Business Overview and History

Silvercrest Asset Management Group Inc. (SAMG) is a full-service wealth management firm that has demonstrated its ability to deliver exceptional investment performance and high-touch client service over its 22-year history. The company was founded in 2002 on the premise of providing a combination of excellent investment management and personalized attention to ultra-high-net-worth individuals and select institutional investors.

Silvercrest Asset Management Group Inc. was founded in April 2002 as an independent, employee-owned registered investment adviser. The company's primary goal was to provide financial advisory and related family office services to ultra-high net worth individuals and institutional investors. In the early years, the founders carefully recruited and hired the same equity, fixed income, and client service teams with whom their clients had previously worked at DLJ Asset Management Group. This approach ensured continuity and stability for the firm's clients, as many of Silvercrest's principals have worked together for over 28 years.

The company has pursued a growth strategy that combines organic expansion with strategic acquisitions. In 2004, Silvercrest acquired James C. Edwards Asset Management, Inc. and subsequently changed its name to Silvercrest Financial Services, Inc. This was followed by the acquisition of The LongChamp Group, Inc. in the same year. In 2005, the company continued its expansion by acquiring Heritage Financial Management, LLC.

Silvercrest's acquisition strategy continued with the purchases of Marathon Capital Group, LLC in 2008, Milbank Winthrop Co. in 2011, MW Commodity Advisors, LLC in 2012, and Ten-Sixty Asset Management, LLC in 2013. These acquisitions have helped the company expand its investment capabilities, geographic reach, and client base.

A significant milestone in Silvercrest's history was its initial public offering in 2013, which involved completing a corporate reorganization. This transition to a public company allowed Silvercrest to raise capital and further expand its business. However, the firm has also faced challenges over the years, such as navigating the 2008 financial crisis and ensuring compliance with evolving regulatory requirements in the investment management industry.

Throughout its history, Silvercrest has maintained a strong focus on providing excellent investment performance and client service, which has been critical to its continued growth and success. This commitment has helped the company build long-lasting relationships with its clients and achieve impressive growth in assets under management.

Since its inception, Silvercrest has grown its assets under management (AUM) from $7.8 billion in 2006 to $36.5 billion as of December 31, 2024, representing a compound annual growth rate of 26%. This impressive growth has been driven by a combination of strong organic growth and selective strategic acquisitions.

Silvercrest's organic growth has been the result of the firm's ability to attract and retain ultra-high-net-worth clients by delivering exceptional investment performance and personalized service. The company's client retention rate has averaged 98% since 2006, underscoring the strength of its client relationships.

To complement its organic growth, Silvercrest has also strategically acquired several investment advisory firms over the years, including James C. Edwards Asset Management, The LongChamp Group, Heritage Financial Management, Marathon Capital Group, Milbank Winthrop, MW Commodity Advisors, Ten-Sixty Asset Management, Jamison, Eaton & Wood, Cappiccille & Company, and Neosho Capital. These acquisitions have helped Silvercrest expand its geographic footprint, investment capabilities, and client base.

Financial Performance and Ratios

Silvercrest's financial performance has been consistently strong, with the company reporting net income of $15.7 million for the full year 2024. This represents a significant increase from the previously reported $9.5 million.

The company's revenue for the full year 2024 was $123.7 million, up 5.3% from $117.4 million in 2023. This increase was primarily driven by growth in the firm's discretionary AUM, which rose 9.6% to $36.5 billion as of December 31, 2024, from $33.3 billion at the end of 2023.

Silvercrest's financial ratios also demonstrate the firm's solid financial position and operational efficiency. As of December 31, 2024, the company had a current ratio of 2.19, a quick ratio of 2.19, and a cash ratio of 35.13, indicating ample liquidity to meet its short-term obligations. The firm's debt-to-equity ratio was 0.28, suggesting a conservative capital structure.

Additionally, Silvercrest's return on assets (ROA) was 4.90% and its return on equity (ROE) was 11.40% as of the end of 2024, showcasing the firm's ability to generate solid returns for its shareholders.

The company's operating cash flow for the full year 2024 was $21.6 million, with free cash flow of $19.9 million, demonstrating strong cash generation capabilities.

Operational Highlights and Initiatives

During 2024, Silvercrest continued to execute on its growth strategy, which includes organic growth, strategic acquisitions, and expansion into new markets and client segments.

On the organic growth front, the firm reported strong net client inflows of $1.5 billion for the full year 2024, the best year for new organic client inflows since at least 2015. This growth was driven by Silvercrest's ability to attract new ultra-high-net-worth clients and expand its relationships with existing clients.

In terms of strategic initiatives, Silvercrest made several key moves in 2024, including:

1. Launching a new Global Value Equity strategy, which received a $1.3 billion seed investment from Australia's Construction and Building Unions Superannuation Fund (CBUS). This represents a significant growth opportunity for the firm.

2. Expanding its presence in the institutional market by strengthening its consultant relationships and developing new investment strategies tailored to institutional investors.

3. Opening a new office in Atlanta to better serve clients in the Southeastern United States, a rapidly growing wealth center.

4. Obtaining a capital markets services license in Singapore, allowing the firm to more actively pursue opportunities in the Asian market.

5. Investing in talent across the organization, including hiring new portfolio managers, business development professionals, and other key personnel to support the firm's growth initiatives.

Business Segments

Silvercrest operates through two primary business segments: investment management and family office services.

Investment Management Segment: This segment provides investment management services through separately managed accounts and investment funds. As of December 31, 2024, the company had $36.5 billion in assets under management (AUM). The majority of the AUM, $22.8 billion or 62%, was in discretionary separately managed accounts, which generated 97% of the company's management and advisory fee revenue. The company's private funds contributed $0.5 billion in AUM and 3% of management and advisory fee revenue.

Silvercrest's investment strategies span equities, fixed income, and alternatives. The firm's proprietary equity strategies, which make up 54% of total AUM, have outperformed their respective benchmarks since inception, with annualized returns ranging from 5.4% to 20.9% as of December 31, 2024. The company's fixed income strategies focus on high-yield municipal bonds.

The average fee rate across all assets under management was 0.35% in 2024, down from 0.38% in 2023, due to a shift in asset mix towards lower-fee strategies. Management and advisory fees, which are charged as a percentage of AUM, were the primary driver of the company's $119.3 million in revenue in 2024, up 5.8% year-over-year.

Family Office Services Segment: This segment provides comprehensive family office services, including financial planning, tax planning and preparation, partnership accounting, and consolidated wealth reporting. These services accounted for $4.3 million, or 3.5%, of the company's total revenue in 2024. Family office services revenue is earned through fixed, negotiated fees and is not correlated to market movements.

Risks and Challenges

While Silvercrest has demonstrated its ability to navigate various market environments, the firm is not without its risks and challenges. Some of the key risks facing the company include:

1. Reliance on a limited number of investment strategies and clients: A significant portion of Silvercrest's revenue is derived from a small number of investment strategies and client relationships, which could make the firm vulnerable to changes in performance or client behavior.

2. Competition in the wealth management industry: Silvercrest operates in a highly competitive industry, with larger financial institutions, boutique firms, and digital wealth managers vying for the same client base.

3. Regulatory changes: As a registered investment adviser, Silvercrest is subject to various laws and regulations that could change over time, potentially increasing the firm's compliance burden and costs.

4. Talent retention: The firm's success is heavily dependent on its ability to attract and retain top investment professionals and client-facing personnel. The loss of key individuals could adversely impact Silvercrest's performance and client relationships.

5. Geopolitical and economic uncertainty: Factors such as trade tensions, political instability, and global economic cycles could affect Silvercrest's investment performance and clients' willingness to allocate assets.

Liquidity

Silvercrest maintains a strong liquidity position, as evidenced by its financial ratios. The company's current ratio and quick ratio of 2.19 as of December 31, 2024, indicate that the firm has ample liquid assets to meet its short-term obligations. This strong liquidity position provides Silvercrest with financial flexibility to pursue growth opportunities and navigate potential market uncertainties.

As of December 31, 2024, the company had $68.6 million in cash and cash equivalents and a $10 million revolving credit facility, of which $0 was drawn. This additional liquidity further strengthens Silvercrest's financial position and ability to fund future growth initiatives.

Outlook and Conclusion

Despite the challenges facing the industry, Silvercrest remains well-positioned for continued growth and success. The firm's strong track record of investment performance, exceptional client service, and strategic initiatives position it to capitalize on the growing demand for comprehensive wealth management solutions among ultra-high-net-worth individuals and institutions.

Looking ahead, Silvercrest's management team remains optimistic about the firm's prospects, with a robust pipeline of new business opportunities and a commitment to investing in its people, processes, and technology to drive future growth. The company's pipeline of potential new business has increased from $1.2 billion at the end of 2024 to $1.6 billion currently, indicating strong momentum in attracting new clients.

While Silvercrest did not provide explicit forward guidance for 2025, CEO Richard Hough expressed optimism about securing significant new organic flows in 2025, which he expects will increase the company's return on invested capital. Hough also anticipates significant new inflows for the firm's new global value equity strategy in 2025 and 2026, although specific targets were not provided.

The company plans to continue making investments in talent and infrastructure to drive future growth, which may impact near-term profitability but is expected to generate returns over the medium-term. This strategic approach aligns with Silvercrest's long-term focus on delivering value to both clients and shareholders.

As Silvercrest navigates the evolving wealth management landscape, the company's focus on delivering outstanding results for its clients, coupled with its prudent risk management and diversification efforts, should continue to make it an attractive option for investors seeking exposure to the high-net-worth and institutional asset management segments.