Captrust Adds $1.2B in Double Deal for Long Island Firms<\/a><\/p>\nThe market is continuing to move much more toward cohesive institutions. And at least in terms of where we focused, that\u2019s very much part of our thesis.<\/p>\n
WM: How do you differentiate yourself from other private equity firms out there in the wealth space?<\/p>\n
DK: One is industry experience and knowledge. We\u2019ve been among the most active middle-market investors in wealth management, if you look at both directly through Charlesbank and through our partnership with Rise Growth Partners. We\u2019ve seen different versions of what they\u2019re going through, and we can help them based on our pattern recognition and experience. Done well, an investment partner can obviously provide growth capital to help the business get to the next level and\/or deal with succession, but it\u2019s really around a value-added partnership beyond capital.<\/p>\n
We spend a lot of time helping build out management teams and recruiting leadership, investing in technology and infrastructure, building M&A teams, and supporting them in becoming thoughtful consolidators.<\/p>\n
We do a lot of first-time institutional capital investing.<\/p>\n
We generally like to partner with firms that have the core elements figured out. They have a clear strategy; they have some differentiation. They have a reason that we believe they could emerge as a real winner in the ecosystem, but maybe they haven\u2019t figured out all the enablers so we can help them build out and deepen their management team. We can help them build an M&A function. We can help them scale referral relationships or diversify and grow new referral relationships over time.<\/p>\n
WM: Do you have any recent examples of firms you\u2019ve invested in, and helped grow<\/p>\n
DK: We invested in Rise Growth Partners, and we made a $250 million capital commitment. In turn, Rise has been making individual investments. Those are all minority stakes in the next generation of platforms, if you will. So far, they\u2019ve done four, and all of those are growth-oriented management teams. Our view is, there\u2019s a type of firm that is maybe not looking for private equity capital yet or ever, but are very high-quality firms and could benefit from a little more operational and management involvement from folks who\u2019ve been there and been in the trenches with them. That\u2019s what Joe [Duran] \u2019s vision was, and they\u2019ve executed that very well. The first firm Rise invested in, originally called Bleakley and now called One Point BFG, has been an incredibly impressive growth story both organically and through the recruiting of advisor teams.<\/p>\n
If you take the other side of the ledger and you look at Lido, that was a slight majority deal. The next-generation leaders of that firm, Jason [Ozur] and Ken [Stearn], are running the business today and almost quintupled earnings over our hold period. That was very strong organic growth as well as acquisitions. And that business recapped last year, with HPS Investment Partners. We continue to be involved there, but have a smaller ownership stake. That business had some very strong referral partnerships where we helped them diversify those relationships and scale that business, as well as build out a deeper management venture around Jason and Kent.<\/p>\n
WM: What are you doing in the way of AI?<\/p>\n
DK: Within wealth management in particular, we have a center of excellence around AI use cases, given the number of companies we touch both directly and through Rise. Some of that is around cataloging the big use cases that our firms need and could benefit from. We use a combination of internal resources and third parties to help build those out, and then drive adoption by advisors and the individual portfolio companies. We\u2019ve been very focused on picking the right parts of the workflow that can really be a combination of point solutions that\u2019ll be quick wins as well as parts of the workflow that could be carved out and really redesigned with more of an automation lens.<\/p>\n
Then there are also a bunch of initiatives around middle office efficiency, less about reducing headcount and more around just frankly reducing the rate of that growth.<\/p>\n
WM: How does Charlesbank\u2019s Harvard Endowment history come into play with the wealth space?<\/p>\n
DK: One is, it influences how we invest; we\u2019re very research-based, so we focus on thematic initiatives in spaces we know well and have a lot of conviction in, like the RIA ecosystem. You\u2019ll tend to see us really go deep in the sub-sectors we like and often make multiple investments in sub-sectors we like.<\/p>\n
The second is, we do have relationships in the ecosystem, and even though we are not part of an endowment, we have an interesting vantage point to the continued evolution and convergence of private markets and institutional investors, and just the opportunity to continue to bring institutional-caliber opportunities to private wealth management through to individuals.<\/p>\n
WM: RIA M&A deal activity has slowed down significantly in the third quarter of this year. What are you seeing in terms of activity?<\/p>\n
DK: In the past, it has been such a great space for investment. The near 100% recurring revenue, the highly sticky client relationships, 95% retention, organic growth tailwinds, both from new assets as well as just benefiting from market appreciation and the sheer amount of fragmentation in the industry that allows for M&A. That\u2019s sort of the checklist, the wishlist, if you will, of what every private equity investor wants in a transaction.<\/p>\n
It\u2019s not surprising that it’s attracted a lot of capital, but I think at the beginning, folks were content just to invest in an average RIA. It could rely much more heavily on those industry elements and average growth, plus some consolidation. But today, the bar really is higher. The platforms want to see something that has proven value at the platform level for the advisor and the client, and it\u2019s not just a collection of smaller firms or individual advisors who are doing their own thing. And advisors want to see what they\u2019re getting from the platform in return for the economics and autonomy they\u2019re giving up. And then that\u2019s going to continue to be something investors focus on going forward at the platform level.<\/p>\n
Because the investors at the platform level are looking for firms that are more cohesive and value added, in the past, you could do acquisitions, add-on acquisitions really just for scale. The prices of those have gotten bid up, and the competitive dynamics around those have gotten bid up, even if they\u2019re not actually great firms or great books. It\u2019s not to say that that\u2019s going to dissipate. I think there\u2019s still a lot of value in those types of firms at the right valuation. But we\u2019re starting to see more bifurcation, if you will, of valuations and interest levels depending on whether the firm has a proven growth model, whether they have a strong Gen 2, or it’s really just a retiring group of producers.<\/p>\n
As a result of that, sometimes there can be more of a mismatch in expectations, which will lead to some transactions and add-ons not happening immediately.<\/p>\n
The prior world, where every small RIA kind of traded for a high multiple, almost irrespective of the fundamentals, I do think that is starting to evolve as people get more discerning and thoughtful about what they\u2019re looking for.<\/p>\n","protected":false},"excerpt":{"rendered":"Over the last several years, private equity firms have invested billions of dollars into the wealth management space,…\n","protected":false},"author":2,"featured_media":905415,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[64,63,99,186,184,185],"class_list":["post-905414","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-au","tag-australia","tag-business","tag-finance","tag-personal-finance","tag-personalfinance"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/905414","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=905414"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/905414\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/905415"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=905414"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=905414"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=905414"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}