Victory Capital Holdings, Inc. (VCTR) is a diversified global asset management firm that has established itself as a formidable player in the investment management industry. With a strategic focus on specialized investment strategies, the company has demonstrated its ability to adapt and thrive in an ever-evolving market landscape.
Company Background and History
Founded in 1989 and headquartered in San Antonio, Texas, Victory Capital has undergone a remarkable transformation since its management-led buyout in 2013. The company was formed on February 13, 2013, specifically to acquire Victory Capital Management Inc. (VCM) and Victory Capital Services, Inc. (VCS), which was completed on August 1, 2013. This marked the beginning of Victory Capital’s journey as an independent entity, focusing on providing specialized investment strategies to institutions, intermediaries, retirement platforms, and individual investors.
A significant milestone in the company’s history came in February 2018 when Victory Capital completed its initial public offering. The company’s Class A common stock began trading on the NASDAQ under the symbol VCTR, marking its transition from a privately-held to a publicly-traded entity. This move not only increased the company’s visibility in the financial markets but also provided additional capital for future growth initiatives.
Strategic Acquisitions and Growth
Over the past decade, the company has embarked on a strategic acquisition spree, steadily expanding its capabilities and diversifying its investment offerings. This inorganic growth strategy has been a key driver of Victory Capital’s success, allowing the firm to capitalize on emerging trends and solidify its position as a leading asset manager. Notable acquisitions include the transformative USAA AMCO acquisition in 2019, which significantly expanded the company’s scale and diversified its investment platform.
In November 2021, Victory Capital further broadened its horizons by acquiring 100% of the equity interests in New Energy Capital Partners (NEC), an alternative asset management firm focused on debt and equity investments in clean energy infrastructure projects and companies. This strategic move allowed Victory Capital to expand its alternative investment capabilities and tap into the growing demand for sustainable investment options.
Following closely on the heels of the NEC acquisition, Victory Capital completed the acquisition of 100% of the equity interests in WestEnd Advisors, LLC in December 2021. WestEnd Advisors is an ETF strategist advisor that provides financial advisors with model allocation strategies. This acquisition further diversified Victory Capital’s investment strategies and product offerings, strengthening its position in the ETF market.
Investment Platform and Performance
As of September 30, 2024, Victory Capital reported total client assets of $181.1 billion, a testament to the firm’s ability to attract and retain a diverse client base. The company’s investment platform is comprised of 11 autonomous Investment Franchises and a Solutions Platform, catering to the diverse needs of institutional, intermediary, and individual investors.
One of the hallmarks of Victory Capital’s approach is its emphasis on investment excellence. The firm’s commitment to rigorous research and disciplined portfolio management has resulted in a strong investment performance track record. As of September 30, 2024, 43% of the company’s mutual funds and ETFs had overall Morningstar ratings of four or five stars, and 67% of its fund and ETF assets under management were rated four or five stars overall by Morningstar.
Victory Capital’s product offerings span a wide array of investment vehicles, including actively and passively managed mutual funds, rules-based and active exchange traded funds (ETFs), institutional separate accounts, variable insurance products (VIPs), alternative investments, private closed end funds, and a 529 Education Savings Plan. The company’s strategies are also offered through third-party investment products, such as mutual funds, third-party ETF model strategies, retail separately managed accounts (SMAs) and unified managed accounts (UMAs) through wrap account programs, Collective Investment Trusts (CITs), and undertakings for the collective investment in transferable securities (UCITS).
Recent Developments and Strategic Partnerships
Victory Capital’s growth trajectory has been further bolstered by strategic acquisitions, such as the transformative USAA AMCO acquisition in 2019 and the more recent NEC and WestEnd acquisitions in 2021. These transactions have significantly expanded the firm’s scale, diversified its product offerings, and strengthened its distribution capabilities.
Financials and Liquidity
The company’s financial performance has been equally impressive, with a track record of consistent revenue growth and margin expansion. For the nine months ended September 30, 2024, Victory Capital reported total revenue of $661.1 million, a 7.5% increase compared to the same period in 2023. Adjusted EBITDA, a key metric for the firm, reached $350.1 million, representing a margin of 53.0% during this period.
In the most recent fiscal year, Victory Capital reported revenue of $821.03 million and net income of $213.16 million. The company generated operating cash flow of $330.29 million and free cash flow of $325.12 million. For the most recent quarter, revenue stood at $225.63 million, representing a year-over-year growth of 7.6%. Net income for the quarter was $81.98 million, a substantial 57.5% increase from the previous year. Operating cash flow and free cash flow for the quarter were $99.80 million and $100.20 million, respectively.
Victory Capital’s financial position remains strong, with a debt-to-equity ratio of 0.84 and $188.25 million in cash on hand as of the latest reporting period. The company also has access to a $100 million revolving credit facility, providing additional liquidity if needed. The current ratio and quick ratio both stand at 1.46, indicating a healthy short-term liquidity position.
From a distribution channel perspective, the company’s AUM was diversified, with 35% allocated to the Investor channel, 25% to Institutional, and 40% to Retail as of September 30, 2024. This diversification helps to mitigate risks associated with any single distribution channel.
Amundi Partnership and Future Outlook
One of the most significant developments in Victory Capital’s recent history was the announcement of its strategic partnership with Amundi, a leading global asset manager. In July 2024, the company entered into a definitive agreement to acquire Amundi’s U.S. business, further strengthening its position in the domestic market and expanding its global reach.
The Amundi transaction, expected to close in the first quarter of 2025, will add approximately $120 billion in assets under management to Victory Capital’s platform, bringing the combined entity’s total assets to nearly $300 billion. Moreover, the exclusive 15-year distribution agreement with Amundi will provide the firm with access to Amundi’s extensive global distribution network, opening up new avenues for growth and diversification.
Looking ahead, Victory Capital remains well-positioned to navigate the evolving asset management landscape. The company’s strong financial position, diversified product offering, and strategic acquisitions have positioned it as a formidable competitor in the industry. As the firm continues to execute on its growth strategy, investors can expect to see ongoing innovation, strategic partnerships, and a relentless pursuit of investment excellence.
Victory Capital expects to realize $100 million in expense synergies from the Amundi transaction, to be fully realized within two years of closing, with the majority in the first year. The company plans to provide future guidance on revenue synergies from the Amundi distribution agreement as they move closer to the transaction closing. Despite exceeding their long-term adjusted EBITDA margin guidance of 49% in the third quarter, Victory Capital has reiterated this target, demonstrating a commitment to sustainable profitability.
The investment management industry has been experiencing consolidation as firms seek to gain scale and diversification. With an estimated 5-year CAGR of 8-10% for the industry, Victory Capital is well-positioned to capitalize on this trend. The company’s adjusted earnings per share has more than tripled over the past six years, representing a compound annual growth rate of over 20%, showcasing its ability to deliver strong financial performance consistently.
In conclusion, Victory Capital Holdings (VCTR) has emerged as a dynamic and adaptable asset management firm, capable of capitalizing on industry trends and delivering consistent financial performance. With a robust investment platform, strategic acquisitions, and a focus on investment excellence, the company is poised to continue its trajectory of growth and solidify its position as a leading player in the asset management industry. As the company evaluates resuming share repurchases and continues to integrate its recent acquisitions, investors can expect Victory Capital to maintain its focus on delivering value and navigating the evolving financial landscape with precision and foresight.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.