👋 Hi, I’m Michael and welcome to my weekly newsletter, the AGM Alts Weekly. Every Sunday, I cover news, trends, and insights on the continuing evolution and innovation in private markets. I share relevant news articles, commentary, an Index of publicly traded alternative asset managers, job openings at private markets firms, and recent podcasts and thought pieces from Alt Goes Mainstream.
Join us to understand what’s going on in alts so you and your firm can stay up to date on the latest trends and navigate this rapidly changing landscape.
Good morning from LA, where I’m heading to the LAFC and Angel City FC matches before a bunch of travel coming up. This follows the theme of more sports news this week, with Dynasty Sports Partners investing into Liverpool and Olympique Lyonnais looking to raise additional capital.
But the topic I want to cover in today’s newsletter is some questions about what the future holds for the world of wealth management. Wealth management M&A has been a big topic of discussion at Alt Goes Mainstream. That shouldn’t come as a surprise to those following along. Wealth management M&A volume by firm asset size has increased almost sixfold from 2012 to 2022, going from $60B total volume in 2012 to $340B total volume in 2022 (source: Broadhaven Capital Partners), with a large — and increasing — portion of the M&A coming from private equity-backed wealth management platforms like Creative Planning (backed by General Atlantic), Edelman Financial Services (backed by Warburg Pincus and Hellman & Friedman), Beacon Pointe (backed by KKR), Cerity Partners (backed by Genstar and Lightyear), Captrust (backed by Carlyle and GTCR), Mercer Advisors (backed by Genstar and Oak Hill), and Mariner Wealth Advisors (Leonard Green & Co.).
Platforms have grown and expanded. Companies enabling the “breakaway broker” to go independent have been acquired or gone public. Technology, built by both industry veterans and new entrants has sought to drive efficiencies for advisors and increase margins.
This focus on the wealth space has led to increased interest from investors, with a particular focus on the RIA space. As the space has entered the crosshairs of private equity, interest in these assets, which have an attractive recurring fee structure, stickiness of revenue, and ability to take advantage of operating efficiencies and synergies through acquisition, has led to a more competitive and healthy valuation environment.
Transaction multiples in the RIA space have remained high over 3-5 years. Buyers have maintained high multiples, but they are becoming more sophisticated with structuring. Prices on certain pure-play RIAs cashing in at 18-23x (and at times even up to 25x) EBITDA multiples for some of the larger platforms ($10B+ AUM firms and platforms). Smaller firms, under $1B AUM, are generally seeing 7-10x EBITDA multiples, and $1-5B AUM firms seeing numbers slightly higher (source: Broadhaven Capital Partners).
Median deal size has also increased, according to Fidelity’s M&A Valuation Study from June 2023. Median deal size by firm AUM increased from $250M AUM (during 2017-2019) to $400M AUM (2020-2023), signaling that larger wealth firms are being acquired and larger platforms are doing more of the acquiring.
Valuation growth leads to some interesting questions about what the future holds for the wealth space.
1/ How long can valuations continue to persist? And at what point are investors (or strategic buyers) paying a price that won’t be sustainable relative to growth or one they will be able to fetch at sale?
EBITDA multiples in the 20s may be feasible to consummate and digest for the largest of platforms who look to buy other firms with their private equity money or with capital on their balance sheet as they can continue to acquire their way into growth and leverage synergies with their existing platform to improve margins post-acquisition, at least for the foreseeable future. But these transaction multiples won’t be easy to come by.
Perhaps Focus Financial Partners, which was recently taken private after a five years stint as a public company, can serve as a guide as we think about wealth management’s future. They rarely traded above 15x EBITDA, significantly lower than the 20-25x EBITDA valuations that some of the large, integrated RIAs garnered from private equity over the past few years.
The longer tail of RIA M&A may also struggle to keep up with high valuations, which may make it difficult for smaller firms to continue to be acquired at healthy multiples because they won’t be able to sustain those multiples in the future.
As we think about transaction multiples, the next question becomes who is the next buyer and what price are they comfortable paying? …
2/ Broadhaven Capital Partners’ Partner and Wealth Management Investment Banker Joe Zabik asks, “who is the next buyer of the minority stakes that the most recent financial buyers are holding? Who is the next natural buyer after private equity?”
Perhaps the recent acquisition of 7IM in the UK by Ontario Teachers’ Pension Plan is foreshadowing that the next set of buyers or asset owners in the wealth space will be pensions and sovereigns.
Pensions and sovereigns (and insurance companies) seem like natural investors in or buyers of wealth management platforms. They have long-dated investment horizons and they generally are looking for 7-10% annualized returns, which could match well with growth of wealth managers.
This is a question that still very much needs an answer. With the continued healthy activity of M&A in the space, it may be a question that doesn’t require an answer for another few years, but the question certainly looms over the space.
If you’re interested in hearing different perspectives on the wealth space, you can listen to some of the top minds in wealth management share their views on the industry’s evolution and what it means for alts:
🎙 Hear wealth management industry titan Haig Ariyan, CEO of Arax Investment Partners, share his thoughts on the private equity opportunity in wealth management and why the intersection of wealth and alts is one of the biggest trends in private markets. Listen here.
🎥 Watch Lawrence Calcano, Chairman & CEO at iCapital, and I take the pulse of private markets on the fourth episode of our monthly show, the Monthly Alts Pulse, where we discuss the rise of the “super RIA” and what it means for private markets. Watch here.
🎙 Hear $40B AUM Cresset Co-Founder & Co-Chairman Avy Stein and Director of Private Capital Jordan Stein live from the Allocate Beyond Summit discuss how private markets are changing wealth management. Listen here.
🎙 Hear Robert Picard, Head of Alternatives at $117B AUM Hightower, approaches alternative investments. Listen here.
🎙 Hear $18B AUM Savant Wealth’s award-winning CIO Phil Huber talk about how LPs can build a strategy for investing in private markets. Listen here.
AGM Index
AGM has created an Index to track the leading publicly traded alternative asset managers.
Some of the industry’s largest alternative asset managers are publicly traded — and their net inflows can serve as a window into how private markets are being perceived by investors and allocators who are allocating capital into alternative investments.
AGM News of the Week
Articles we are reading
📝 Inside Centerbridge’s Private Credit Partnership With Wells Fargo | Alicia McElhaney, Institutional Investor
💡The partnership between Centerbridge Partners and Wells Fargo, which was created to lend directly to middle-market companies via a BDC called Overland Advisors, may spark similar ventures in the asset management business going forward. The new entity already has commitments from huge institutional investors - Abu Dhabi Investment Authority and British Columbia Investment Management Corporation. David Dobell, Senior Managing Director, partnership portfolio at British Columbia Investment Management said, “Even though Wells and Centerbridge are the first, they won’t be the last. This will get tapped because it’s just so unique…this is an overdue idea. Credit to Centerbridge and Wells to be the first to figure it out.” Overland will invest in non-private equity backed deals, sourcing opportunities through Wells Fargo’s extensive relationships with smaller companies. While Overland isn’t the only firm providing loans to non-sponsor-backed companies, these relationships will give the BDC access to far more companies - and with better transparency - than competitors. This strategy differs from most middle-market debt financing, a competitive space in which loans are made to companies with existing sponsors. “Direct lending is a transactional business focused on Wall Street,” Jeff Aronson, co-founder of Centerbridge, told Institutional Investor. “We want to turn it into a relationship business focused on Main Street. This pairing of Wells Fargo’s sourcing, which really is unrivaled, with our credit underwriting, I think it’s a game-changer.” For Wells Fargo, the benefit is being able to offer financing that hadn’t been available previously. David Marks, executive vice president for Wells Fargo’s commercial banking business, said via email, “We have strong relationships with our clients - many that span decades - and when clients come to their bankers for advice, Overland allows them to bring a direct lending product into the conversation.” Dobell added that it will be challenging for another investment manager and bank to replicate the partnership - the deal grew out of Dobell’s relationship with Aronson when he worked at Angelo Gordon before 2005, while the relationship between the two companies dates back to the 1990s. Most banks don’t have the same middle market reach as Wells Fargo, and if they do, they also have a large investment management business — which Wells does not. “Out of the four or five banks that were possibilities, Wells is the largest middle market lender, but it’s also the least likely to have done it internally,” Dobell said. “I would imagine that direct lenders have 30 to 40 originators,” said Centerbridge Co-Founder Jeff Aronson. “To really cover the U.S. market away from the sponsor world, you would need hundreds or even thousands of relationship officers in virtually every state in the country. That’s impossible even for the biggest direct lenders to crack.” Overland Advisors plans to raise a minimum of $5B in investable capital, including $2.5B in equity commitments. ADIA and BCI are anchor investors and have provided nearly $2B in initial equity commitments. Both anticipate having access to co-investment opportunities as Overland begins to deploy capital likely in the end of the fourth quarter or early in 2024. “This is an area that is largely untapped with enormous barriers to entry,” Dobell said. “On a risk-adjusted basis, it’s even more attractive than traditional private credit.”
AGM’s 2/20: The Centerbridge / Wells Fargo partnership signals quite an interesting development for the private credit space and for private markets more broadly. In private credit, this could be the first of more partnerships between private equity firms and banks. There are clear synergies between Centerbridge, a $36B AUM alternative asset manager with funds across private equity, private credit, and real estate, and Wells Fargo, the largest middle market lender. Wells should be able to source deals in the middle market, which compliments Centerbridge’s underwriting capabilities as a private credit fund. As more private equity firms, particularly the larger platforms, get into direct lending, banks have been forced to evaluate their place in the market. Will Wells set the example for a spate of partnerships yet to come as the marriage between private equity and middle market lenders could be mutually beneficial? On the surface it would seem to be so, given the complementary nature of their respective businesses. But many banks lack the middle market reach of Wells and many banks also do investment management internally. Whether or not this partnership is a trend setter for the industry, it does highlight the fact that the various players in private markets are trying to carve out their niche and figure out where they can be differentiated as the big platforms get bigger and banks try to figure out their place in private markets.
📝 Europe’s VC Direct Secondaries Market Heats Up With Downturn | Leah Hodgson, PitchBook
💡European venture capital has seen significant growth in secondaries deals in startups as a result of fewer liquidity options for both investors and employees of portfolio companies. European VCs were previously slow to embrace direct secondaries, unlike their US counterparts — but shareholders have opened up to the idea in the last year. "There's a lot of activity going on," said Julian Rowe, General Partner at Phoenix Court Group's growth arm, Latitude. "We've come a long way in the last year or so and people are becoming more creative in the way they access companies." This is due in part to the difficult exit environment. There were an estimated 443 exits in the first half of 2023 in Europe, compared to 612 in the corresponding period the prior year, per PitchBook data. European VC-backed exits have fallen steadily, both in number and total value, since the Q3 2021 peak. This has been predictably accompanied by VCs facing growing pressure to distribute capital to LPs, particularly for early-stage investors whose capital has been tied up for several years. Rowe added that founders and employees are becoming more active sellers as they often have a significant portion of their wealth in the equity of their startup. Secondaries can aid in employee motivation and retention as they see a tangible benefit from their work and reduced financial stress. The lack of primary VC rounds in Europe has also pushed more investors to look at secondaries deals as a way to access tech companies. Octopus Ventures Principal Dany Bidar said that the lack of primary deals has seen new entrants including private equity firms into the VC direct secondaries market. While secondaries deals are garnering more attention, Rain Tamm, General Partner at Siena Secondary Fund, says that questions over pricing are presenting challenges. Direct secondaries rounds are typically done at a discount to the last valuation to compensate buyers for providing early liquidity. Companies, however, are still clinging to prior valuations, even as median valuations in Europe have fallen across most stages. “For the last year, everyone has been a bit confused when it comes to pricing,” Tamm said. "Buyers want a deeper discount, but sellers are still anchored even though valuations for 2021 don't really make sense anymore. It's rather difficult to know what the company's worth if there have been less primary rounds so we've found that valuations have been difficult to agree on." Bidar believes there is a bifurcation in activity levels between the best-performing companies, some of which are still trading at a premium, and less attractive assets. He added that many companies that raised capital in the height of the VC bubble are likely to experience an increase in down rounds, leading to more activity over the next year. Generally, Rowe thinks that more prevalent secondaries investing is beneficial to the entire asset class. "It's a really healthy thing to have a strong, well-functioning secondaries market," Rowe said. "We operate in possibly the most illiquid of all asset classes where the path from seed to IPO can be 10-plus years comfortably. It's in everyone's best interest to have options and I think more people are coming around to that now."
AGM’s 2/20: Liquidity is top of mind, particularly as LPs look to generate returns from prior funds so they can deploy into new vintages. The slow drip of liquidity has major knock-on effects for funds looking to raise in the current environment. LPs are now slower to deploy to new funds, which means that many GPs are facing much longer sales cycle. This has looked to be a tough blow to a market like Europe, which has been starting to see promising signals of growth as a venture ecosystem. There are a number of quality venture funds cropping up in Europe who deserve the attention of LPs, so perhaps more secondaries options will start to grease the wheels for fundraising activity picking up for funds currently in market.
📝 Dynasty Equity: Year-Old Sport Investment Firm Buys Into Liverpool FC | Frank Dalleres, City A.M.
💡Dynasty Equity, which was founded last year by private equity veteran Jonathan Nelson and investment banker K. Don Cornwell, has bought a minority stake in Liverpool FC, thought to be worth between $100-200M according to a Forbes article. Liverpool said that the capital injection will be used to pay down debt incurred during the pandemic, the redevelopment of their stadium, construction of a new training ground as well as on summer transfer spending. Beyond that, FSG and Dynasty plan to explore other growth opportunities. “We have always said that if there is an investment partner that is right for Liverpool then we would pursue the opportunity to help ensure the club’s long-term financial resiliency and future growth,” said Gordon. “We look forward to building upon the long-standing relationship with Dynasty to further strengthen the club’s financial position and sustain our ambitions for continued success on and off the pitch.”
AGM’s 2/20: The arms race in sports, particularly the English Premier League, continues to heat up. As an increasing number of institutional investors make their way into sports team ownership, teams are spending more to keep up with the Joneses (in this case Chelsea and Man City) on and off the pitch. Liverpool, like its counterparts, splashed the cash on a number of key player signings in the summer transfer window, spending almost $200M to rebuild its midfield. They’ve also earmarked a meaningful portion of their funds to complete stadium renovations, practice facility renovations, and pay down bank debt from Covid-19. The continuous capital needs of some of the bigger sports teams does lend itself to one of the positives of private equity involvement in sports team ownership: the ability to work with deep-pocketed investors in order to finance growth. The other related aspect of this is that many PE firms are looking at sports investment as a multi-club ownership opportunity. This means they are actively looking for ways to grow their investments both through capital injections and organic growth as well as partnerships or tie-ups between clubs. While the endgame of PE ownership in sports remains to be seen, the fact that private equity investors are actively looking for growth opportunities for their investments means that we will likely see a focus on growth — on and off the pitch — for many of the world’s biggest sports properties as these entertainment assets continue to find ways to grow the reach of their team and brand.
📝 Down Rounds are Rising. History Shows Things Could Get Much Worse | Rosie Bradbury, PitchBook
💡Down rounds are on the up. Nearly 11% of VC deals this year have been down rounds. This represents a sharp reversal from the twenty-plus-year decade low of 6.6% in 2022 and the highest rate since 2020, according to recent PitchBook data. Whether or not better days are around the corner remains to be seen. The rate of down rounds during the dot-com bust topped 58%; the aftermath of the 2008 housing crash saw nearly 36%. Some of the startup world’s well-known names have not been exempt. Ramp, a finance automation software, saw a 30% valuation cut with a $300M funding round led by Thrive Capital and Sands Capital. VC funds are deploying dry powder less frequently as LPs have pulled back from venture, as public tech stocks have fluctuated, and as interest rates have risen. The overall environment has shifted from founder-friendly to investor-friendly, leading to valuation multiples well below their 2021 heights. Some investors believe down rounds may get worse next year. “The down rounds are happening here and there, but not to the extent that people might think,” said Managing Partner at Sapphire Ventures Rajeev Dham. Companies that raised during 2020 and 2021 were able to secure fresh capital with extremely high revenue multiples, particularly in the fintech, cloud, and enterprise SaaS verticals. If startups were unable to reduce cash burn before mid-2022, they’re likely now having to come to terms with fundraising at a major discount. The only exception appears to be AI startups, where VCs, driven by either conviction or fear or missing out, continue to entertain deals at highly sought after companies. It’s also worth noting that the nearly 11% down round figure doesn’t paint a complete picture: reporting of down rounds is often delayed, and private venture-backed companies are not obligated to disclose a round’s valuation.
AGM’s 2/20: We know that private markets have changed markedly over the past two years. What is less clear is whether or not we’ve reached a turning point in valuations for early-stage companies. It’s unlikely that we’ve seen the full impact of what a market turn could bring, which could mean more down rounds in the future. Companies who raised in 2020 and 2021 may just be starting to see what the future might look like. They may have to go out to raise additional capital at the end of 2023 or in 2024, which could mean a reality check on valuation. There are still a number of uncertainties in the VC market — 2024, for better or worse, may provide more clarity.
Who is hiring?
In order for alts to continue to go mainstream, we need the best talent to go into the space. Here are some openings at private markets firms. If you’d like to connect with any of these teams, let me know and I’m happy to facilitate an introduction if appropriate. If you’re a company or fund in private markets, feel free to reach out to share a job description you’d like to be listed here to highlight for the Alt Goes Mainstream community.
🔍 bunch (Private markets infrastructure investment platform & SPV infrastructure) - Head of Commercial. Click here to learn more.
🔍 iCapital (Private markets infrastructure investment platform) - Midwest, Regional Director, Senior Vice President. Click here to learn more.
🔍 Republic (Multi-strategy alternative investment platform) - Chief Technology Officer. Click here to learn more.
🔍 Isomer Capital (European VC fund of funds) - Investor, Secondaries. Click here to learn more.
🔍 JP Morgan Asset Management (PE fund and secondaries fund) - Vice President, Secondary Private Equity Portfolio Management. Click here to learn more.
The latest on Alt Goes Mainstream
Recent episodes and blog posts on Alt Goes Mainstream:
🎥 Watch Lawrence Calcano, Chairman & CEO at iCapital, and I take the pulse of private markets on the fourth episode of our monthly show, the Monthly Alts Pulse. Watch here.
🎙 Hear the incredible story of “tech’s most unlikely venture capitalist,” Pejman Nozad, Co-Founder & Founding Managing Partner of Pear VC, on how they’ve built a seed investing powerhouse. Listen here.
🎙 Hear sustainable investments pioneer Bill Orum, Partner of $9B AUM OCIO Capricorn Investment Group, discuss how Capricorn has proven that doing well and doing good don’t have to be mutually exclusive. Listen here.
🎙 Hear wealth management industry titan Haig Ariyan, CEO of Arax Investment Partners, share his thoughts on the private equity opportunity in wealth management and why the intersection of wealth and alts is one of the biggest trends in private markets. Listen here.
🎙 Hear investing legends John Burbank and Ken Wallace of Nimble Partners provide a masterclass on investing with a macro lens from John’s background as a leading macro hedge fund manager at Passport Capital and on micro VC from Ken’s background backing some of the top emerging VCs at Industry Ventures. Listen here.
🎙 Hear $40B AUM Cresset Co-Founder & Co-Chairman Avy Stein and Director of Private Capital Jordan Stein live from the Allocate Beyond Summit discuss how private markets are changing wealth management. Listen here.
🎙 Hear Alto CEO Eric Satz discuss how anyone can invest in alternatives through their IRA. Listen here.
📝 Read how 73 Strings CEO & Co-Founder Yann Magnan and team are leveraging AI to build a modern and holistic monitoring and valuation platform for private markets in The AGM Q&A. Read here.
🎙 Hear $18B AUM Savant Wealth’s award-winning CIO Phil Huber talk about how LPs can build a strategy for investing in private markets. Listen here.
🎙 Hear Avlok Kohli, AngelList’s CEO, talk about how they are building the company of companies that is powering private markets. Listen here.
🎙 Hear Seyonne Kang, Partner and member of the private equity team at $134B AUM StepStone, discuss how the VC industry is dealing with today’s venture market. Listen here.
🎙 Hear Chris Ailman, the CIO of $307B CalSTRS, discuss how he manages a portfolio with ~40% exposure to private markets. Listen here.
🎙 Hear Robert Picard, Head of Alternatives at $117B AUM Hightower, approaches alternative investments. Listen here.
Thank you for reading. If you like the Alts Weekly, please share it with your friends, colleagues, and anyone interested in private markets.
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If you have any suggestions, would like me to feature an article, research, or would like to recommend a guest or topic for the Alt Goes Mainstream podcast, reach out! I’d love to include it in my next post or on a future podcast.
Special thanks to Michael Rutter and Nick Owens for their contributions to the newsletter.