Deal-hungry buyout groups are hunting for targets across the investment industry with Blackstone, KKR, General Atlantic, Stone Point and Thomas H Lee all acquiring asset management or wealth businesses in the past 12 months.
The value of deals involving asset and wealth managers jumped to $38.9bn last year, almost triple the previous year, according to Piper Sandler, the Minneapolis-based investment bank.
Reverence Capital Partners, a little known player, this year emerged as a forceful new competitor after it clinched the biggest deal so far involving an asset management and private equity. Reverence and GTCR, a Chicago-based private equity manager, in February agreed to buy the $603bn asset management arm of Wells Fargo for $2.1bn.
“The Wells Fargo acquisition brings private equity into new territory in terms of the scale of their ambitions in asset management,” says Aaron Dorr, a principal at Piper Sandler.
New York-based Reverence, which was founded in 2013 by Goldman Sachs alumni Milton Berlinski, Peter Aberg and Alex Chulack is keen to win more deals.
“In spite of the headwinds from fee pressure and the shift from active to passive, asset management is a sector with attractive long-term prospects, particularly if you are a scale player,” says Berlinski.
But the modest $2.1bn sale price, a valuation that represented just 0.3 per cent of WFAM’s assets, has prompted talk among industry observers that Reverence and GTCR bought a lemon unwanted by other suitors.
Berlinski rejects this description. “There are very few moments when a business of this size become available. We think we paid a fair price.
He asserts that WFAM has a “quality management team, a strong culture and very good investment performance”.
Below the radar, Reverence has participated in a range of deals involving Russell Investments, Victory Capital, Vida Capital, Oak Hill Advisors as well as the acquisitions of Advisor Group and Ladenburg Thalmann, two wealth management platforms.
Including WFAM, the stable of managers owned outright or partly controlled by Reverence now oversee close to $2tn of assets.
Private equity managers are also encouraging investment firms which they have acquired to pursue bolt on deals, creating a second layer of M&A activity.
Texas-based Victory Capital has developed into a $147bn multi-boutique with 10 franchises after completing multiple acquisitions with the backing of Reverence, including deals with Munder Capital Management, RS Investments, USAA and THB Asset Management.
Reverence retained a 14.4 per cent stake after Victory floated on the Nasdaq exchange in 2018. Its share price has since more than doubled.
“We encourage portfolio companies to pursue M&A when it is appropriate. Smaller managers find it difficult and costly to access distribution. Bringing the franchises together on a shared platform means that Victory now delivers one of the best profit margins in the asset management industry,” says Berlinski. Victory’s net income more than doubled to $213m last year even though it registered net outflows of $19.4bn in 2020.
M&A activity across the highly fragmented US wealth management has been running at a frenetic pace for the last three years, driven by private equity groups.
“Wealth management has very attractive characteristics for private equity buyers. Client numbers are increasing for wealth managers and client loyalty tends to be very strong with a 90 per cent annual retention rate,” says Dorr.
Reverence bought Advisor Group in 2019, then a platform of four wealth management businesses with combined assets of $272bn. Three months later, Advisor bought Ladenburg Thalmann in a deal worth $1.3bn, including debt.
Founded in 1876 as an investment bank, Ladenburg Thalmann’s activities have expanded to include wealth management, insurance and brokerage services.
Together Advisor and Ladenburg Thalmann employ 11,500 financial advisers and oversee more than $450bn in client assets.
“We have created one of the most robust wealth management platforms in the country to support advisers growth by combining these two firms,” says Berlinski, a veteran of more than 250 deals over a 26-year career at Goldman.
The deal has also created a new competitor to Wall Street’s so-called wirehouses, the brokerage and wealth management platforms run by Morgan Stanley, Bank of America, UBS and Wells Fargo.
Dorr adds that “wealth managers can be combined without interruptions to the core business of serving clients. That is more difficult in asset management deals”.
Since it was launched, Reverence and its co-investors have committed a total of $5.4bn, raising two private equity funds and a structured credit fund. It plans to launch a third private equity fund this year which will again target financial services companies.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
