UK vs US

Everything you need to know about how US private equity is buying into UK wealth management

Citywire journalists in London, Paris and New York have been drilling into the US private equity companies behind a slew of deals with UK wealth management and advice consolidators

While the air drop of American private equity (PE) money on UK wealth businesses made headlines in 2021, such eye-catching announcements do not come with insights into those investors’ track records. When new names come to a market, especially from abroad, local businesses might rightly feel at a disadvantage. Who are these investors? What do they know about my industry? What designs do they have on our profession? Other market players have questions too, including how the investors structure their deals and realise value from their targets. Some businesses have had no previous dealings with this market or are making their first foray into UK financial services. But experience does not necessarily equal success, at least not for those being invested in. One serial US investor, Lightyear Capital, saw its investment in advice firm Cetera end in disaster when Cetera’s new owner went bankrupt. Citywire benefits from having offices and journalists around the world. We decided to pool the knowledge of our global PE correspondent with wealth management and financial advice specialists from both sides of the pond. Read on to discover the track records and playbooks of the PE firms buying Britain’s wealth giants.

Who’s who

LONDON: Will Robins, editor, Citywire New Model Adviser NEW YORK: Ian Wenik, senior reporter, Citywire USA PARIS: Selin Bucak, Citywire alternatives correspondent

London: In February, consolidator Fairstone, which was already backed by a UK PE company, received cash from a new US investor, TA Associates. In fact, its existing backer, Synova, gave Fairstone some more money too. And an extra helping of acquisition funding was received from European asset manager Alcentra. The company has not revealed how much money the latest deals are worth. Fairstone CEO Lee Hartley said the investment would be used to buy ‘ambitious firms’. ‘We’re not looking to simply consolidate steady-state businesses. We want to invest in growth,’ he said. Money will also be used to fund new internal projects: a buy-out opportunity for appointed representatives within networks, creating its own discretionary fund manager (DFM), and a structure for businesses it has already bought to perform satellite acquisitions themselves. New York: TA Associates is the majority owner of serial RIA acquirer Wealth Enhancement Group. It bought the firm in 2019 from Lightyear Capital. Citywire reported earlier this year that TA is looking to sell some of its stake in Wealth Enhancement Group, which is not a tremendous surprise given how hot valuations have been for US wealth managers. The company also jointly backs, with Genstar Capital, Orion Advisor Solutions. Orion develops portfolio management and performance reporting software for RIAs and also constructs model portfolios for advisers who outsource their investment management. Additionally, TA and Reverence Capital Partners jointly back asset manager Russell Investments. TA’s history with some of its asset management portfolio companies may provide some clues about its exit strategies for Wealth Enhancement Group and Fairstone. The company has been happy to sell to strategic buyers. It sold K2 Advisors to Franklin Resources, the parent company of Franklin Templeton, in 2012, about five years after TA first bought a stake in the advice business. In 2015, it sold French asset manager DNCA Finance to Natixis Global Asset Management, four years after its investment. Paris: In the UK, TA Associates is well known for backing Merian Global Investors, which it sold to Jupiter, another former portfolio company, for £370m. TA is more of a growth equity investor, and therefore its use of leverage is more careful compared with other large buyout groups.

Merian-backer TA Associates’ track record leaves clue to Fairstone’s fate

London: Consolidator AFH was the first UK advice company to secure a PE takeover this year. In January, the advice business, which was listed on the UK’s AIM market of small companies, received a £225m cash offer from Cortina Bidco, a holding company set up by US-based PE firm Flexpoint Ford. The deal nearly hit the buffers when Slater Investments, which held a 13% stake in AFH, rejected the terms of the offer. AFH needed 75% shareholder approval to get the deal over the line. Flexpoint returned in March with a higher offer of 480p per share, up from 463p. The increased offer valued AFH’s entire ordinary share capital at about £231.6m, up from the initial £225m Flexpoint put on the table. Slater Investments agreed and other shareholders’ controlling 14.2% fell in line. AFH CEO Alan Hudson is the advice firm’s biggest shareholder, with about 13.9%. He agreed to sell around 10% to the PE house and reinvest £8.8m into Cortina from his proceeds. Flexpoint said it had ‘previously identified the UK wealth management sector as a potentially attractive area for investment’.

AFH investment could signal strategic UK expansion for Flexpoint

London: In February, Ascot Lloyd secured additional funding after receiving financial backing from the credit group of US PE firm Ares Management Corporation. Ascot Lloyd did not disclose the level of funding but said it would bolster the firm’s acquisition war chest to £100m. Ares is not the first US investor in the London-based business. Ascot Lloyd is owned by Oaktree Capital, which has its global headquarters in Los Angeles. Among Ascot Lloyds’ UK compatriots in the Oaktree portfolio are gym chain Fitness First and estate agency Countrywide. Ascot Lloyd currently has about £10bn in assets, 132 independent financial advisers and more than 21,000 clients under its umbrella. Despite the pandemic preventing many acquisitions last year, Ascot Lloyd still managed to buy 12 firms in 2020. Oaktree said it will continue to hold its majority stake in Ascot Lloyd following this new funding round from Ares. This is not the first time Ascot Lloyd has been courted by US PE firms. Last November, Citywire New Model Adviser revealed US investment giant Goldman Sachs had held talks with the company about a possible takeover.

Ares adds Ascot Lloyd to string of European advice investments

London: UK national advice business Wren Sterling had a PE backer, the UK’s Palatine Private Equity, when it changed hands in July, with a US company entering the frame. Wren Sterling secured a majority investment from US PE firm Lightyear Capital. As a result, Palatine and shareholders have undergone a managed buyout, pending regulatory approval. This will mark the end of the financial arrangement Palatine has had with the national since 2016. Wren Sterling was created following a management buyout of Towergate Financial, led by Ian Darby and supported by Palatine, in March 2015. Its management team and staff will remain in place following the buyout. In the financial year to 31 March 2020, Wren Sterling had a turnover of £20m and an operating loss of £2,000. It advises on about £3.6bn in assets under management. Darby, Wren Sterling’s executive chairman, said the deal provides the capital needed to grow the company and provide a return for investors. New York: Lightyear Capital is a financial services specialist with stakes in several notable companies across the US wealth management industry. Last autumn, the firm jointly purchased with the Ontario Teachers’ Pension Plan board a majority stake in serial RIA acquirer Allworth Financial from Parthenon Capital. It also backs Cerity Partners, a large RIA that provides traditional wealth management services for wealthy individuals and families as well as 401(k) plan management for corporations. Lightyear previously backed independent brokerage firms Advisor Group and Cetera Financial Group, which offer fee-based and commission-based wealth management services. Lightyear has made about 50 investments since 2000. It has sold some of its wealth management portfolio companies to larger PE firms: in 2019 it sold a stake in Advisor Group to Reverence Capital Partners and a stake in Wealth Enhancement Group to TA Associates. The firm’s most prominent wealth manager sale to a strategic buyer ended in disaster. Two years after it sold Cetera to brokerage firm RCS Capital in 2014, RCS filed for Chapter 11 bankruptcy protection. Genstar Capital purchased Cetera in 2018, outbidding Lightyear. Paris: Lightyear is a relatively small player compared to the others on the list. It has about $3bn in assets and is very US-focused. In the past, it has invested in the UK market, but only in insurance. In 2013, Lightyear, through its second fund, acquired a controlling interest in Cooper Gay Swett & Crawford, a London-based insurance broker. The capital was used to fund acquisitions. Lightyear sold off Swett & Crawford for $500m in cash. Cooper Gay then acquired NMB Group and rebranded it as Ed Group. This was sold to New York-based BGC Partners in 2018. Lightyear’s other UK investment was Antares. It helped create the insurance broker in 2007 after buying the UK operations of Württembergische Versicherung. Both investments were rumoured to be problematic, according to reports at the time. Since then, Lightyear does not appear to have invested in UK businesses. The firm declined to comment. In 2018, Lightyear agreed a $400,000 settlement with the US Securities and Exchange Commission after the regulator found it had misallocated expenses and overcharged investors in its flagship funds for 16 years.

Problematic past could kill Lightyear buzz for Wren Sterling

London: Before the rush of PE deals in 2021, and before the pandemic pressed pause on any plans, US PE firm Carlyle Group got a foothold in the UK financial planning and wealth management space. In December 2019, Carlyle purchased Harwood Wealth Management in a deal that valued the UK firm at £91m, 16.3 times its previous 12 months’ earnings. Harwood was itself built from mergers and acquisitions. With around £5bn of assets under management at the time of the deal, Harwood comprised five financial planning brands, including Compass, Merchants, discretionary businesses Wellian and IMS Capital, and network services arm Network Direct. The group was formed in 2016 through the merger of Compass and Wellian, just ahead of its float on the UK’s AIM market. Harwood CEO Alan Durrant and former Architas fund manager Richard Philbin formed Harwood Multi-Manager as the investment management division of what was then Harwood Capital in 2013. Harwood went on to merge with Wellian in 2015, with the combined firm making a series of acquisitions around the country over the following years. Carlyle created a company, Hurst Point Topco, controlled by three Carlyle funds, to carry out the 2019 transaction. Harwood shareholders were given the choice between receiving an all-cash offer for their stakes or a combination of cash and shares in the new venture. Hurst Point is an investment advisory business set up by former UK wealth executives to identify acquisition opportunities for PE buyers looking to tap into the sector’s consolidation. New York: The Carlyle Group does not presently back any US wealth managers. However, the multinational PE firm does have a stake in TCW Group, a fixed income asset manager with about $266bn in assets under management. Paris: Carlyle is one of the giants in PE. It manages $276bn in assets, $150bn of which is in PE. It has significant experience in buy-and-build investments, meaning it buys one company to serve as a platform to consolidate a sector or at least grow through add-on acquisitions. It has done this in various other industries before, including engineering in the UK in the 2000s. It launched its fifth Europe-focused fund in 2019, raising €6.4bn.

PE giant Carlyle picks Harwood for buy-and-build base

Our investment in Ascot Lloyd reflects our confidence in its management team, attractive market position and multi-year growth strategy

TA’s history with some of its asset management portfolio companies may provide some clues about its exit strategies for Wealth Enhancement Group and Fairstone

It typically invests between $100m (£74m) and $600m in businesses valued between $100m and $3bn. Aside from equity, it also does subordinated debt deals between $10m and $50m. One example of a typical TA deal is its investment in Söderberg & Partners. TA invested in the Stockholm-based wealth management group in 2014. It took a minority stake and helped the business expand from Sweden to the rest of the Nordics. TA sold its stake to KKR in 2019, but this year re-invested 2.5bn SEK in Söderberg.

The firm has offices in Chicago and New York, with no presence or staff in Europe. It is interesting that AFH is an investment for the business because it has never owned anything similar. So far, the group’s investments have focused on North America

The deal was funded by a combination of equity financing drawn from Flexpoint funds and debt arranged by Ares Management, a PE and alternative investment manager, which has also provided funding for AFH’s competitor, Succession Wealth. New York: Flexpoint Ford does not currently back any US wealth managers, although sources have said the firm is interested in the sector. Current US financial services holdings for Flexpoint Ford include insurance business Propel Insurance and Flexpoint Mortgage-Asset Holdings, which securitises mortgages held by delinquent borrowers who started making payments on time again. Paris: AFH looks like it is the only investment Flexpoint Ford has ever made in the UK, according to its website and other publicly available information. It is one of two the company has made in Europe overall – the other is an Irish life settlements business. The firm has offices in Chicago and New York, with no presence or staff in Europe. It is interesting that AFH is an investment for the business because it has never owned anything similar. So far, the group’s investments have focused on North America. How did Flexpoint find AFH and why did AFH choose them as an investor rather than someone with more experience and knowledge of the UK market and financial advisers? Either AFH wants to expand into the US, or Flexpoint is looking to expand into the UK. Flexpoint has raised $5bn in capital since 2005, and invests between $50m and $500m in a single transaction. Flexpoint declined to confirm that AFH is its only UK investment and declined to comment on how it sourced the deal or if it was planning any other acquisitions outside of North America.

New York: Ares does not currently back any US-based wealth managers. Paris: Ares is one of the largest alternative investment managers globally, with $262bn in assets under management across private credit, PE and real estate. It is listed in the US. Ares is better known for its private credit franchise. It started its European direct lending business in 2007. It recently closed its fifth European private debt fund, raising €11bn (£9.5bn). It is the largest ever private debt fund in Europe. Its predecessor, ACE IV, was closed in 2018 at €6.5bn. Ares’s investment in Ascot Lloyd is different from the other deals listed here. First off, Ares is better known for its private credit investments rather than PE. This deal was not an equity investment – it was direct lending. Michael Dennis, co-head of the Ares European direct lending strategy and partner in Ares Credit Group, told Citywire: ‘Our investment in Ascot Lloyd reflects our confidence in its management team, attractive market position and multi-year growth strategy. ‘Ares Management has a demonstrated track record of investing in financial advice firms across Europe, having invested in 11 different platforms since Ares’ inception, and we are pleased to support Ascot Lloyd with our deep industry experience and flexible capital solutions, enabling the company to continue building on its success.’ The firm would not share which 11 platforms have been invested in.

PE giant Carlyle picks Harwood for buy-and-build base

London: In October, UK national advice and wealth management business Progeny was bought by private equity house Further Global Capital Management. The deal will pass Progeny from one PE owner to another, and from UK to US ownership. LSG Holdings, a UK family office and venture capital firm, invested in the wealth firm in 2015. LSG is expected to remain a significant shareholder in the company, though the size of the stake is unknown. Established in 1981, Progeny began acquiring other wealth firms in earnest recently, buying well-regarded regional advice firms New York-based Quest Financial Solutions, New Jersey-based Juno Wealth Management and London-based Addidi Wealth. Following this PE deal, Progeny will keep its senior management team, headed by chief executive Neil Moles, who will continue to hold his own stake. While there is no doubt Progeny will continue to acquire other firms, it said it would invest in training homegrown advisers via an academy. Paris: New York-based Further Global Capital Management was founded in 2017 by Olivier Sarkozy, the former head of global financial services at Carlyle Group. He is also the half-brother of former French president Nicolas Sarkozy. Its previous investments have included financial software company Celink, legal services business LegalShield and auto insurance service AA Ireland. Progeny is its first adviser acquisition. Further Global Capital Management is currently raising its second fund, seeking $1.25bn (£930m) from investors, according to regulatory filings, which would more than double the group’s first fund. The firm targets financial services companies, with preferred opportunities in asset and wealth management. It invests between $75m and $200m, seeking to take control positions, although it can also make minority investments if the opportunity is right. Based on publicly available information, Progeny Group is only the second UK-based investment the firm has made. The other one was the acquisition of professional consultancy Blackrock Expert Services, which was bought by portfolio company Duff & Phelps.

Further breaks into advice with Progeny deal, as it builds up billion dollar war chest