Giant RIA AlTi Global shoots to boost cash-flow margin

'The streamlining of the business is very critical,' says CEO Mike Tiedemann.

Now that it’s a publicly listed company, giant registered investment advisor and asset manager AlTi Global Inc. is looking to boost one of the most important cash flow metrics for RIAs: EBITDA, or earnings before interest, taxes, depreciation and amortization.

EBITDA is the cash-flow blood of an RIA. The higher the EBITDA margin at a firm, the larger the price it will command, either from the rash of private equity investors snapping up RIAs at a record pace or investors in stocks.

AlTi Global, previously Alvarium Tiedemann Holdings, started trading on the Nasdaq in January.

The firm’s EBITDA margin for the quarter ending in June was 21%, at the low end of the range buyers of RIAs look for when pursuing a deal. RIAs are cash-flow rich and historically kick off an EBITDA margin of 20% to 35%.

And that’s where AlTi wants to wind up, according to an investor presentation Tuesday released for the company’s second-quarter conference call with analysts. Its goal is to expand the firm’s adjusted EBITDA margin to the mid-30s.

“We expect the cost-savings initiatives to be fully reflected in the first half of 2024, contributing to enhanced margins,” CEO Mike Tiedemann said during the conference call. “We believe the sequential increase in profitability, a 2% increase in EBITDA margin, demonstrates the merits of our growth and cost-savings initiatives, which will position AlTi for continued margin expansion and shareholder value creation in quarters to come.”

Smaller RIAs historically have been valued at five times to 10 times their EBITDA margin, while larger firms, those with billions of dollars in client assets, have values in the market in the middle to high teens.

Tiedemann was also asked about that EBITDA target by an analyst during the conference call on Tuesday.

“The core business itself is doing well on a lot of levels and even despite some of the headlines that we’ll talk about in asset management,” Tiedemann said. “The streamlining of the business is very critical. So, the combination of the two will lead to an inflection of the business in these coming two, three, four quarters that lay ahead of us.”

Shares of AlTi Global were trading at $7.88 at 1:00 p.m. ET Wednesday, down more than 6% for the day, according to CNBC.com.

AlTI has two business lines: wealth management, with $49 billion in assets, and asset management, with $20 billion. Wealth management is typically a higher-margin business than asset management; the latter has experienced a strong diminishing in fees over the past 20 years as low-cost products like exchange-traded funds have eaten into profit margins of fund companies.

Wealth management fees have remained relatively steady over that time, with the rule of thumb when it comes to fees that RIAs charge close to 1% of a client’s assets.

For the quarter ending in June, AlTi Global reported adjusted EBITDA of $11 million, a 3% increase when compared to the quarter ending in March. The EBITDA margin of 21% rose 200 bps compared to the previous quarter.

That was “driven by strong wealth management performance and reduced operating expense, partially offset by a revenue decline in asset management,” according to the company.