Dave Waters of Alluvial Capital on $PX

Episode Summary

Executive Summary: Andrew Walker and Dave Waters discuss P10 Holdings (PX), a small-cap alternative asset manager that earns stable management-fee streams from fund-of-funds and newer verticals. Waters argues PX is mispriced due to low float, insider ownership, strong NOLs, sticky LP relationships, and acquisition-led growth, while also explaining risks around disintermediation, liquidity, and acquisitive execution.

Main Topics: What P10 Holdings is and why it matters (Priority: 5/5): PX owns management fee streams from alternative investment vehicles across private equity, private credit, venture, impact/ESG, and venture debt. The key appeal is recurring, highly visible revenue with no carry exposure in the latest assets. Fund-of-funds model and value proposition (Priority: 5/5): The discussion centered on why fund-of-funds can still be valuable: they provide outsourced diligence, access, diversification, and liability reduction for smaller LPs such as university endowments that cannot source many direct commitments themselves. Valuation and market inefficiency (Priority: 5/5): Waters argues PX trades like a microcap because of its tiny free float, limited awareness, and recent IPO/SEC reporting history, creating a disconnect between market cap and investable liquidity. He compares PX favorably to larger alts peers on cash flow. Acquisition strategy and synergy logic (Priority: 4/5): PX grows by buying fee streams and expanding into adjacent verticals. Synergies are not classic cost cuts; instead they come from distribution, cross-selling, and helping smaller managers access new geographies and capital sources. Permanent capital and Crossroads (CRSS) (Priority: 4/5): The PX/Enhanced/Crossroads structure was discussed as a first permanent-capital style platform, where P10-linked managers help capitalize a vehicle that then generates ongoing management and origination fees. Capital allocation, buybacks, and liquidity (Priority: 4/5): Management prioritizes AUM growth over buybacks. Share repurchases are opportunistic and constrained by float/liquidity concerns, while insider ownership, stock issuance in deals, and share-class conversion should gradually improve liquidity. Broader small-cap European opportunity set (Priority: 2/5): The conversation closed with Waters describing very cheap small-cap opportunities in Italy and Poland, where public markets are lighter-touch and valuations are compressed, though liquidity and activism risks are higher.

Key Arguments: PX’s core business is attractive because management fees are highly recurring, visible, and easier to value than performance/carry-heavy peers. Fund-of-funds are not merely fee layers; for smaller institutions they serve as an outsourced investment staff, improving access and reducing career/liability risk. P10’s niche focus on lower middle-market alts makes it less vulnerable to direct competition from KKR/Blackstone than larger platforms are. The stock is underfollowed and effectively trades like a microcap because less than $100 million may be in free float. Acquisitions can create value through strategic fit, not just cost synergies—especially by adding verticals, geography, and LP relationships that smaller managers lack. P10’s huge NOL shield and intangible amortization materially increase free cash flow and delay cash taxes. Management ownership and incentives are unusually strong; insiders own most of the company and have significant upside if the stock rerates. Share buybacks are secondary to scale and liquidity; repurchases only make sense at severe dislocations because taking liquidity out of a low-float stock can worsen the discount. The Crossroads deal is presented as a template for permanent capital: capitalize a vehicle, manage its assets/loans, and earn recurring fees over time. Europe’s small caps may offer similar mispricing opportunities because they are structurally neglected and less exposed to activist intervention.

Data Points: P10 market cap: about $1.5 billion - Used to emphasize that the stock trades like a much smaller company because of limited float. Listed/trading shares: about 20 million shares - Waters noted this is the amount that originally traded after the 2021 IPO transaction. Estimated free float: less than $100 million - Illustrates why PX behaves more like a microcap than a standard small cap. Average fee rate: about 100 basis points - P10’s average management fee rate across its fund-of-funds style businesses. Fee-paying AUM: around $18.5 billion - Current scale of P10’s fee-generating asset base. Revenue from AUM: about $180 million - Derived using roughly 1% fee rate on fee-paying AUM. EBITDA margin guidance: 55% to 60% - Management’s margin profile is described as highly cash generative. Run-rate free cash flow: about $0.90 per share annually - Waters’ estimate after the WTI acquisition. Current valuation: around 13x run-rate free cash flow - Waters’ estimate of current trading multiple. Forward valuation: below 10x free cash flow - Estimated on a couple years out using growth assumptions. Insider ownership: 59% of shares - Shows strong alignment and low public float. Founder/management capital: $4.5 million initial investment - Waters highlighted the founders’ small starting capital in a bankrupt shell that became P10. Western Technology Investors acquisition impact: about 10% AUM increase and 12% FCF accretion - Presented as a meaningful but not transformative acquisition. Crossroads deal size: $180 million with option for another $310 million - The first permanent-capital style transaction discussed. Crossroads/Enhanced structure: management and origination fees in perpetuity - The strategic appeal of the permanent-capital vehicle. Stock price reference: from about $14 down to about $11 intraday in Q2 - Used in the buyback discussion to show management’s repurchase discipline. Insider option repurchase: $1 million - PX opportunistically repurchased insider options at a slight discount. European valuation example: 3x to 5x operating income - Waters cited valuations for some quality European small caps.

Pivotal Quotes: "P10 is an owner of management fee streams from alternative asset investment vehicles." — Dave Waters: Core explanation of PX’s business model and why it appeals as a recurring-fee compounder. "It's really like a growing annuity." — Dave Waters: Describing the predictability and compounding nature of PX’s pure management-fee focus. "We had an order and it just wasn't filled." — Andrew Walker quoting management: Used to illustrate PX management’s disciplined stance on buybacks and valuation thresholds.

Implications: PX may be a classic low-float, underfollowed compounder with real strategic optionality via acquisitions and permanent capital. For listeners, the key lesson is to weigh visibility and growth against liquidity, execution, and integration risks.