Business Overview and History
Westwood Holdings Group, Inc. is a boutique asset management firm that has established a strong presence in the investment management industry since its inception in 1983. The company's story is one of resilience, strategic growth, and a relentless pursuit of delivering superior investment performance for its clients.
Westwood Holdings Group, Inc. was incorporated under the laws of the State of Delaware on December 12, 2001. The company manages investment assets and provides services for its clients through its subsidiaries, Westwood Management Corp., Westwood Advisors, L.L.C., Salient Advisors, L.P., Broadmark Asset Management LLC, and Salient Capital, L.P.
Westwood Management, founded in 1983, provides investment advisory services to institutional investors, a family of mutual funds called the Westwood Funds, other mutual funds, individual investors and clients of Westwood Trust. Westwood Trust, founded as a state-chartered trust company in 1974, provides trust, custodial and investment management services through the use of commingled funds and individual securities to institutions and high net worth individuals.
The company operates through two main business segments: Advisory and Trust. The Advisory segment provides investment advisory services to institutional clients, mutual funds, and individual investors, while the Trust segment offers trust and custodial services to high-net-worth individuals and institutions.
In 2022, Westwood completed the acquisition of the asset management business of Salient Partners, L.P., a Houston-based real asset and investment firm. This strategic combination expanded Westwood's investment capabilities in energy infrastructure, tactical absolute return, real estate, and private investments. As part of the Salient acquisition, Westwood also acquired Salient Capital, L.P., an SEC-registered broker-dealer, and Salient Advisors, L.P., an SEC-registered investment adviser.
In January 2023, Westwood acquired an additional 32% interest in Broadmark Asset Management LLC, increasing its ownership to approximately 80%. Broadmark is a San Francisco-based registered investment adviser managing and/or sub-advising mutual funds, retail and institutional separately-managed accounts. This acquisition gave Westwood a controlling interest in Broadmark for financial statement consolidation purposes.
Financial Performance and Ratios
Westwood has a strong financial profile, as evidenced by its consistent profitability and robust liquidity position. For the fiscal year 2024, the company reported total revenues of $94.7 million, a 6% increase from the previous year. Net income for the same period stood at $2.2 million, with a net profit margin of 2.3%. Operating cash flow was $21.1 million, and free cash flow was $20 million.
In the most recent quarter (Q4 2024), Westwood reported revenue of $25.6 million, representing a 7.9% year-over-year increase. Net income for the quarter was $2.1 million.
Financials
The company's balance sheet remains healthy, with cash and liquid investments totaling $44.6 million as of December 31, 2024. Westwood's current ratio, a measure of its ability to meet short-term obligations, stood at 2.9 at the end of fiscal 2024, indicating a strong liquidity position. The quick ratio was 2.8, further underlining the company's ability to meet short-term obligations.
The firm's return on equity (ROE) for the year was 1.8%, reflecting its ability to generate profits from the capital invested by shareholders. Additionally, Westwood's debt-to-equity ratio remained at 0, showcasing its conservative financial management and lack of significant leverage.
Liquidity
Westwood's liquidity position remains strong, with a current ratio of 2.9 at the end of fiscal 2024. This indicates that the company has more than enough current assets to cover its short-term liabilities. The absence of debt on its balance sheet further enhances its financial flexibility and ability to weather potential market downturns. The company has no disclosed available credit lines, relying instead on its substantial cash reserves and ongoing cash flow generation.
Operational Highlights and Strategic Initiatives
Over the past year, Westwood has made significant strides in expanding its product offerings and distribution capabilities. The company's launch of two new exchange-traded funds (ETFs) – the Westwood Salient Enhanced Midstream Income ETF (MDST) and the Westwood Salient Enhanced Energy Income ETF (WEEI) – has been a notable success. These funds, which leverage the expertise of the combined Westwood and Salient teams, have quickly gained traction, with the MDST fund reaching $73 million in assets by the end of 2024, far exceeding its first-year target.
Westwood has also made progress in its Managed Investment Solutions (MIS) initiative, which aims to provide customized investment solutions to a diverse array of institutional clients. The company has completed the initial portfolio management system build-out for this platform and is engaged in promising conversations that could result in the onboarding of its first MIS client in the first half of 2025.
Additionally, Westwood has strengthened its wealth management division by reassigning executive-level responsibility to CEO Brian Casey, who previously managed this business from 1996 to 2013. The company has also made strategic hires to bolster its client-facing capabilities, which have already shown positive results in the form of new client relationships.
Westwood exceeded its ambitious $1 billion annual growth sales goal for their institutional team in 2024, representing a 100% year-over-year increase. The company is focused on strengthening its core infrastructure while pursuing strategic growth initiatives, including completing the rollout of a new client portal and comprehensive client relationship management system, hosting exclusive client events featuring market insights from distinguished experts, exploring additional investment vehicles in the energy secondaries space, and scaling their ETF platform through a new partnership with ETF veteran Ben Fulton.
Competitive Landscape and Risks
Westwood operates in a highly competitive asset management industry, where it faces rivalry from larger, well-established firms as well as nimble, boutique players. The industry is also subject to increasing fee pressure, driven by the growing popularity of passive investment strategies. To differentiate itself, Westwood has focused on developing innovative, outcome-oriented solutions and leveraging its expertise in specialized areas like energy and real estate.
One of the key risks facing Westwood is its reliance on a relatively small number of large clients, which accounted for approximately 20% of its fee revenues in 2024. The loss of one or more of these significant relationships could have a material impact on the company's financial performance.
Additionally, Westwood's business is susceptible to volatility in the financial markets, which can directly affect the value of its assets under management and, consequently, its revenue streams. The firm's ability to navigate market cycles and deliver consistent investment performance is crucial to its long-term success.
Business Segments
Westwood Holdings Group operates two primary business segments: Advisory and Trust.
The Advisory segment provides investment advisory services to a range of institutional clients, including corporate pension and profit sharing plans, public employee retirement funds, Taft-Hartley plans, endowments, foundations, and individuals. Westwood Management Corp., a subsidiary, acts as the investment advisor for these clients. Advisory fees are typically calculated as a percentage of the client's assets under management (AUM) and paid quarterly in advance, quarterly in arrears, or based on a daily or monthly average of AUM. In 2024, the Advisory segment generated $71.2 million in net fee revenues from external sources, representing the majority of the company's total revenues.
Key investment strategies offered through the Advisory segment include U.S. Value Equity, Multi-Asset, Energy and Real Assets, Tactical Absolute Return, and Income Alternatives. These strategies have established strong performance track records, with several strategies exceeding $1 billion in AUM. The Advisory segment also provides sub-advisory services to the Westwood Funds family of mutual funds.
The Trust segment, operated by Westwood Trust, provides trust and custodial services as well as participation in self-sponsored common trust funds to institutions and high net worth individuals. Trust fees are separately negotiated with each client and are generally based on a percentage of the client's AUM. In 2024, the Trust segment generated $21.9 million in net fee revenues from external sources.
Westwood Trust's services include financial planning, wealth transfer planning, customizable trust services, trust administration, and estate settlement. The Trust segment also manages separate portfolios of equity and fixed income securities for certain agency and trust clients.
Outlook and Conclusion
Westwood Holdings Group is well-positioned to capitalize on the evolving asset management landscape. The company's strategic initiatives, such as the expansion of its ETF platform and the development of its Managed Investment Solutions offering, position it to capture growth opportunities in the market.
Westwood maintains a cautiously optimistic outlook, believing their strategies will continue to perform well as the post-COVID bull market ages and investors shift focus towards quality companies. The company is exploring additional investment vehicles to launch in the energy secondaries space, building on the success of their Westwood Energy Secondaries Fund One, and plans to launch two new defined volatility ETFs (DVSP and DVQQ).
Furthermore, Westwood's strong balance sheet and conservative financial management provide a solid foundation for future investments and strategic maneuvers. As of December 31, 2024, the company reported total AUM of $16.6 billion, up 7% from the prior year, reflecting net client inflows and market appreciation. The company's diverse range of investment strategies and trust services, combined with its focus on performance and client service, have enabled Westwood to maintain a strong competitive position in its target markets.
As Westwood continues to enhance its product suite, strengthen its distribution channels, and deliver exceptional client service, it is poised to solidify its position as a respected and innovative player in the asset management industry.