The fund management giants can’t live without this small cap
Small cap stock Alpha Financial Markets Consulting (AFM:AIM) may not be a household name but it provides consultancy services to over three quarters of the world’s top 20 wealth managers measured by assets under management.
For a firm founded just over 15 year ago, it has an enviable client list including fund management giants BlackRock, Fidelity and Vanguard.
Alpha has scope to keep growing this list as well as its earnings as it expands geographically and in terms of products.
According to consultant PWC, global assets under management were $85trn in 2016 and that number is expected to reach almost $150trn by 2025.
As the volume of assets grows, asset managers rely on Alpha to advise them on new trends and technologies.
At the same time, asset managers are under constant pressure from their customers to cut costs. This means more work for Alpha helping to automate processes, re-domicile funds, or in the case of mergers to rationalise products or markets.
As Alpha’s reputation grows so does its work load. It already consults for the London offices of the biggest US asset managers and it is getting an increasing number of referrals for work in the US for these same firms.
On top of selling services to existing clients in new markets, Alpha is adding new services to its roster in response to customer demand.
In 2018 the firm launched new technology solutions and chief executive Euan Fraser is confident that his team can add several more business lines to the dozen or so they currently offer.
At the half year stage to September 2018 revenue was up 35% to £39m while operating profit was up 47% to £8.4m and profit after tax grew by 57% to £6.3m.
In order to achieve this growth Alpha is continually adding to its headcount, particularly in the US where it was under-represented in the past.
Helpfully the behemoths of consulting regularly spotlight their top-performing staff making it easy for rivals like Alpha to cherry-pick the best talent.
If it decides to grow by acquisition instead of poaching consultants, Alpha’s strong cash flow generation and net cash position mean that it has the leeway to do so.