The Deal Specialty Investors Shine in Wealth Management

Specialty lenders such as Emigrant Partners, Rosemont Partners and Kudu Investment that made long-term investments in asset and wealth management businesses are starting to see some of their investments come to fruition as the space heats up.

Author: Quratulain Tejani

In 2023, companies in the wealth management industry have a lot of options when it comes to raising money.

Traditional private equity firms have flocked to the industry, drawn to sticky client bases, solid margins and attractive cash flows. Meanwhile, a handful of established strategic buyers have emerged as top consolidators willing to pay up for premium businesses.

The recent dealmaking wave has been a boon for specialty investors that have a history of backing sub-$2 billion wealth managers, some for close to two decades.

For Wayne-Pa.-based Radnor Financial Advisors LLC and Atlanta-based Brightworth LLC, for example, the sales of the two registered investment advisers to CI Financial Corp. were a culmination of years long partnerships with Greenwich, Conn.-based specialty investor Emigrant Partners LLC, a subsidiary of Emigrant Bank.

“We have more opportunistically worked with some of our firms to capitalize on valuations in the current wealth management market,” said Jennifer Souza, the chief executive and President at Emigrant Partners. “We don’t want to stand in the way of a set of partners who have done their job and executed on their vision, attracting premium valuation from private equity or strategics.”

Emigrant Partners, which traces its ownership of Radnor back to 2016, is the private investment division of family-owned, privately-held Emigrant Bank. The firm is one of a few that have identified an opportunity in the sector for long-term and permanent minority investments. Other specialty lenders that have include Conshohocken, Pa.- based Rosemont Investment Partners LLC and New York-based Kudu Investment Management LLC.

In addition to Radnor, Emigrant Partners has partnered with more than 20 firms. Its current holding includes Fairfield, Conn.-based independent wealth management firm Moneco Advisors LLC; Los Angeles-based SteelPeak Wealth; and Palm Beach Garden, Fla.-based investment management, wealth and estate planning, and full-service tax planning business Dakota Wealth Management – its 2023 investments.

Specialty Investor Support Grows

Emigrant Partners is the private investment division of family-owned, privately-held Emigrant Bank run by Howard Milstein, a fourth generation chairman of the New York Private Bank & Trust which acquired Emigrant from the FDIC.

Emigrant, in 2018, took full ownership of Fiduciary Network LLC, a Dallas-based consolidator of registered investment advisers. Emigrant inherited ownership of Radnor Financial Advisors from Fiduciary Network, which helped two partners buyout the company in 2016 from the firm’s founder. Fiduciary Network was founded in 2007.

Much like Emigrant, Rosement was established as a research and consulting partner for asset and wealth managers and had a deep network and knowledge of the investment management industry before dedicating an entire business unit to the RIA and wealth management industries. In 2000, more than a decade after its founding in 1988, the firm launched Rosemont Investment Partners, its private equity arm. Rosemont Investment Partners has since raised three funds and has invested in more than 26 asset and wealth management businesses.

In 2018, the firm partnered with Markel Group Inc. (MKL), a group of companies headquartered in Richmond, Va., to form Rosemont Investment Group. Rosemont Investment Group now targets RIAs and wealth management businesses with permanent capital investments.

Rosemont invests in employee-owned and led wealth management and registered investment advisory firms, said Brad Mook, the managing director at Rosemont. Unlike a typical PE fund, Rosemont invests with a permanent capital strategy, meaning it doesn’t have a time horizon on its investments.

“Rosemont provides guidance and governance to asset and wealth management firms,” Mook said. “Our indefinite investment horizon and expertise in the industry brings registered investment advisers to us.”

Its investments under this vertical include Richmond, Va.-based 1607 Capital Partners LLC (September 2019), San Francisco-based Veris Wealth Partners (February 2022) and New York-based Landmark Management LLC (June 2023).

“What differentiates us from the normal private equity players is that we don’t have a fund that we need to start … exiting our portfolio companies within a three-to-five-year window, but rather can work with our firms creatively to figure out what makes the most sense for them as they continue to execute on their strategy,” said Souza.

New York-based Kudu Investment Management LLC, backed by capital partners Massachusetts Mutual Life Insurance Co. and White Mountains Insurance Group Ltd. (WTM), also provides long-term capital solutions to boutique asset and wealth management firms and supports their growth. It believes that these companies have a natural advantage with their speed, flexibility, employee ownership and ability to innovate.

Some of its portfolio companies include San Francisco-based Martis Capital Management LLC; Greenwich, Conn.-based Gramercy Funds Management LLC; Bala Cynwyd, Pa.-based Radcliffe Capital Management LP; Waltham, Mass.-based Granahan Investment Management Inc.; New York-based Douglass Winthrop Advisors LLC and Akron, Ohio-based Sequoia Financial Group LLC.

Traditional PE Takes the Stage

While specialty lenders can provide longer term capital than traditional private equity, traditional PE has looked to jump start the acquisition strategies of many RIAs they’ve come in contact with.

PE platforms such as Oak Hill Capital Partners LP and Genstar Capital Management LLC-backed Mercer Advisors Inc., TA Associates Inc. and Onex Corp.’s Wealth Enhancement Group LLC, and General Atlantic LLC-backed Creative Planning LLC, among others, have also been scooping up assets at break-neck pace.

San Francisco-based private equity firm Valeas Capital Partners acquired a minority stake in Kudu-backed Sequoia Financial Group LLC in Oct. 2022, after which it acquired Affinia Financial Group LLC (Aug.), Cirrus Wealth Management (June) and Zeke Capital Advisors LLC (February).

Monterey, Calif.-based Modern Wealth Management LLC, which launched in April with a $200 million equity financing from New York-based Crestview Partners LP, acquired Midwest Financial (Sept. 5) in addition to its inaugural deal of acquiring Barber Financial Group, Osiwala Financial Group, and Financial Security.

CI Financial has established itself as a key strategic consolidators in the industry and recently received additional funding.

CI Financial acquired Montreal-based wealth management firm Coriel Capital Inc. on Aug. 10, following deals for Radnor and Brightworth from Emigrant earlier in the year. In May, meanwhile, CI sold a minority stake in its U.S. wealth business to a consortium including the Abu Dhabi Investment Authority, Bain Capital LLC, Flexpoint Ford LLC, Ares Management Corp., the State of Wisconsin, and others for $1 billion.

On Aug. 28, Overland Park, Kan.-based Creative Planning, backed by General Atlantic since February 2020, added the personal finance management unit of Goldman Sachs Group Inc. (GS), formerly United Capital Advisers.

Other serial acquirers include: Plymouth, Minn.-based Wealth Enhancement, backed by TA and Onex; Chicago-based Hightower Advisors LLC, backed by Boston-based Thomas H. Lee Partners LP; and Denver-based Mercer, backed by New York-based Oak Hill and San Francisco-based Genstar since 2015.

Altas Partners LP, a private equity firm that operates in Canada and the U.S., also invested in Mercer, in June.

“Going back to my early days at Gladstone, we were doing outreach to private equity groups talking about opportunities in the RIA space,” said Michael Bilotta, President at Gladstone Associates LLC, a traditional investment bank specializing in RIA space. “Now I’m fielding private equity calls like ‘who do we know and what opportunities are we are working on’.”