Welcome back to the Alt Goes Mainstream podcast.
Today’s episode is with someone who is an expert on the RIA market and the wealth management business model.
We talk with Karl Heckenberg, the President & Managing Partner of Constellation Wealth Capital, an investment firm that recently closed on a $1B debut fund dedicated to providing differentiated, long-term capital solutions to well-positioned independent wealth management firms in the $8T and growing wealth management sector.
Karl’s deep experience in wealth management as both an investor, from his time as the CEO of Emigrant Partners and its affiliated company, Fiduciary Network, and time on the advisor side at Merrill Lynch, A.G. Edwards & Sons, Wells Fargo, and Charles Schwab, puts him in a position to understand the inner workings of wealth management businesses. He’s also sat on the boards of Sarasota Private Trust Company, New York Private Trust Company, and Cleveland Private Trust Company, and is currently on the board at Alternative Fund Advisors.
CWC has made investments into some of the industry’s leading wealth management firms, including AlTi Global, Cresset Partners, AlphaCore, Lido, and others.
Karl and I had a fascinating conversation about the evolution of the wealth management industry and why it’s become such an attractive investment opportunity. We discussed:
The intricacies of business growth and serving clients.
Why private markets are such a critical component to differentiating a wealth management firm.
Why we’ll see a $1T wealth management business in the coming years.
The parallels between the business evolution of alternative asset managers and wealth managers.
Thanks Karl for coming on the show to share your wisdom and expertise at the intersection of wealth management and private markets.
Clip #1: Will there be a $1T independent RIA?
Clip #2: Which wealth management firms will do best and be able to grow and scale their businesses?
Clip #3: What works and what doesn’t work in the RIA space?
A word from AGM podcast sponsor, Ultimus Fund Solutions
This episode of Alt Goes Mainstream is brought to you by Ultimus Fund Solutions, a leading full-service fund administrator for asset managers in private and public markets. As private markets continue to move into the mainstream, the industry requires infrastructure solutions that help funds and investors keep pace. In an increasingly sophisticated financial marketplace, investment managers must navigate a growing array of challenges: elaborate fund structures, specialized strategies, evolving compliance requirements, a growing need for sophisticated reporting, and intensifying demands for transparency.
To assist with these challenging opportunities, more and more fund sponsors and asset managers are turning to Ultimus, a leading service provider that blends high tech and high touch in unique and customized fund administration and middle office solutions for a diverse and growing universe of over 450 clients and 1,800 funds, representing $500 billion assets under administration, all handled by a team of over 1,000 professionals. Ultimus offers a wide range of capabilities across registered funds, private funds and public plans, as well as outsourced middle office services. Delivering operational excellence, Ultimus helps firms manage the ever-changing regulatory environment while meeting the needs of their institutional and retail investors. Ultimus provides comprehensive operational support and fund governance services to help managers successfully launch retail alternative products.
Visit www.ultimusfundsolutions.com to learn more about Ultimus’ technology enhanced services and solutions or contact Ultimus Executive Vice President of Business Development Gary Harris on email at gharris@ultimusfundsolutions.com.
We thank Ultimus for their support of alts going mainstream.
Show Notes
00:00 Introduction to our Sponsor, Ultimus Fund Solutions
01:57 Welcome to Alt Goes Mainstream
01:59 Introducing Karl Heckenberg
03:57 Karl's Background in Wealth Management
06:05 Early Days of Lending to Wealth Managers
07:48 Growth of the RIA Market
09:10 Understanding the Independent Wealth Management Space
10:44 The Evolution of Wealth Management Firms
12:35 Challenges and Opportunities in Wealth Management
15:55 Importance of Client Experience
19:57 Good Businesses vs. Good Investments
20:44 Growth and Diversification Strategies
21:16 Equity Ownership and Downside Protection
21:55 Minority vs. Control Investments
22:44 Creating New Partners and Incentives
23:07 Comparing Wealth Management to Law Firms
23:49 The Role of M&A in Wealth Management
24:04 High-Quality Blue Chip Firms
24:52 Capital Needs and Growth
25:43 Advisory Services and Value Add
26:16 Similarities to GP Stakes
28:32 Durability of Wealth Management Businesses
30:07 Exit Strategies and Public Market Potential
35:38 Compounding Returns and Distributions
37:38 Legitimate Path to Exit
37:46 Investor Concerns and Capital Influx
37:59 Investment Categorization
38:21 Flexible Investment Buckets
38:49 Private Wealth Allocation
39:08 Institutional Investors' Flexibility
39:12 Synergies with LP Base
39:32 Network Effects and Shared Synergies
40:14 Value Add of Advisory Team
40:25 Loneliness in the RIA Industry
40:45 Platform Benefits and Operational Synergies
41:11 Competing with Banks and Wires
41:20 Raising a Fund and Channel Interest
41:36 Distribution Conversations
42:39 Understanding the Bucketing Conversation
46:55 Importance of Private Markets Knowledge
47:17 Diversification and Institutional Approach
48:03 Advisor Education and Differentiation
50:16 Balancing Customization and Scalability
51:02 Operational Efficiency and Scaling
53:04 Listening to Wealth Channel Needs
56:17 Parallel Growth of Wealth Channel and Private Markets
57:51 Future of Wealth Management Firms
01:07:35 Concluding Thoughts and Future Predictions
Editing and post-production work for this episode was provided by The Podcast Consultant.
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