Hi @norah123Following points are both positives and negatives,...

Hi @norah123

Following points are both positives and negatives, including further items to research:
1. Paul Greenwood and the 7 team members moving across are positive for GQG. Paul Greenwood is exceptional at negotiating private equity investment agreements. Putting him back together with Tim Carver and Mike Daily is a great outcome. The others like Trent Eriksson and Curtis Yasutake are great people acquisitions from PAC.
2. The boutiques acquired aren't the best of PAC's boutiques. VPC, ROC and PennyBacker are the best and have the highest earnings possibility upside this year. This is due to earning performance fees. I think Proterra agreement doesn't earn income from performance fees, it is a revenue share agreement based on management fees only. Cordillera earns from management and performance fees.
3. Banner Oaks and Carlisle have the best potential over the next few years if they can turn their businesses around. Similar to ALTI financial, these are more lottery tickets of the boutiques.
4. Allocation of capital is something to watch in future years. Private business investment requires patience and can take 5 to 10 years to yield a return.
5. GQG currently pays out 90% of EPS. This may reduce over time. Investigate if GQG will have to pay more tax (Ares Management is one example where tax is reduced due to 90% dividend payout ratio from earnings).
6. The Boutique Model of FUM earnings is more difficult to forecast year on year. Research more on European versus American Waterfall distribution method - this is a good starting point (https://www.investopedia.com/terms/d/distribution-waterfall.asp). It is difficult to forecast earnings as most of PAC's boutiques earn based on European Waterfall method (earns fees at the end of the fund - typically between 5 to 10 years).
7. The investments can be made without earning performance fees. Look into the detail of each boutique agreement to understand it more. Management fees can be for FUM only, just like GQG.
8. The Private Capital business is unlikely to impact earnings in the short term, however could reduce payout ratio (as per point five). Compare business model to P10 and Blue Owl Capital listed in the US. P10 is forecasting lower FUM raisings this year in Private Capital markets.
9. Where PAC has had success historically is in investing in early stage Equity Market based boutiques. GQG being the obvious one. Aperio sold in 2018 is the other - tax advantaged portfolio management platform. You can also look at Pinnacle valuation to see why Equity Market boutique investments are best.
10. FUM raised is for longer periods of time, therefore the business model is more stable. The flipside to this is a slow growth model.
11. Another downside risk is the high failure rate of boutiques. As most have FUM agreements over 5 to 10 year periods, it is difficult to determine if investments made are of poor quality until the end of this period. This can be overcome at GQG by investing in the business and then also stake initial FUM. PAC never had the cash to stake the boutiques they invested in.
12. Each boutique will raise FUM across multiple Funds - typically Fund I, Fund II, Fund III, etc. PAC boutique Aether as an example, is up to Fund VI. When a boutique gets passed Fund III, they are typically raising $USD500M+. This is when they go from low growth to high growth boutiques. This momentum shifts the valuation significantly, more so if they can raise FUM in a Fund within 3 to 6 months (very fast in Private Capital land). The impact of a slow raise is with Aether again. The last fund of $500M+ raise has taken 18 months so far and this has lowered the valuation as income slows down. It will gain prior valuation back in a year or two as FUM increases to previous levels.

In simple, this investment is very long term in nature. Beyond most investor time horizons and can contribute to short term negative sentiment.
It will take a long time to realise returns and hopefully this new business line can focus on equity boutiques than other asset types.

Best of Luck
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