We can add another asset manager to the list of those that have thus far been resilient to the market turmoil of the second half of 2007. Westwood Holdings (NYSE: WHG), which primarily services institutional money, finished its fourth quarter with 67% more revenue than the fourth quarter of 2006, and earnings per share were up a smoking 136%.
Part of the great-looking results was a big $3 million performance-based fee that Westwood recognized in the fourth quarter. On the earnings conference call, management noted that this is the first year that Westwood was eligible to collect performance fees, so it sounds like this is a source of income that investors can expect going forward -- assuming Westwood keeps up its performance. Unfortunately, for competitive reasons, management was unwilling to give any more color on the performance fees during the call.
Not to be overshadowed here is the fact that assets under management grew 33% year over year to $7.9 billion from $5.9 billion. Though management didn't disclose specific fund flows, it noted that its funds across the board have been performing well, characterized the flows into small-cap funds as "impressive," and also noted that the flagship large-cap product has done well.
It's hard to find much to quibble with when it comes to Westwood. The company has steadily increased assets under management at a 25% compounded annual growth rate since 2004, and revenue and earnings have followed with similar increases. Founder and Chief Investment Officer Susan Byrne owns almost 15% of the company, and Smart Money Magazine recently featured her as one of "the world's greatest investors." CEO Brian Casey also owns 5% of the company, and Mario Gabelli's GAMCO Asset Management owns an 18% stake.
However, it seemed a bit 2000-era to have a lengthy second paragraph in the earnings release reconciling GAAP EPS to "cash" EPS -- in other words, what earnings would have been without equity compensation (stock or restricted stock). For all of Westwood's positives, the fact that it is still skirting the cost of equity compensation is more than a bit disappointing.
Overall, though, having avoided the pitfalls that competitors like Legg Mason (NYSE: LM) stumbled on, Westwood turned in a fine quarter and joined the likes of T. Rowe Price (Nasdaq: TROW), Janus (NYSE: JNS), and Eaton Vance (NYSE: EV) in entering 2008 on a good note. Now, 2008 and its painful January -- that could be another story.
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