Private Equity seeks Investment Advisors for returns and new capital

Private equity firms, among the world’s largest institutional money depositories, have bought out companies that advise individuals on their wealth.

The number of private equity deals for registered investment advisers has reached a record 223 so far in 2021, according to data from investment bank Echelon Partners. The sum is up almost two-thirds from 2020 and more than three times the number of transactions five years ago.

The latest came this month, when Apollo agreed to buy the U.S. wealth distribution and asset management division of Los Angeles-based Griffin Capital, which owns more than $ 5 billion in actively managed closed funds, including a credit and real estate fund and dozens of staff who distribute investment strategies.

Other private equity firms such as KKR, Hellman & Friedman and TA Associates have acquired groups of investment advisers.

Wealth management typically generates a high level of recurring income, with a client “grip” similar to that of a software company, said Daniel Seivert, CEO of Echelon Partners.

And in September, the Securities and Exchange Commission’s asset management committee recommended allowing retail investors to invest in private fund strategies, Seivert said – potentially allowing wealth management clients to invest with companies that support their advisers.

As part of the deal with Griffin, Apollo will not only choose an asset management company to develop, Griffin will also distribute funds to investment advisers and registered brokers, which is a potentially huge new source. private equity assets.

Apollo wants to raise at least $ 50 billion in capital from individual investors over the next five years, the company said during a presentation in October. This segment represented 5% of the capital that Apollo raised on average between 2018 and 2020, and the company hopes to increase it to at least 30%, said Stephanie Drescher, head of product and customer development for Apollo, during the presentation.

“Scaling up global wealth is our key bet,” she said. “It’s a market that’s twice the size of the institutional market, but they’re two to five times under-allocated to alternatives.”

Private equity firms target the wealth management industry in part because technology has made it easier for individual investors to access “alternatives” or more specialized investments than the regular stock and bond markets.

“Private equity sponsors continue to recognize that solutions exist to help capture what has gone from a more fractured and less transparent market to one that can deliver more value to broader investor segments,” said Georges Archibald, head of the Americas for financial services provider Apex. Group.

Other private equity management deals this year have included TA Associates ‘investment in the Caprock advisory group and KKR’s purchase of Beacon Pointe Advisors’ half of the $ 20 billion from Abry Partners on last month.

KKR is keen to support the growth plans of Beacon Pointe, a registered women-led investment advisor, and views its Women’s Advisory Institute as important in serving women, said Chris Harrington, a KKR partner. The investment in Beacon Pointe follows KKR’s exit this year from wealth management firm Focus Financial, which it made public in 2018.

Some US-based private equity firms are looking to less competitive overseas markets. This summer, Lightyear Capital funds bought UK company Wren Sterling Financial Planning, and Flexpoint Ford bought UK company AFH Financial Group.

Aside from direct investments, most of the estate transactions have been executed by privately owned holding companies, such as Mariner Wealth, the serial acquirer backed by Leonard Green and Mercer Advisors, backed by Oak Hill. Mariner Wealth announced its ninth acquisition of the year last month, while Mercer Advisors won 15 RIAs this year.

“Almost all of the most active strategic acquirers in today’s market are backed by leading private equity firms and are often backed by more than one sponsor,” Seivert said.

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