Private equity deals have increased to a record 223 in 2021, according to research from investment bank Echelon Partners.
Large private equity firms are gobbling up smaller fund advising companies. The number is three times more than deals made five years ago. Private equity investors are showing confidence in the value of independent registered investment advisors (RIAs). The pace of consolidation in the industry has picked up dramatically in the last several years. The interest is fueled due to good growth, high-profit margins, consistent cash flow and low capital needs.
“This space has blossomed,” said Liz Nesvold, head of asset and wealth management investment banking at Raymond James Silver Lane in New York. “Cash flows are up, the markets are good, debt is cheap and the trend to [advisor] independence remains strong.”
In the latest deal, Apollo will be acquiring the US wealth distribution and asset management arm of Los Angeles-based Griffin Capital, with a $5 billion strong portfolio. Other private equity firms such as KKR, Hellman & Friedman and TA Associates have also acquired investment adviser groups.
Along with high recurring revenue, wealth management companies have loyal long-standing customers. Additionally, the Securities and Exchange Commission’s asset management committee recently recommended allowing retail investors to invest in private fund strategies, meaning wealth management clients can now invest with the firms that back their advisors.
For example, in the Griffin Apollo deal, Griffin distributes funds to registered investment advisors and brokers, a potentially new source of private equity assets for Apollo. Apollo revealed that it plans to raise $50 billion in capital from individual investors within the next five years. Stephanie Drescher, Apollo’s chief client and product development officer, said during an October presentation. “Scaling global wealth is our key bet,” she said. “It’s a market that is two times the size of the institutional market, yet they’re under-allocated by two-to-five times to alternatives.”
Private equity firms are enabled by advancement in technology, as it allows individual investors to access “alternatives,” or more specialized investments than ordinary stock and bond markets.
“Private equity sponsors continue to recognize that solutions exist to help capture what has evolved from a more fractured and less transparent marketplace to one that can deliver more value across broader investor segments,” said Georges Archibald, head of the Americas for financial services provider Apex Group.
Other private equity deals this year include TA Associates’ investment in the advisory group Caprock and KKR buying half of $20 billion Beacon Pointe Advisors from Abry Partners last month.
Some US-based private equity firms are looking at overseas markets. Lightyear Capital funds bought UK-based Wren Sterling Financial Planning, and Flexpoint Ford acquired UK-based AFH Financial Group.
Portfolio companies owned by private equity firms are also involved in such acquisitions. Leonard Green-backed serial acquirer Mariner Wealth and Oak Hill-backed Mercer Advisors. Mariner Wealth announced its ninth acquisition of the year last month, and Mercer Advisors bought in 15 RIAs this year.
Most RIA firms need some capital infusion, leadership or have succession planning issues, and private equity firms mostly bring all these solutions. More than half the deals done this year have been for firms managing less than $500 million in assets.
“The more acquirers in the marketplace, the better,” according to David DeVoe, managing director and founder of investment bank DeVoe & CoDeVoe. “From blue-chip mega-firms down to little boutiques, the market has been strong.”
