Private Equity Showing Increased Interest in RIA Model

With private equity firms such as The Carlyle Group, Warburg Pincus, and Rosemont investing in registered investment adviser (RIA) businesses, Schwab Advisor Services says that the RIA model is well-positioned for continued success.   

David DeVoe, managing director of strategic business development for Schwab Advisor Services, told PLANADVISER there are four trends that are causing robust activity in the M&A field in 2011. Private equity firms’ growing interest in RIA firms is one trend: in the third quarter alone, The Carlyle Group made a minority investment Avalon Advisors, a Houston-based wealth adviser and asset manager with nearly $4 billion AUM; Warburg Pincus invested in The Mutual Fund Store of Kansas with $6 billion AUM; and Rosemont Investment Partners made a minority investment in Westmount Asset Management of Los Angeles with nearly $1.4 billion AUM.   

DeVoe said other trends causing an active M&A field are:

  • Demographics of the principals: the average age of RIA business owners is 54, and close to 30% are 60 years old.
  • The proliferation of consolidators: the growing number of firms that specialize in managing acquisitions.
  • Growing sophistication of RIA principals: whereas five or ten years ago, a principal might just sell their business as soon as they were ready to retire, DeVoe says more are beginning to think strategically about the transition.  As they explore their options, they’re realizing how an M&A might help them achieve their goals and objectives.    

In the first three quarters of 2011, there have been 44 transactions with $37.7 billion in assets under management, according to Schwab Advisor Services, compared with 47 transactions and $39.8 billion in AUM at the end of Q3 2010. M&A deals among RIAs saw a record year in 2010, with 109 deals totaling about $156 billion in AUM (see “2010 Record Year for RIA M&A”).  DeVoe said that while it is possible for M&A activity in 2011 to surpass the numbers of 2010, market volatility may dampen the field.