Valuation of Investment Management (“IM”) Firms

Valuation of Investment Management ("IM") Firms

PRESENTATION BY: Terence L. Griswold, ASA Managing Director Empire Valuation Consultants, LLC CFA Society of Rochester March 26, 2013 ___________________________

Agenda

Part I: Operating Trends Death (and Rebirth) of Equities Pressure on Profitability Is the Industry Becoming Commoditized?

Part II: Valuation Considerations Concepts of Value Valuation Approaches Other Valuation Considerations The Valuation Gap

Part III: The Art of the Deal The Decision to Sell Deal Types & Typical Structures

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PART 1: Operating Trends

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Operating Trends (I)

Death of Equities?

"The Cult of Equity Is Dying." Bill Gross Is the above statement true? Data through the end of 2012

supports the notion that investors are falling out of love with equities. In 2012, equity mutual fund flows were negative for the fifth straight year, while inflows to bond funds remained robust (Details on next slide). Returns on bonds have experienced an unprecedented run in the past twenty years. Since bond funds have lower fees, this has directly impacted the profitability (and ultimately the value) of asset managers.

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Operating Trends (II)

Death of Equities?

Investment Company Institute ("ICI") Data Supports the Decline in Equities through 2012, BUT...

Year/Quarter

2008 2009 2010 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012

Mutual Fund Flows ($B)

Equity

Hybrid

Bond

$(234)

$(18)

$28

$(9)

$23

$376

$(37)

$23

$241

$(98)

$84

$239

$(9)

$58

$215

$(18)

$3

$155

$(52)

$16

$86

$(70)

$3

$66

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