Why are PE firms investing in the UK wealth management sector?
At the moment, it seems that if a wealth management firm has enjoyed recent or rapid success, they will attract the interest of private equity firms. This is particularly prevalent in the current climate, where the successes and returns of investments made by PE firms into the sector have revived the interest of other firms both UK and US-based.
This has only accelerated since the pandemic, as PE firms make investment decisions based on which businesses are less likely to be exposed to economic turbulence, and which have stronger year-on-year figures.
Many PE investors are taking a ‘buy and build’ approach to investing, selecting a promising financial service business and facilitating growth and expansion, enhancing value in the process. This is a direct departure from the ‘buy and break’ reputation that PE firms have been known for, further suggesting a promising future for those backed by private equity investments.
Upon their investments, PE firms are actually buying people, relationships and talent. For example, they don’t purchase machinery and buildings in the investment process, but rather the transactional relationships of that financial business, and the people who make those relationships possible. For a better insight into this, I’ve explored some PE investments in action below.
Wealth management PE investments in action
Ultimately, a private equity investment allows a financial services firm to attract talent that may not have been caught before. The first example of this is with a particular client of mine, Novia, who recently signed an acquisition with AnaCap Financial Partners.
Established in 2008, Novia is the UK’s third largest independent investment and wrap platform by asset under management. Operating one of the best technology offerings in the industry, the priority for Novia was “partnering with a company that had a strong track record in growing fintech businesses with innovative operational strategies.”
CEO of Novia, Bill Vasilieff, said, “We believe that AnaCap represents the perfect choice to help us develop and, pending completion, we look forward to an exciting new chapter for the company in 2021 and beyond.”
This marked the start of a very exciting period for Novia. I’m currently working with them to secure top-level talent who are able to drive forward the technological advances of the organisation, as well as more salespeople who are equipped to bring in more funds under management and therefore amplify the value of the business.
Meanwhile, European investment firm Nordic House has bought the financial advisor group Ascot Lloyd. While the exact financial terms have not been disclosed, the purchasing fund manager added, “Ascot Lloyd has grown to become one of the UK’s leading independently-owned IFA firms. Since being appointed to lead the investment by the end of 2016, the company has tripled AuM and more than quadrupled revenues, with over 80 acquisitions executed to date. In Nordic Capital, we are pleased to have found the right partner and investor for the next stage of Ascot Lloyd’s growth.”
A third example of the power that private equity investments have is demonstrated in the successes of the UK’s largest long-term savings and retirement business, Phoenix Group. Backed by private equity, the firm announced in 2021 that it was launching its first dedicated Venture Capital fund, Phoenix Venture Capital Partners, with an initial allocation in excess of £100m.
Why have we seen an increase in PE investment recently?
There’s no doubt that the pandemic prompted a record-breaking surge in PE investor activity, with the global expansion of many firms also adding to the high expectations and return forecasts. In the US, the average deal size pierced through the $1 billion mark in 2021 for the first time ever.
Another key theme which makes timing of the essence is the rise of fintech firms and the disruptive, technological transformation that is being felt widely throughout the financial services sector in the UK, as well as elsewhere. Firms are looking for those future-proof, revolutionary businesses that are beginning to dominate this particular sphere.
Benefits of private equity investment
The perception of private equity investors is often one that they will take on a company just to simply break it for parts. However, this is no longer the dominant play for investors, particularly when it comes to wealth management firms.
Now, PE firms are looking for longer-haul investments that offer huge potential in terms of value and growth. By default, this means added value and growth for the business. I’ve explored three of the main benefits below.
The attraction of the company to the candidate:
A PE investment offers a cash infusion which in turn makes the business more attractive. PE investors have deep pockets and are therefore able to provide the financial resources to enhance appeal which can mean anything from mammoth marketing efforts to improved talent acquisition.
They will secure the projected returns:
Private equity firms will only invest where they believe there is money to be made. With targets set and cash injected, they will go after growth with zeal and purpose, strengthening the business in the process.
Positive talent acquisition:
More money equates to an increased ability to attract more candidates and grow, making PE investment a no-brainer from a business perspective. Companies who are able to acquire private equity will then have a substantial war chest that they can use to attract superior talent.
Why PE attracts good talent
Private equity firms make their money by improving companies to sell them for a larger amount. This ultimately alerts prospective talent to the fact that the company is on the up, and is going to increase in value, making it a desirable and future-proof place of work.
If you’ve recently acquired private equity investment and want to begin sourcing superior level talent, schedule a meeting with me to discuss the delivery of exceptional outcomes.
