Using the experience gained from his firm’s recent $400 million deal with US-based Kelso & Company, as well as an earlier $100 million investment from Cynosure Group, Hauser outlined how Canadian wealth management firms can approach the prospect of private equity deals. He explained how his firm assess the prospect of these partners and what they did to ensure their team was fully onboard with the investment.
While the private equity interest in wealth managers is global, Hauser notes that the Canadian industry has a few specific appeals. He sees Canada in the “early innings” of a move towards independent wealth management, mirroring the US move from bank sponsored broker-dealers, or wirehouses in the US, to independent firms. Hauser sees the massive presence of the big six banks as another incentive for private equity to back independent firms.
“I don’t know if there’s any other nation like Canada where you have, effectively speaking, six government sponsored agencies that run between 65 and 72 per cent of every investable dollar,” Hauser says. “If those six Schedule 1 banks grow anymore, you know, like it would be hard to even call this environment competitive.”
If the banks can’t grow much more, Hauser says, then they become expense driven businesses. He argues that a business more focused on managing expenses to meet a quarterly earnings target is less focused on growth. Entrepreneurs, he says, are less interested in those kind of environments. He argues that his own firm’s success in growing AUM to almost $50 billion has largely come from attracting and supporting entrepreneurial advisors who want to grow.
As these factors drive more private equity interest into independent Canadian firms, those firms’ leaders need to start assessing potential partners. In Wellington-Altus’ case that process began with some inward reflection and a great deal of due diligence around their eventual investors. Hauser explains that he focused on the quality of the management teams at these firms. He found partners with long-term views, who shared his idea of what defines success, and who wanted to support without putting their hands on the steering wheel. He found partners who don’t expect unrealistic returns, but who want to invest in a business that consistently delivers on the characteristics that make wealth management firms attractive in the first place.
