"No-equity" investor makes first move in WM realm

Thomas Coyle

20 November 2007

Asset Management Finance to take a part of Gresham Partners' gross revenue. Chicago-based multifamily office Gresham Partners has received an infusion of capital from Asset Management Finance . The transaction gives Gresham Partners the wherewithal to keep its independence while transferring equity from its senior founder Ben Beavers to second-generation managers.

Precise details of the transaction weren't made public.

"Our independent, client-centric, and conflict-free approach has been critical to our success as a firm," says Beavers, who co-founded Gresham Partners in 1997. "The investment from AMF helps ensure that we will continue that tradition while allowing our principals to achieve deeper ownership."

Hands off

Meanwhile New York-based AMF gets a minority cut of Gresham Partners' top-line take for a predefined period and -- during the same predefined span -- a passive, non-voting interest in the firm.

Barry Klayman, a managing director and co-founder of the firm, sums up his firm's approach: "We take a minority free cash flow," so that firm founders or senior principals can "receive capital for what they have built; and then at some point we disappear."

AMF specializes in these unique transactions, always involving investment managers of some description. Scott Ketner, a managing director of the New York-based investment bank Berkshire Capital says the firm's approach calls for a new term of art. "It's not 'private equity'; maybe 'private financing' is the best description."

Seven to 20

As a private-financing firm, AMF provides a contrast with a growing host of companies, usually with private-equity backing, that invest in asset management firms. In the private-client realm, players like Nashville, Tenn.-based WealthTrust and New York-based Focus Financial Partners buy large minority or majority stakes in profitable RIAs; Newport Beach, Calif.-based United Capital Financial purchases and re-brands smaller wealth management outfits in their entirety. In every case, the purchased entities get a portion of cash and shares in the aggregating entity.

The deal with Gresham Partners is AMF's eighth investment since its founding in 2004 and its first in a pure-play wealth manager. Though the structures of individual deals vary, AMF's payout terms run between seven years and 20 years. In practice, the average is better 10 and 12 years, says Sean Gallary, who handles investment origination, relationship development and transaction execution for AMF.

This simple chart, taken from AMF's website, provides an outline of a typical deal structure.

|image1| Not for everyone

Peter Rockefeller, another managing director of Berkshire Capital, says the AMF way isn't right for every wealth- or investment-management firm in search of capital. "It reduces profitability and doesn't bring anything into play on the strategic end" such as help with compliance, compliance or technology.

On the other hand, for profitable and well-managed practices that put a premium on absolute independence "it works well," says Rockefeller, especially "when the owner has developed a good second-generation management team."

As it happens, AMF strives to safeguard its investments from the outset by dealing only with "tremendously successful" firms, says Klayman. "We pride ourselves for working with well run firms."

AMF's president and CEO is Norton Reamer, founder and head of United Asset Management, an asset-management holding company he ran for 20 years until South African financial giant Old Mutual bought it 2000. AMF's management aside, the firm's backers include Montreal-based National Bank Financial and Tokyo-based Tokio Marine & Nichido.

Gresham Partners manages about $2.7 billion for its clients.

Elizabeth Nesvold, managing partner of New York-based M&A consultancy Silver Lane Advisors, helped Gresham Partners assess its transition alternatives and introduced it to a variety of funding sources including AMF. -FWR

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