Private equity wealth management deals build as Carlyle buys Secturion

Private equity wealth management deals continue to draw attention from sponsors, with recent transactions spanning registered investment advisers in New York, Vancouver and Salt Lake City. PE Hub also reported that Carlyle acquired Secturion Systems, marking the first investment from its middle-market aerospace, defense and government, and industrials platform.

The activity reflects two separate areas of private capital interest: wealth firms with durable client relationships and defense-related technology businesses where scale can matter. In wealth management, recent disclosed deals include Berkshire Partners’ investment in Harbourfront Wealth Group at a valuation of C$1.775 billion, and Advent International’s minority investment alongside a wholly owned subsidiary of the Abu Dhabi Investment Authority in Fisher Investments, a $3 billion transaction that valued Fisher at $12.75 billion.

Why is private equity buying wealth management firms?

Wealth management firms often have long-running client relationships, which can make revenue streams attractive to buyers seeking durable platforms. Registered investment advisers, or RIAs, advise clients on investments and financial planning, and larger owners may try to use capital, technology and centralized business development to expand them.

Matt Gelber, a managing director in Houlihan Lokey’s Financial Services Group, said in a recent report that larger acquisitions are likely to increase as the wealth sector changes and leading RIAs go public. Gelber said bigger companies can benefit from a lower cost of capital and from the ability to support centralized organic growth.

Gelber also said organic growth is difficult to produce in wealth management because client relationships tend to be sticky. That makes investment in centralized origination a competitive advantage, he said, and may allow larger companies to compete more effectively with private equity firms for RIAs that lack enough differentiation to remain independent.

Recent wealth management activity cited by PE Hub includes Leon Financial Network, a subsidiary of Leon Capital Group, agreeing to provide growth capital to Tocqueville Asset Management, an independent registered investment adviser based in New York City. HGGC and Wealth Partners Capital Group also made a minority investment in Crewe Advisors, a Salt Lake City-based wealth management firm.

How could AI affect RIAs?

Gelber said few traditional RIAs expect artificial intelligence to fully replace the personal relationship between clients and advisers. He added, however, that AI is likely to affect how wealth firms find clients and deliver services.

According to Gelber, smaller platforms may benefit from creative uses of AI, while larger firms have an advantage because of their IT budgets. James Anderson, managing director and global co-head of Houlihan Lokey’s Financial Services Group, told PE Hub that robo advisers have not developed as some expected because clients tend to want people they can speak with for advice.

David Mussafer, a managing partner at Advent International, previously told PE Hub that expectations around robo advisers were stronger about a decade ago. He said customers have since shown they want the security of a strong institution managing their money and a person behind that service.

What did Carlyle buy?

Carlyle acquired Secturion Systems, a Centerville, Utah-based company that provides hardware encryption products used to protect sensitive and classified information, according to PE Hub. The transaction is the first investment from Carlyle’s middle-market aerospace, defense and government, and industrials platform.

PE Hub reported that private equity-backed activity in aerospace and defense has been gaining pace. Its coverage has also noted that smaller companies in the sector can be acquisition targets because they are ready to scale, rather than because of lower valuations.

Vice Admiral William Hilarides, a partner at Ventus Industrial Partners, told PE Hub that many businesses targeted by investors were founded after the second world war and remain in family hands. He said some have reached a point where families are financially comfortable and the next generation may be less interested in operating the company.

Large asset managers have also been adding personnel tied to wealth management. PE Hub reported that Blackstone hired Jennifer Abate as a senior managing director and head of the registered investment adviser channel in New York, while KKR appointed Roy Gori as a senior adviser.

This story draws on original reporting from PE Hub.