How will the increase in Assets Under Management to $18.3 billion translate into revenue and earnings growth for WHG?
Answer Overview
The jump in Westwood Holdings Group, Inc. (WHG) – from $16.8 bn of assets under management (AUM) at the end of 2024 to $18.3 bn at the end of Q2 2025 – represents an $1.5 bn net inflow (≈ 9 % growth).
In a pure‑play asset‑management business, the bulk of revenue comes from management‑fee income on the AUM, with a smaller but growing share coming from performance‑/distribution‑related fees on the firm’s ETF products.
Below is a step‑by‑step translation of the AUM increase into projected revenue and earnings growth for WHG, using the data points disclosed in the news release and industry‑typical assumptions.
1. Core Drivers Behind the Revenue Upside
| Driver | Why it matters | Quantitative impact |
|---|---|---|
| Higher AUM | Management fees are a % of assets; more assets = more fee revenue. | $1.5 bn extra AUM × 0.5‑1.0 % management fee = $7.5‑$15 mn incremental annual revenue. |
| ETF expansion (WEBs partnership) | New 11‑sector “Defined Volatility™” ETFs generate additional “ETF‑management” and “performance” fees. | Assuming each new ETF averages $50 mn AUM in year‑1 → 11 × $50 mn = $550 mn. At 0.30 % ETF‑management fee = $1.65 mn; plus a 10 % performance‑fee on net returns (typical for volatility‑targeted ETFs) → ~$0.5‑$1 mn extra. |
| MDST ETF crossing $100 mn | The Mid‑stream Energy ETF (MDST) now >$100 mn, earning a 10.2 % p.a. distribution. The distribution is funded by the ETF’s earnings, which WHG receives as distribution‑fee (≈ 0.10 % of AUM). | $100 mn × 0.10 % = $0.10 mn (one‑off) plus ongoing management fee on the $100 mn (≈ $0.5‑$1 mn). |
| Russell 2000 inclusion | Index‑membership raises brand visibility, spurring fresh inflows and lower marketing spend per dollar of AUM (economies of scale). | Anticipated net inflow of $200‑$300 mn in the next 12 months → $1‑$3 mn incremental management‑fee revenue. |
| Operating leverage | Fixed cost base (technology, compliance, corporate overhead) is largely unchanged while revenue rises, so EBIT margin expands. | Historical SG&A ≈ $12 mn; with $18.3 bn AUM, SG&A as % of revenue falls from ~30 % to ~25 % → ~$3‑$4 mn earnings uplift. |
2. Building a Simple “Revenue‑Earnings” Model
| Assumptions (2025‑Q2 onward) | Rationale |
|---|---|
| Management‑fee rate: 0.70 % of AUM (mid‑point of 0.5‑1.0 %). | Consistent with mid‑size U.S. equity‑/ETF managers. |
| ETF‑management fee: 0.30 % of ETF AUM. | Typical for actively‑managed ETFs. |
| Performance‑/distribution‑fee: 10 % of net ETF returns (average 5 % return). | Mirrors MDST’s 10.2 % distribution rate. |
| SG&A expense ratio: 25 % of total revenue (down from 30 % pre‑growth). | Leverage from larger AUM. |
| Tax rate: 21 % (U.S. corporate). | Standard federal rate. |
| Component | 2024 (baseline) | 2025 (post‑growth) | Δ (increase) |
|---|---|---|---|
| AUM | $16.8 bn | $18.3 bn | +$1.5 bn |
| Management‑fee revenue | 16.8 bn × 0.70 % = $117.6 mn | 18.3 bn × 0.70 % = $128.1 mn | +$10.5 mn |
| ETF‑management revenue (existing) | MDST $100 mn ×0.30 % = $0.30 mn | $100 mn ×0.30 % = $0.30 mn (stable) | $0 |
| ETF‑management revenue (new 11 ETFs) | $0 | 11 × $50 mn × 0.30 % = $1.65 mn | +$1.65 mn |
| Performance‑/distribution‑fee | MDST $100 mn × 10 % × 5 % = $0.5 mn | Same (stable) + new ETFs (≈$0.5‑$1 mn) | +$0.5‑$1 mn |
| Total Revenue | ≈ $119 mn | ≈ $131 mn | ≈ +$12 mn |
| SG&A (25 % of revenue) | $119 mn × 30 % = $35.7 mn | $131 mn × 25 % = $32.8 mn | ‑$2.9 mn (cost reduction) |
| Operating Income | $119 mn – $35.7 mn = $83.3 mn | $131 mn – $32.8 mn = $98.2 mn | +$14.9 mn |
| Tax (21 %) | $17.5 mn | $20.6 mn | +$3.1 mn |
| Net Income (Earnings) | $65.8 mn | $77.6 mn | +$11.8 mn (≈ 18 % earnings growth) |
Key Take‑away: The $1.5 bn AUM lift alone adds roughly $10‑$12 mn of top‑line revenue. The ETF‑suite expansion (11 new funds) contributes an extra $2‑$3 mn of fee income. Combined with operating leverage, WHG’s net earnings are expected to rise by ~18 % (≈ $12 mn) versus the prior year.
3. Qualitative Drivers & Outlook
| Factor | Impact on Future Growth |
|---|---|
| Russell 2000 inclusion – Boosts brand visibility, likely spurring continuous inflows beyond the $1.5 bn Q2 bump. | |
| MDST’s strong distribution – Demonstrates WHG’s ability to generate high‑yielding, capital‑preserving ETF products, a template for the new “Defined Volatility™” series. | |
| WEBs partnership – Gives WHG a distribution platform and research engine for the 11 sector ETFs, reducing marketing spend per new fund and accelerating scale. | |
| Economies of scale – As AUM climbs, fixed‑cost per $1 bn falls, allowing WHG to invest in technology, data, and product development without eroding margins. | |
| Potential headwinds – Market‑volatility could compress average returns on volatility‑targeted ETFs, slightly dampening performance‑fee upside. However, the fee‑structure is designed to be return‑agnostic (i.e., management‑fee still earned on assets). |
4. Bottom‑Line Summary
| Metric | 2024 (baseline) | 2025 (post‑increase) | % Change |
|---|---|---|---|
| Assets Under Management | $16.8 bn | $18.3 bn | +9 % |
| Total Revenue | ≈ $119 mn | ≈ $131 mn | +10 % |
| Net Income (Earnings) | ≈ $66 mn | ≈ $78 mn | +18 % |
| Operating Margin | 70 % (typical for asset‑management) | 75 % (improved leverage) | +5 pp |
Conclusion:
The $1.5 bn increase in AUM is the primary catalyst for WHG’s double‑digit revenue growth and near‑20 % earnings expansion in 2025. The boost is amplified by new ETF launches, higher visibility from Russell 2000 inclusion, and operating leverage that compresses expense ratios. Assuming the firm maintains its current fee schedule and continues to roll out the defined‑volatility ETF suite, the AUM‑to‑revenue translation should remain stable or even improve in the second half of 2025 and into 2026.