Wealth Management & Technology in Wealth / A month in review – June 2024
The month of June on the whole was a quiet one for the sector. However, there were a number of themes that definitely caught my attention and deserve some coverage.
Funding Developments / Sidekick (UK) , Ramify (FR), WealthOS (UK), Light Frame (SW/USA)
First off, alternative investing, as a significant future element of wealth management continues to draw attention from growth investors.? While for much of the last year, the focus has been on underwriting new asset managers, aiming to distribute structured and pooled product designs that feature private equity and venture capital funds to Qualified Affluent and HNW investors (latest funding for Sidekick Money (sidekickmoney.com ) is an example of this, with its own form of savings sweetner attached for good measure), as the funding for French based, Ramify (ramify.fr ), indicates, growth investors see as a consequence of this more of these end clients seeking out advisors that really can curate asset allocation exposure to this asset class, and build personalized portfolios around it. ?Ramify is approaching delivering this through a combination of technology innovation in client lifecycle management, along with creating its own specialist provider ecosystem.? This would seem to offer Ramify the opportunity to introducing its own solution design, and to manage this process in a centralized manner.
Second, certain market participants continue to see room in the wealth management area for infrastructure providers who offer speed, simplicity, and a full end to end digital experience to manage retail wealth investors. While the broad market does not seem to lack platform options that can support a direct to consumer proposition, the funding that WealthOS (wealthos.cloud ) has been given would suggest that participants in the UK and Europe may still be frustrated by the cost and timeline of delivering simple but effective trading, investment, and model solutions to end clients, alongside a fully functional operational back office and custody solution, and thus still see for room for new infrastructure providers who are trying to address this through a combination of truly modern architecture, and standardized connectivity to a necessary range of providers in the overall value chain. ?
This would also seem to be thematically, though with a different client persona in mind to the funding that was provided to Swiss/American firm, Light Frame (lightframe.tech ) in the past month. With the founders occupying the former CEO, and COO roles at the first digital private bank in Switzerland, Alpian (now majority owned by Intesa Sao Paolo), it is probably not surprising to see them start a company that wants to deliver a modern platform and transformative capability to private banks, but investors will know that delivering this into the market successfully will be a challenge in its own right, and thus, it will be interesting to see whether they start looking for partnerships now that the initial funding has been secured.
Private Equity
Minority Investment in Fisher Investments, Potential take private of Hargreaves Lansdowne, Majority investment in Groupe Orion from Ardian International.
In the month of June, a lot of my attention was spent looking at the different valuation metric that seem to be applied to transactions. ??Not surprisingly, private equity firms continue to be willing to pay up for cash EBITDA growth momentum that is accompanied by scale, while staying clear of those that are still in the midst of restructuring their operational and commercial models to leverage their position.? A case in point in this is the minority buy-in to Fisher Investments that was recently announced.? ?While certainly scarcity value, and the reputation and past success of the owner will have had a significant role to play in the agreed valuation of the minority stake, I couldn’t help noticing that from a pure AUM perspective, the price paid basically valued the simple discretionary fee based model at 2x the more complex and (to some opaque) schema that is offered by St. James Place in the UK.?? Now of course the current state of the US wealth management market, and its less stringent regulatory backdrop (at present) will also be a contributing factor, but nevertheless, it does seem to provide another proof point that UK wealth management providers are currently facing significant market challenges on the home front, and declining investor sentiment.
Perhaps this explains why Hargreaves Lansdowne, the largest platform for direct investing in the UK is now contemplating an offering, valuing the company at ￡5.4bl from CVC, Nordic Capital, ADIA and others, in what would be I reckon one of the largest take private deals that have occurred in the market.? While this offer values the company at roughly half of its peak valuation, it does take it back to an “average” valuation, and thus could, for those who have been buying the company’s stock for the past 18mths or so, a very tidy profit.? There are some obvious reasons that HL might find it easier to execute a number of its transformative strategies off market for a number of years, esp. if they inevitably create short term blips to operating margin, and dividend sustainability, but in truth, the company has been struggling with reimagining its traditional identity as the core partner for “the committed and engaged amateur investor” finding it especially challenging to attract younger investors against both neobrokers, as well as other more social media friendly platforms.? The possibility that this might change with new partners around the board room isn’t any kind of given of course, but it will certainly focus the minds on rationalizing which bets can clearly generate the best medium term payoffs, and this may be something that the company really needs.?
Across the channel, investment in wealth consolidators, something that has taken a bit of a pause for reassessment (at least among some) in the UK, has continued in France with the purchase of a stake in the Groupe Orion (backed by PE) to Ardian International. ?While Orion is quite a bit smaller than the top 5 consolidators, led by the Crystal Group in France, it has now grown to more than E3bl of total assets, and is building around their 30 firms an integrated solution approach called Canopia that it believes will both increase advisor productivity, as well as overall scale and margin in the business. With Ardian on board, a larger player than their previous backer, there is clearly an opportunity to accelerate both their asset and platform ambitions.
Transactions
On the transactional side for the month, most of the deal activated spotted was stateside or involved US companies venturing overseas. The three that drew my attention for this blog were
1.??????? Yext buying Hearsay Systems
2.??????? Robinhood acquiring Bitstamp (a transatlantic acquisition)
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3.??????? Assetmark buying the assets of Morningstar’s TAMP
4.??????? NBC buying CWB (Canadian deal)
5.??????? Marsh & McClennan to buy Cardano (a transatlantic deal)
Deal One: https://investors.yext.com/news-events/press-releases/detail/351/yext-to-acquire-hearsay-systems
Yext (publicly listed) is taking a major sector related bet with the acquisition of Hearsay Systems (hearsaysystems.com ), a regtech firm operating in the compliant omni-channel communications domain, with a strong focus on client acquisition, growth and retention. The price point they have paid upfront of $125ml for the business looks to be reasonable based on Yext’s own size, profitability and scale, with almost 45% of the purchase price contingent on performance payments. Some of this may be linked to the fact that the two companies share some common banking brands in their respective portfolios and thus incentives have been put in
place to make a combined offering more valuable than the individual contracted parts may be today. ?As I mentioned in the past months, with client acquisition seen as one of the more promising domains to apply LLMs, and with Hearsay having been investing, as had Yext in applying AI into both the content creation as well as compliance process management for distribution, there might be some positive solutions leverage acquired that Yext can target toward other highly regulated segments it serves.
Robinhood (publicly listed) has enjoyed, off the back of strong crypto and equity markets a revival of fortune thus far in 2024. While the market response to the acquisition of Bitstamp (bitstamp.net ) was rather muted, the general consensus is that buying an established crypto exchange for about US$200ml represents a good investment, as it not only provides the company with a direct trading venue that its own client base can use to buy and sell different types of crypto assets, but also exposes the company to a firm sitting in a different regulated market and with a different set of permissions. Further, it sees Robinhood acquire an entity that has always been seen operating on the front foot of regulatory compliance with innovation, and thus gives them access to serious know how to a wide segment of the trading, clearing and custody operations that are built and maintained in house.
As a pure asset transfer, the US$12bl (10% of current assets) isn’t perhaps that noteworthy in the overall scheme of things for either Assetmark (PE backed) or Morningstar (publicly listed), but it does bring a strategic dimension to the relationship that could certainly boost the presence of Morningstar advisors to use the Assetmark TAMP, as well as the investment into Morningstar’s models from a TAMP with some similar ambitions in terms of advisor technology and investment research services. It may also, in time, open up an opportunity for Morningstar to become an acquisition candidate, if it feels that operating a TAMP only becomes interesting when one builds enough scale, something it hadn’t achieved on its own, hence the decision to dispose.
National Bank of Canada (publicly listed) hasn’t performed quite as well as a few other Canadian banks in the past year, but as far as another “bank” acquisition to further consolidate an already shrinking market, buying Canadian Western Bank (cwbbank.com ) seems to have been a smart move, potentially achieving two things for the bank. First the deal obviously opens up expansion into regional markets where to date NBC has lacked any sort of presence, and thus relevance to provide a full range of wealth and banking solutions to other key affluent and wealthy segments of the population. Second, the deal provides an additional player in the wealth management space with particular skills in Trust Banking and services to wealthier clients.? This is potentially going to deliver some technology and operational benefits to the wider group too, although this will probably take some time to take effect.
Deal Five: https://www.cardano.co.uk/industry-insights/cardano-to-be-acquired-by-marsh-mclennan-mercer/
Marsh & Mclennan subsidiary Mercer is acquiring Cardano (cardano.co.uk), strengthening its position in investment consultancy and pension services in the Netherlands, and the UK, while also adding ￡52bl of assets. Cardano has been establishing itself as a investment and pension consultancy and investment firms with special skills in LDI and ALM strategies, as well as the provision of specialist asset management selection research, and thus will provide Mercer with some clients and expertise that it had been lacking, as well as further strengthening its position in other areas by broadening its overall offering.? While I would imagine that this has required a significant outlay and incentive scheme for Cardano partners, who will join the larger organization in full, as a play on building out the presence of Mercer in the Dutch market in particular, one of the largest and changing DB to DC pension markets in Europe, it represents quite a bold move.