A Pension Fund Is Investing in Wealth Management Firms. It Won’t Be the Last.

Wealth managers will continue to raise capital, but more will get it from pension funds and other institutions in the future, investment bankers say.


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A private equity deal last week between a buyer and seller that are rarely paired together was a sign of similar acquisitions to come, and the beginning of a new phase in the multitrillion-dollar wealth management industry, stakeholders say.

The Ontario Teachers’ Pension Plan announced Sept. 5 that it acquired a majority stake in Seven Investment Management (7IM), a private wealth management firm in the U.K. with $26.2 billion in assets. The transaction stands out from similar deals.

Hundreds of wealth management firms are sold every year, mostly to other wealth managers. Large ones have occasionally raised capital from, or been acquired by, traditional private equity firms, insurance companies and family offices. A direct investment from a pension fund is rare but now it’s happened at least twice this year. (The State of Wisconsin Investment Board, along with the Abu Dhabi Investment Authority, Bain Capital, Flexpoint Ford, Ares Management, and other institutional investors, purchased a minority stake in CI Financial’s U.S. wealth management business in May.)

Iñaki Echave, a senior managing director at OTPP, said the pension fund spent years exploring investments in European wealth managers. Seven Investment Management is “one of the highest-quality, fast-growing financial services platforms in Europe” and the pension fund plans to help the company maintain its trajectory, including by supporting 7IM’s own potential mergers and acquisitions, Echave said.

The investment represents only a sliver of OTPP’s $249.8 billion in total assets. But it’s part of a $7.31 billion private equity portfolio designated for financial services companies. The portfolio also includes Allworth, a $17 billion U.S. wealth manager, and could have more wealth management firms in the future.


“We believe the wealth management sector is compelling given expected asset appreciation and future net flows supported by pension reforms, demand for wealth advisory, and demographics which should drive structural growth over the long term,” Echave said. “This is a core sector of focus for us. We have high conviction in the sector and see significant opportunities in high-quality, fast-growing financial services platforms.”

OTPP likes wealth managers for the same reasons private equity firms, insurance companies and family offices do. Their clients are sticky (annual retention rates can be higher than 95 percent), their revenue tends to be stable, they have wide operating margins, and some have significant organic and inorganic growth potential. Good wealth management firms are cash machines, especially for investors that go direct, rather than through a PE fund, saving themselves management fees and keeping carried interest a third-party fund would have paid itself.

And unlike some other investors, OTPP is “not constrained by a fund life cycle and concentration limits like other private capital investors,” Echave said, and that is attractive to would-be sellers. Planning for the future and continuity are pillars of the wealth management business, so some firms are uncomfortable with traditional private equity firm ownership: There’s no telling who the next owner will be when the current one inevitably sells.

There is interest from both sides — pension funds, or the so-called “patient capital,” and many wealth managers — and the OTPP-7IM transaction is likely a sign that more deals like it are coming, according to Brian Lauzon, managing director at InCap Group, a boutique investment bank focused on wealth and asset management.

“The need for capital is going to remain and the sources are just going to change,” Lauzon said.

John Langston, the founder and managing director of Republic Capital Group, a boutique investment bank that primarily advises wealth and asset managers, said the emergence of pension plan investors is another chapter in the maturation of the growing private wealth management industry.

“It’s very good for the industry and I think [pension plans] will be a strong option for a lot of firms who are more reluctant to work with other partners,” Langston said.

Still, even if a herd of pension funds started pursuing direct investments in wealth managers, they won’t supplant traditional private equity firms in the space. Langston is adamant that different buyers are better for different sellers and scenarios. Patient capital might be more permanent than a seller realizes they want or need, and convincing those owners to give up their stake might require serious concessions or a hulking price.

Langston says that kind of leverage over a company is “unhealthy,” so Republic Capital negotiates a path to exit in the deals it works on, even if it feels like planning for a divorce.

“A lot of people have a high emotional comfort with this permanent capital dynamic and they don’t think about the other side of the coin,” Langston said. “My argument would be: try to evaluate each structure and type of partner, both the pros and the cons, and don’t allow an emotional attraction to a particular approach to cause you to overlook the downside of a particular partner.”