Our group editor and US correspondent examine the forces behind Corient’s stunning European UHNW power play and underlying industry trends.

The vacation season ended with an unexpected jolt last week when Corient, the US wealth business that is a subsidiary of Canada’s CI Financial, announced that it has acquired two large Europe-based multi-family offices/wealth managers: Stonehage Fleming and Stanhope Capital. 

Consolidation is coming for multi-family offices – witness the AITI Global organization that was borne from Tiedemann Group, the US-based multi-family office, acquiring London’s Alvarium Investments. (The deal was completed in January 2023.) Cross-border deals are piling up, fueled perhaps by a desire to diversify revenue out of the US.

There is also, as with many RIAs these days, a case of owners starting to think about stepping down and cashing in.

Corient’s deal means that the enlarged business is almost certainly en route for an IPO – good news for the partners’ bank balances, according to Ray Soudah, founder and chairman of MilleniumAssociates, a Switzerland-based independent specialist in M&A and strategic advice for financial firms. 

What power play portends
“The multiple-part deal portends well for the partners’ earnings and equity value,” Soudah told this publication. “One day, the business will go to an initial public offering as one day this will be IPOed for sure.” (Soudah is also a member of this news service's editorial board.)

The price Corient paid for the firms wasn’t disclosed. A hint of the possible total amount came when Caledonia Investments Plc, a UK-listed investment trust, said it sold its minority stake in Stonehage Fleming to Corient for about £288 million ($385.4 million). Caledonia had a stake in the MFO since July 2019.

While Corient’s European power play is certainly noteworthy, it doesn’t (yet, anyway) make the CI Financial spin-off “the world’s largest independent advisory firm” serving the UHNW market, as CI Financial CEO Kurt MacAlpine claimed in a recent interview.

Indeed, in light of MacAlpine’s new global ambitions, it’s important to review his North American track record, which will be discussed below.

Private money
The fact that Corient â€“ which, once the European deals are completed next year will have well over $400 billion in assets â€“ is a privately held organization itself is worth noting. It’s not a listed business with shareholders breathing down its neck. Private equity-type money is a prominent feature of wealth sector M&A these days. Sovereign wealth funds, for example, have been deploying substantial wealth into the space. 

Bain & Co, for example, made the private capital point clear in its February overview of M&A in financial services.

“As a group, alternative asset managers that invest in the capital of privately owned companies instead of publicly traded companies have watched their market cap grow by more than four times over the past five years compared with a 1.6 times market cap growth for the other players in the sector – namely, traditional asset managers with a public market focus or wealth management arms of universal banks,” the management consulting firm said.

View from the US
Corient’s move puts it in “pole position” as the premier cross-jurisdictional RIA serving the UHNW client segment, said Jamie McLaughlin, of J H McLaughlin & Co, a member of this news service’s editorial board and consultant or the UHNW/family office market.

It is important to note that both Stonehage Fleming and Stanhope Capital operate primarily in the UK, Mclaughlin noted. As far as transatlantic connections go, Stonehage Fleming already has boots on the ground in Toronto and Philadelphia, he added.

“Penetrating euroland more broadly will remain a challenge as the `private banking’ model (the traditional investment-centric manufacturing and distribution business where bankers characterize their client revenues as 'bookings’) still prevails, not the more enlightened and better-aligned fee-for-service counseling model the leading firms in the US have adopted,” McLaughlin continued. 

Looking at the recent case of AlTI Global, he said it was unclear whether its combination has “fully exploited the cross-jurisdictional opportunity as the former Alvarium group remains largely an asset management company.”        

Several other similar US firms have a similar cross-border quality, such as Brown Advisory; ICONIQ; Partners Capital and WE Family Advisors, McLaughlin added.

The very expensive US shopping spree
As for MacAlpine, he was a partner at famed management consulting firm McKinsey & Company before he was 30, and became CEO of CI Financial, Canada’s largest asset manager, in 2019 at age 38.

In 18 months between 2020 and 2021, CI embarked on a massive buying spree, gobbling up 16 US RIAs, using plenty of leverage to fuel the deals. “The industry has never seen a buyer acquire with such velocity in such a short period of time,” M&A consultant and investment banker David DeVoe said at the time.

However, the unanimous consensus among industry observers was that CI paid a premium for most, if not all, of those firms. 

One rival buyer said CI’s acquisitions came “at or close to the high bid. They are not price sensitive.” Rival roll-up buyer Rudy Adolf, then CEO of Focus Financial, complained to analysts that “there are some amateurs in this industry who seem to be paying multiples that are just absurd.”

M&A experts said CI’s deals amounted to “negative arbitrage,” meaning that CI’s valuation was less than the multiple of the RIAs they were buying.

Distribution pipeline?
The new US RIAs and their $130 billion-plus in assets also conveniently gave CI a readymade distribution network for its asset management products – and charges of a potential conflict of interest for fiduciary advisors. 

One rival CEO maintained that the only way CI could justify the high prices it paid for the US firms was “to push a ton of product down the channel and make so much money from distribution that the multiple made sense.”

Product distribution was “not a factor at all” in the acquisition strategy, MacAlpine said, although he didn’t rule out offering CI products to clients if they were “better” than other options. 

IPO dreams
In 2022, CI Financial announced that it planned to spin out its US wealth management business through an IPO. CI’s share price had fallen more than 40 per cent, which some analysts attributed in part to MacAlpine’s willingness to overpay for the US RIAs. MacAlpine said CI’s shares were “criminally undervalued” and that the company wasn’t getting credit for the “rapid growth” of its wealth management business.

Industry executives at the time were skeptical.

“This industry is not ready for a public company,” said Rush Benton, a senior executive for Captrust at the time. “It’s better to be private in this business.”

Noting the high debt CI incurred to buy its RIAs, analysts like Matt Crow of Mercer Capital asked if CI’s proposal to file an IPO for 20 per cent of its wealth management firms was being done “just to restructure their balance sheet?” The IPO, Crow said, “feels like financial engineering to me and net present value of financial engineering is usually zero.”

Bain Capital buys in
CI reversed course the following year, selling a 20 per cent stake in its RIA business to a group of institutional investors led by Bain Capital and the Abu Dhabi Investment Authority for what it claimed was an eye-popping multiple of 25 times EBITDA. CI Financial is now owned by Abu Dhabi-based Mubadala Capital (more detail below). 

The deal, which CI called a “pre-IPO minority investment,” valued the RIA business at $7.1 billion and brought in a $1.34 billion cash infusion, most of which was earmarked to pay down $2.7 billion of debt and reduce CI’s debt ratio to 2.7 per cent from 4 per cent.

However, industry analysts described the deal terms, which included paying the investors an annual 14.5 per cent payment-in-kind (PIK) as “brutal.” Analysts subsequently downgraded CI’s ratings and share prices dropped.

Mercer Capital noted that firms that sold to CI and took stock as part of their consideration were “now subordinated to a preferred stock that threatens to squeeze the common [stock] if the firm isn’t able to outrun the double-digit implied PIK rate.”

CI still “fully intends to be public well in advance of 2030,” MacAlpine told analysts, and in August 2023 he rebranded the 48 US RIAs under the name Corient, rolling them into one ADV with nearly $150 billion in AuM. While the firms had a common name, integration issues persisted, according to industry sources.

Sovereign wealth takes over 
Fifteen months later MacAlpine stunned the industry by announcing that Mubadala Capital, the asset management arm of Abu Dhabi’s sovereign fund, Mubadala Investment Company, would take highly leveraged CI Financial private for $8.8 billion in cash, removing the onerous PIK financing that made Corient’s future uncertain.

Corient’s acquisitions have tailed off since its initial buying spree, but in January the RIA signaled its multi-family office ambitions by buying Geller MFO a venerable and highly respected US firm. And last week Corient bought Boston-based MFO Breed’s Hill Capital and its approximately $3.5 billion in AuM.

The James Bond connection
On the other side of the pond, Stonehage Fleming was born out of the coming together of Stonehage and Fleming Family & Partners in 2014. Stonehage was formed in the mid-1970s with strong links to South African families; FF&P was set up to the run the money of the Fleming dynasty after the old Robert Fleming merchant bank was bought by Chase Manhattan (later absorbed into JP Morgan) at the turn of the Millennium. 

(And for lovers of spy fiction, yes, James Bond creator Ian Fleming was part of the dynasty, and the names of his characters can be seen on the walls of the Stonehage Fleming London offices.)

For its part, Stanhope was founded in 2004; in 2020, FWM Holdings, owners of Forbes Family Trust and other US investment groups, merged with Stanhope.

Challenges ahead
Post-merger, what happens to costs and what about duplication?

“Some cost savings can be expected but they will not be huge, considering the structured and complicated nature of most of the family client assets under advisement,” Soudah said.

What sort of added value the enlarged group can bring for established clients will be a challenge, he added.