Outsourced chief investment officer firm Partners Capital was ready to hand over the reins to its next generation. But the firm needed flexibility to make it happen.
That was the impetus behind the deal between Partners Capital and private equity firm General Atlantic. Last month, General Atlantic announced that it had acquired a minority stake in Partners Capital, which manages $50 billion on behalf of endowments, foundations, family offices, and ultra-high net worth individuals.
“We were trying to provide liquidity for the first generation of shareholders and founding partners,” said Arjun Raghavan, CEO at Partners Capital. “The early generation of backers are in their 70s or 80s. There was a need to provide liquidity for those who wanted it. Rather than trying to allow that to happen organically, we wanted to run a process.”
General Atlantic acquired its stake in Partners Capital through a fund, rather than using balance sheet capital. Partners Capital’s investment operations will continue to remain separate from General Atlantic.
The OCIO industry has been ripe for consolidation for some time, with several small, boutique firms fighting for market share. When Mercer announced that it would acquire Vanguard’s OCIO unit in December 2023, industry watchers believed it could be a harbinger of what was to come in the niche corner of the finance industry.
But Partners Capital sees the investment from General Atlantic less a consolidation or growth play, and more as a plan for talent retention and expanding its already global reach.
“A lot of consolidation is happening because of succession issues,” Raghavan said. “People don’t quite know how to solve the long-term succession issues.”
Finding the right investor to do that took about two years, Raghavan said. In General Atlantic, the firm found a few things. First, it can now provide a liquidity option to its first generation of shareholders and founding partners, many of whom have been invested in the firm since its founding in 2001.
Partners Capital counts among its earliest investors the Rothschild Foundation and Sir Ronald Cohen, a founding partner at Apax Capital. “Everyone is taking some money off the table, but they will remain shareholders,” Raghavan said.
Partners Capital also wanted to incentivize senior talent in the organization by offering equity. Current firm leadership will receive a piece of the pie, while the firm has also set aside shares for future partners.
“By bringing in a strategic investor, we can reset the economics and help more easily achieve the generational transfer,” Raghavan said. “That was very important because the one thing I worry about is leaking talent. By doing this, they are locked in at least for six years.”
Talent retention is important for Partners Capital following the amicable departure of two CIOs — Colin Pan, who left in 2021 to launch his own firm, and Suzanne Streeter, who was named co-CIO after Pan departed. Streeter left in 2023 to join a family office, and her co-CIO, Alex Band, remains in the role.
According to Raghavan, General Atlantic helped Partners Capital think through structuring the equity incentives, and of course, helped the firm facilitate the equity transfer. “It’s equity incentives that align people to the long-term investment performance and growth of the business,” Raghavan said.
Succession planning, Raghavan points out, is a challenge for outsourced CIO providers. The industry is something of a barbell — on one side, there are boutique OCIOs, often founded by former endowment or foundation CIOs. “They have nice service and good investments, but clients may be worried about longevity and scale,” Raghavan said.
On the other end of the spectrum, big banks offer OCIO services. Clients like that institutional backing, but there are potential conflicts of interest given the possibility of cross-selling of other products.
Raghavan’s view is that Partners’ size, coupled with its focus solely on OCIO and private markets, positions it well in the bifurcated OCIO market. The firm is also global, with offices in Asia and Europe, he noted.
With General Atlantic’s investment, Partners plans to continue its organic growth path forward. “The number of RFPs coming in from distinguished endowments and foundations is growing,” said Partners Capital co-founder Paul Dimitruk. “It’s all driven by the same impetus: They want global investments, top analytics, and data sourcing. The duration and stability of the firm is important to them.”
