P10 Industries Inc. (PX)

[chemist72]

What is the Future of PIOE?

Short answer, I don't know. But that has never stopped me from speculating before and will not stop me now! Will try to not go into too much detail, because this could become very long very easily.

I am most interested in trying to guess at PIOE's growth prospects. Let me break that down into 3 categories:
1) Internal or so-called "organic" growth.
2) Growth due to acquisitions.
3) Growth due to initiation of new business lines or "branching" out from their current base.

1) ORGANIC GROWTH

I can make an estimate of organic growth for 2018. Forgive me for using approximate numbers, but I do not want to make this an exact calculation.

RCP had about $4B AUM at the end of 2017. They now have about $6B AUM at the end of 2018:

https://radientanalytics.com/firmdetails/28995/

First, I do not know if this new figure includes the approx. $500M from RCP2's recent acquisition from Columbia partners. I assume that it does include that. In that case, I am looking at approx. $1.5B in organic growth. Approx. $1B of that growth came from 2 new funds started in 2018 and additions to funds established before 2018 RCP. The other $500M I will assume came from appreciation of their previously established funds. In that case, appreciation of their funds was about 10% in 2018. Not bad considering that both the S&P 500 and the DJI were about flat for 2018.

So can we expect that kind of growth every year? Well, the record over 14 years would say yes. Currently, 27 RCP funds are listed on Edgar (not counting "Feeder" funds) with the first fund registered in 2004. That averages out to almost exactly 2 new funds started per year. I'm expecting to see the new funds for 2019 to be started in the second half of the year.

As far as appreciation goes, I would expect that to be quite variable depending on overall market performance. But if their funds can grow by 10% when the market is flat, I would say that an average appreciation rate of 15% to 25% is not an unreasonable expectation. jmo

2) ACQUISITIONS

In Oct. 2018, RCP acquired the Private Capital Unit from Columbia Partners. This added almost $500M to RCP's AUM.

Will they continue making acquisitions of this type in 2019? I don't know, but I'm sure there are many of these type of "small" private investment companies that may be willing (for one reason or another) to sell their assets (funds) to another, larger outfit like RCP. I rate the chances of another acquisition like this at 50:50 in 2019. I give it a 50% chance because when you have done something like this once, the second time should be somewhat easier to accomplish. Again, we'll see.

Are there other types of acquisitions that are possible? I will cover this in the next section.

3) NEW BUSINESS LINES

This is probably the most speculative part of this post. However, we have some statements both recent and old from PIOE management that lend some credence to this possibility.

In their recent Annual Report, PIOE states the following:

P10 continues to assess potential acquisitions within the alternative asset manager universe that would both complement RCP and augment the P10 earnings profile.

This supports the statement I made in section 2.

Also from the 2018 Report we have the following:

... we would expect additional strategies launched in coming years, including RCP Credit. We are in the early stages of developing relationships in credit and hope it will augment the RCP Credit opportunity.

So it would seem that some new business line involving "credit" would be a strong possibility in 2019 and presumably in future years as well. P10 Alternative Fund already has over $50M that could possibly be used in this new business. PIOE itself has accumulated over $8M in cash at the end of 2018, and could have over $20M in cash by the end of 2019 according to estimates I have made. (I will continue to update my cash estimates for PIOE on a quarterly basis.)

All in all, I completely agree with the statements made by Webb and Alpert at the end their 2018 Annual Report:

In summary, we exit our first full year post-reorganization with palpable momentum. Given that insiders own approximately 75% of P10 Holdings shares outstanding, our interests are aligned with all shareholders. We believe we collectively own an asset that could generate, and then compound, substantial free cash flow over the coming decade. We extend a warm invitation to all P10 shareholders to join us on this journey.