Good morning dealmakers, it’s Obey Martin Manayiti here with the US edition of the Wire from the New York newsroom.
Private equity-backed deals in wealth management have been robust. Over the years, PE Hub has reported on this sector, drawing on expert analysis from dealmakers and advisors on factors shaping the sector. As deals continue to come on the market, we will take another look this morning at some of the areas where PE-backed activity in wealth management is set to expand.
Also this morning, we’re featuring Carlyle’s acquisition of Secturion Systems.
Scaling higher
Earlier this year, PE Hub noted that wealth management was increasingly becoming a hotspot for financial services. Recent activity in this sector includes:
“As the wealth sector evolves and leading RIAs go public, the number of larger acquisitions will grow. In part this will be driven by the advantages that larger companies have regarding cost of capital and ability to drive centralized organic growth,” said Matt Gelber, a managing director, in Houlihan Lokey’s Financial Services Group, which published a report recently.
Given the sticky nature of client relationships in the wealth sector, Gelber added, “organic growth is hard to generate, making the ability to invest in centralized origination a competitive advantage. Over time, larger companies will be able to compete more effectively with private equity firms to buy RIAs that don’t have differentiation to exist on a stand-alone basis.”
But how will AI affect wealth management? “Few traditional RIAs have deep concerns that AI will ever completely disintermediate the interpersonal relationship between a client and advisor, but the technology will clearly be disruptive relative to how clients are originated and services are delivered,” Gelber noted.
However, while small and nimble platforms will also benefit through the creative use of AI, big firms and their scaled IT budgets have a clear competitive advantage in an arms race to leverage AI to drive growth and more efficient business models, Gelber noted.
One area that hasn’t really panned out is robo advisors. “People tend to want human beings that they can talk to and give them advice,” James Anderson, a managing director and global co-head of Houlihan Lokey’s Financial Services Group, recently told PE Hub.
David Mussafer, a managing partner at Advent International previously told PE Hub that: “There was a time about 10 years ago where people thought the wealth management space would move to a passive investing model with robo-advisers and that active money managers would be a much smaller part of the global market,” said Mussafer. “Since then we’ve seen that customers want the safety and security of knowing that there is a very strong institution that is managing their money and that there is a person behind that.”
Firms have also been busy strengthening their wealth management strategies by adding personnel. Examples include:
- Blackstone hired Jennifer Abate as a senior managing director and head of the registered investment advisor channel, which is based in New York City.
- KKR appointed Roy Gori as a senior advisor.
For more on PE-backed wealth management activity, please read this recent feature that brings diverse views from many thought leaders about this space.
Debut deal
Carlyle earlier this week acquired Secturion Systems, a Centerville, Utah-based provider of hardware encryption solutions that protect sensitive and classified information.
The transaction marks the first investment by Carlyle’s middle-market aerospace, defense & government and industrials platform.
The transaction comes at a time when PE backed deal activity in the aerospace and defense sectors in picking up pace. PE Hub covered themes that are shaping investments in this sector sometime last year.
Stay tuned for our next feature that breaks down PE investments in Navy-focused companies. One caveat, as we previously reported, is that smaller companies are becoming an easy target not because of lower valuations, but because they are prime for scale.
Vice admiral William Hilarides, a partner at Ventus Industrial Partners summed the situation: “Many businesses [that we target] were founded right after World War II, and the original owner’s grandsons and granddaughters are still operating the businesses,” Hilarides said. “Many are at a point that they have grown enough that the family is extremely comfortable, and the fire goes out of their belly, and often the next generation isn’t that interested.”
That’s it from me this morning. Craig McGlashan will bring you the Europe edition of the Wire on Wednesday, while Rafael Canton will write the US Wire.
Cheers,
Obey
