AMG unloads $17B Veritable after 11 years of metric stagnancy, which may explain the bargain price Pathstone is paying -- and the wholesale rollovers of principals

Affiliated Managers Group, Inc. (AMG) is dumping Veritable, LP and its $17 billion of AUM after a decade of futility trying to grow the multi-family office RIA.

The West Palm Beach, Fla., rollup of asset managers with $668 billion in AUM is selling the Newtown, Pa., firm to Pathstone, which is also a rollup, but of RIAs and other ultra-high-net-worth (UNHW) wealth managers.

Pathstone was the right buyer and bought at the right price, according to Mike Wunderli, managing director of ECHELON Partners of Manhattan Beach, Calif.

“Pathstone likely made out very well with an asset that fits perfectly into their business model at a very reasonable price, especially in the current market environment,” he says. 

Michael Stolper, Veritable's founder and co-CEO, said AMG did deliver on its “core tenet” – to avoid micro-managing the firm.

“We chose to partner with AMG eleven years ago because of its unique partnership model and core tenet of preserving the investment and operational independence of its affiliates,” he said in a release  “AMG delivered on its core promise and has been a contributor to the success."

Stolper will become Pathstone’s co-chairman..

No growth

Both the $294 million cash outlay and the fact nearly three dozen Veritable executives chose to roll over their equity likely tells the story, says Wunderli. 

“The article said 34 of Veritable’s executives agreed to roll their equity into Pathstone equity, so that would imply that a portion of the deal proceeds, above and beyond the $294 million in cash, was paid in equity. 

“It also might suggest that they (Veritable executives) weren’t thrilled with the valuation,” he says by email. 

He adds: “If we assume 20% was paid in equity, that implies a total purchase price of $367 million. Depending on Veritable’s profitability, it may be an okay valuation, but it doesn’t look high by any means.”

Though buyers are willing to pay for profitability, they won't pay big multiples of earnings, unless the company can demonstrate strong growth. 

In the 11 years since AMG bought Veritable, the size of the RIA for the ultra-wealthy has essentially been preserved in amber.

The firm has 200 clients and 87 staff – almost literally its headcounts in 2012 when it bought Veritable from the founder and co-CEO.

Stagnant 

The underachieving growth – 70% increase for Veritable AUM versus 300%-plus for the S&P 500 index – nonetheless needs to be looked at in the context of ultra-high-net-worth market dynamics, Wunderli cautions.

The profitability may have turned on the size of the average account. Veritable charges 45 basis points (0.45%) on the first $50 million of AUM, but it slides down to 15 basis points above that. 

“Their clientele is ultra-high-net-worth, so they likely invest very conservatively and focus on asset preservation as opposed to growth,” he says. 

"Also, UHNW clients often make significant withdrawals each year for taxes, toys, outside investments and philanthropic endeavors. 

“So, it’s not fair to compare their growth to the S&P 500. With that said, it doesn’t look like they were aggressively adding new clients and net new assets.

"The business has likely been fairly stagnant since AMG’s acquisitions and most of the growth is likely attributable to one of the most favorable investment markets in recent history.”

Extraction

AMG shares have also fared poorly in all comparisons to the S&P 500, trading at about $112 when it signed the Veritable deal and about $162 today, a gain of less than 50%.

Jay C. Horgen, president and CEO of AMG, discussed the deal in unusually philosophical terms for a public company, mentioning AMG only after everything else. 

“We supported this successful outcome for all stakeholders, including Veritable’s clients, partners and employees, as well as AMG."

One good outcome for AMG is to extract itself from a foray into wealth management starting in 2012. It slammed the hard brakes on that effort by 2017.

At that time, it stopped buying for AMG Wealth, kept its $40 billion of RIA AUM and spun out its RIA rollup management – namely Copeland and Rich Gill – to try to grow in a venture where it was only a minority investor.  See: A year after John Copeland came to AMG with blue-ocean RIA growth plan, the publicly owned asset management giant spins him into new venture

Better owner

Yes, the deal may be a belated revision of previous strategic thinking at AMG – especially given the proliferation of roll-ups specializing in RIAs, Wunderli opines.

“This sale might suggest that AMG is second guessing their wealth management strategy or looking to take it in another direction. Tough to speculate, though,” he says. 

“But their bread-and-butter is the affiliate model with investment managers, so it’s tough to compete with the pure wealth-management consolidators.”

Veritable's new life under Pathstone is looking up, Wunderli says.

“Pathstone should be a much better owner to help create growth," he adds. "Wealth Management for the HNW and UHNW segments is what they do.” 

The transaction is expected to close in the third quarter of 2023.