AI superstar stock, Nvidia, has just reached a valuation of over $2.75 trillion. That exceeds the value of the entire German stock market. How about the combined value of IBM, Tesla, Facebook, AMD, Netflix and Intel? Yup, that’s what happens when a share price clocks up a 1,000% return since 2022. And yet, those “combined” companies listed all have an AI story too. In fact, I have seen data indicating that 179 of the S&P 500’s constituent companies referenced AI in their recent quarterly analyst results’ calls. So, is AI the only game in town? We think not, and then we found a striking headline…..
Hargreaves Lansdown rejects £5 billion bid from PE consortium – Financial Times
What’s the big deal? It’s not even a big deal. I mean, Nvidia just increased in value by $150 billion over a few hours on NO company-specific news. Allow me to expand. Or should I say converge….? For those readers unfamiliar with Hargreaves Lansdown, the company is an investment platform serving 1.8 million UK-based clients with a combined £150 billion of wealth assets. However, what really caught the eye and what should resonate with regular readers is the convergence of four distinct themes we have written about in recent months:
*The PE in the headline stands for ‘private equity’ and we are expecting stable or falling interest rates to prompt an increase in buy-out deal activity.
*The rapidly increasing weight of private (not publicly listed) assets in high-net-worth investment portfolios. Research data from Pitchbook reckons private assets could reach a total value of $20 trillion by 2028.
*The UK might be in the middle of the worst election campaign by any governing party in history but investors are beginning to look past the Tory party meltdown. UK companies are cheaper than similar companies in other markets and investors see opportunity and dinghy-free sanity ahead.
*We have highlighted the potential of ‘old economy’ companies in neglected areas of the market beginning to show signs of a new life. Specifically, we flagged a huge merger deal in the mining sector, the US bank sector actually outperforming technology this year and breaking news of an agreed £3.57 billion buy-out of the Royal Mail by a Czech billionaire.
So, of course, we are intrigued by potential private equity interest in a cheap UK old economy financial services company. However, it’s a bit early for thematic victory laps. It feels like there is more going on than opportunistic feasting on cheap UK assets. Indeed, our curiosity is focused on the sudden appeal of wealth management businesses. Deal activity has been building steadily with Canada’s RBC buying Brewin Dolphin, private equity house Pollen Street swooping for Mattioli Woods and US bank Raymond James acquiring Charles Stanley. Other mid-size UK wealth operations like Quilter, Brooks McDonald and St James’s Place will likely feature in additional media buy-out speculation. This might appear like a simple consolidation trend in a fragmented sector plagued by digital, regulatory, capital, pricing and demographic/behavioural challenges. In deal jargon this could be described as ‘defensive M&A’. Or, that description could be just plain wrong. What if there’s a new opportunity in wealth management? I can think of two significant drivers right now:
- We referenced the explosion of private investment assets to $20 trillion by 2028. The good news for investment platforms is that fees on private investments are higher than publicly traded assets given they cannot be traded on a stock exchange in a nano-second.
- AI, and Nvidia in particular, is investing in the processing power required for these large language models (LLMs) used to train AI applications. However, there’s a basic component of AI that every business leader, regulator, customer or user will tell you is critical – robust data.
Thanks to years of onerous KYC(know your client) and AML (anti-money laundering) compliance, it is reasonable to conclude that the wealth management industry must be in possession of some of the most accurate and high-value/personal data on the planet. Whisper it quietly but blockchain and digital currency(crypto) technology are also staging impressive comebacks in 2024. We often write about the compounding effect of the convergence of new technologies and I’m wondering if a faltering wealth management industry might be on the cusp of increased revenue opportunities in private assets and reduced costs through AI, blockchain, digital assets, tokenisation etc. Even those companies considered digital leaders are revving up their curiosity. Only this week in Dublin, Revolut’s chair, Martin Gilbert, and founder of Aberdeen Asset Management admitted that a move into asset management by the fintech platform was a possibility – “It’s something we talk about a lot”.
Expect lots more talk on investment desks in London and Dublin too. On days like today, I miss those desk chats…. and the laughs, lots of them.
Mark “Dicey” Reilly RIP
