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Private Equity’s Iron Grip On RIAs Grows

Charles Paikert US Correspondent New York February 20, 2024

Private Equity’s Iron Grip On RIAs Grows

Fresh data shows that in 2023, and early this year, private equity is an increasingly dominant player in mergers and acquisitions involving registered investment advisors. We probe what's going on.

Private equity’s hold on the financial advisory business is tighter than ever.

All – as in 100 per cent – of the transactions reported in Fidelity’s M&A report for January were private equity backed. Assets involving direct private equity investments in wealth management firms soared to more than $2 trillion last year, from a total of $400 billion in 2022, according to the just-released 2023 ECHELON RIA M&A Deal Report.

There were 30 direct RIA investments by PE firms last year, compared with 27 in 2022, according ECHELON. Private equity firms played a role, directly or indirectly, in nearly two-thirds of all disclosed deals in 2023, the report stated.

What’s more, all of the top five most active acquirers in 2023 – WEG, Mercer Advisors, Captrust, Savant Capital Management and Beacon Pointe Advisors – were PE-backed.

And the biggest deal of 2024 to date, Pathstone’s acquisition of $3 billion Crestone Capital, was made possible by capital from its PE backers Lovell Minnick Partners and Kelso & Co, as well as serial minority investor TRIA Capital Partners.

Recurring revenue model attractive
Based on the volume of inbound inquiries investment banker Advice Dynamic Partners is receiving to date from private equity firms, there are “no signs that PE will not continue to deploy capital at a strong pace in 2024,” said firm CEO David Selig.

Advisors also see strong continued interest. PE will be “a major driver of industry consolidation for years to come,” says Jason Miller, COO at Crewe Advisors. “PE firms like the recurring revenue model and they can get multiple expansion just by rolling up firms. This is attractive because, in many cases, they are buying businesses that don’t need a lot of work.”

Mega firms received special attention from private equity last year.

ECHELON cited “a surge” of PE investments in firms with over $20 billion in AUM in 2023. Private equity capitalized five transactions involving firms with over $100 billion in assets, most notably Clayton, Dubilier & Rice’s acquisition of Focus Financial Partners and Bain Capital’s investment in CI Private Wealth, along with the Abu Dhabi Investment Authority.

Need for capital to scale means no end in sight
But smaller RIAs are hardly being neglected by private equity, Selig noted.

“Capital flows from the wirehouse channel into the independent space and the resultant volume of newly-minted RIAs means a continual supply RIAs for PE to consolidate,” Selig explained. “There are over 2,000 RIAs between $1 billion and $10 billion that need capital to scale. This is why private equity loves this space.”

Expect more of the same, said Brian Louzon, managing director for investment banker Colchester Partners. 

“PE will continue to be a powerful catalyst for industry growth and consolidation,” Louzon said. “The macro trends that initially drew PE to the wealth management industry continue unabated.”

ECHELON CEO Dan Seivert agreed. “We expect private equity’s interest in the industry to continue,” Seivert said, “especially as major strategic acquirers compete on the M&A front as they work to consolidate the fragmented industry.”

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