State Street Global Advisors is looking to grow its model portfolio business from $5 billion currently to over $25 billion by the end of this decade. Model portfolios are experiencing increasing popularity among financial advisors and clients. They enable advisors to bundle funds into specialized, off-the-shelf strategies, creating more time and resources for client engagement and financial planning.

At the moment, Blackrock is the clear leader with nearly $100 billion in assets tied to its model portfolios. Recently, the asset manager predicted that over the next 5 years, model portfolios’ total assets will exceed $10 trillion over the next 5 years from $4 trillion as of July 2023. State Street is aiming to capture a piece of this expanding market. 

Peter Hill, State Street’s head of model portfolios solutions, remarked, “We are fully committed to investing in our model portfolio business to meet the needs of our advisors and our platforms as their adoption rate of models continues to grow.” To achieve this, State Street is investing in the segment from an ‘infrastructure perspective’. This includes hiring employees in sales and marketing while also increasing outreach to advisors.  

Finsum: State Street is looking to grow its model portfolio segment by 5-folds over the next 5 years. Over the next 5 years, model portfolio assets are forecast to exceed $10 trillion from $4 trillion currently.

BNP Paribas conducted its annual alternative investment survey which revealed some interesting insights. There were 238 respondents, collectively representing $1.2 trillion in hedge fund assets, who were surveyed in December 2023 and January 2024. 

Many allocators are expecting a regime change with more opportunities for alpha and beta with US equities underperforming. This type of environment is more amenable to hedge fund performance. 

In contrast, hedge funds struggled in 2023 with an average return of 7.6%, while the S&P 500 was up 24%. It was the inverse of 2022 when hedge funds outperformed while both fixed income and equities were down double-digits. Interestingly, hedge funds outperformed global equity markets by 5.7% over the full 2 years. 

Going forward, allocators seem bullish on hedge funds. History indicates the asset class outperforms during periods of ‘high, stable rates. Over the last 2 years, allocators increased their expected return from 7.5% to 9.1%, which is the highest over the last decade. 

In 2023, there was a $100 billion in net outflows due to rebalancing flows, underperformance, and competition from risk-free returns at 5%. This year, survey respondents are expected to add $17 billion on a net basis. 

Finsum: BNP Paribas conducted a survey of asset allocators. They are increasing allocations to hedge funds as the asset class has historically outperformed in high, stable rate environments.

The value of your financial advice practice hinges on several key factors when you approach succession, including client stability, profitability, and operational efficiency. The latter factor often gets overlooked, yet it plays a crucial role in attracting potential successors and maximizing your final valuation.

While a buyer assesses revenue and profit potential, they also evaluate the effort required to maintain that profitability. Inheriting a complex, inefficient practice, no matter how lucrative, could deter buyers due to the sheer "pain-in-the-backside" factor. Remember, no one wants to inherit a mess.

Therefore, streamlining your operations becomes crucial as you prepare for the transition. Focus on simplifying workflow, automating tasks, and leveraging technology to create a well-organized, easily manageable practice. This enhances your current practice and significantly increases its attractiveness to potential successors, ultimately leading to a smoother, more rewarding transition.

Finsum: When it comes to selling a practice, it’s not just how profitable it is that matters. How operationally efficient the practice is may matter more.