Victory Capital Holdings (NASDAQ: VCTY) is an investment management firm for institutional and intermediary clients. Its centralized distribution model is based on an operating platform that provides its franchises and solutions services with centralized distribution, marketing, and operations infrastructure.
The company has increased its Assets Under Management (AUM) to more than 10 times in eight years, to reach $183.7 billion as of December 31, 2021. Importantly, AUM is a key measure to help investors gain an insight into the size of the company’s asset management obligations as compared to its peers. The higher the AUM, the more trustworthy the company looks to investors.
One key aspect of Victory Capital’s business is its optimal diversification of funds, which prevents it from the risk of exposure. None of the company’s investment franchise accounts for more than 18% of the total AUM.
AUM Growth Slowing?
That being said, a concerning trend can be seen in its AUM growth for the past couple of months. Earlier this month, Victory Capital reported $176 billion AUM by its subsidiaries for February 2022, which was a marginal decline from the AUM of January. Moreover, in January, AUM of $176.8 billion was a 3.7% fall from December.
Nonetheless, this may not be an immediate reason to worry investors, as uncertainties with regard to the high inflation and tense geopolitical environment have gripped the past couple of months, affecting most of Victory Capital’s investment management peers.
For instance, Franklin Resources (BEN) recently reported a 2.3% sequential decline in preliminary February AUM. Moreover, Invesco’s (IVZ) February AUM was also down 1.3% from the January reading. Both these companies had also reported sequential declines in their January readings as well.
Upsides To Consider
Furthermore, if we look deeper, in the alternative investment asset class, Victory Capital witnessed a 16.2% sequential increase in February, following a 19.9% sequential growth in January, which is encouraging.
Moreover, the strong position of the company’s multi-faceted business model, thanks to its centralized distribution platform, is expected to help the company drive its performance in the future.
As part of its growth strategy, the company is focused on strengthening its capabilities and foothold in the financial sector with strategic acquisitions. Last year, Victory Capital made two important annexures to its business — New Energy Capital, and THB Asset Management. This acquisition of New Energy Capital is expected to strengthen its position in private markets, simultaneously fortifying its ESG and impact investing capabilities. Similarly, THB also bolstered the company’s responsible investing solutions. Strategic acquisitions like these are expected to drive the company’s growth.
Importantly, last month, RBC Capital analyst Kenneth Lee lowered his price target on Victory Capital to $44 from $49, solely based on his valuation method taking into account the recent declines in peer multiples. Otherwise, he reiterated a Buy rating on the stock, encouraged by the “myriad growth opportunities” along the way, including scaling the newly acquired franchises and inorganic growth through acquisitions.
Wall Street’s Take
Wall Street Consensus is also cautiously optimistic about Victory Capital, with a Moderate Buy rating based on four Buys and one Sell. The VCTR stock prediction indicates an average price target of $43.40.
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