protégé Natalie Wolfsen named CEO; Michael Kim president

The shares closed at $27.25 on the first day but have traded lower on most days ever since, closing at $28.88 today, nearly four years later, after a spike following today's Bloomberg sale report. 

Huatei is willing to consider either a full or partial sale, Bloomberg reports.

First hypergrowth, as I discussed last quarter, we are absolutely committed to exceeding 10% organic growth rate and exceeding 5,000 engaged advisers by end of 2026. We are continuing to see green shoots that organic growth is coming back in December, we realized net flows north of $625 million and saw net flows north of $430 million in January of this year.
Regarding our AM. five k. initiative we ended the fourth quarter was 3,123 engaged advisers, an all-time high. We are focused on projects to get our more than 800 advisers who are between $3 million and $5 million of assets on our platform to the Engage level, while also improving the time and rate of NPAs to the Engage level. Gary will provide a lot more details on this later during his prepared remarks.
Second, we increased our CapEx as a percentage of total revenue to 8% to 10%, allowing us to invest more into the business, specifically into projects that drive growth and scalability such as agritech tools.
Lastly, we are focused on scaling our business in 2023. We expanded margins 290 basis points, and we'll look at opportunities like our touchless new account opening initiative, as discussed earlier, to drive further scale into the business. Specifically, we are focused on reducing the cost per account by over 30% by 2026.

And our goal is to really remove up to about $25 million of operational costs over the next few years.