PARTING SHOT

The stake sold by Fisher Investments to the Abu Dhabi Investment Authority might be a harbinger of things to come .

N MID-JUNE THE WEALTH MANAGEMENT INDUSTRY LEARNED THAT

Fisher Investments had sold a $ 3 billion minority stake to outsiders . Although such transactions have become relatively common over the past decade , this one was a bit unusual because a sovereign fund — the Abu Dhabi Investment Authority , or ADIA , openly and directly invested in the firm . Compare that to a similar deal in 2023 where ADIA made an investment in CI Financial ’ s U . S . wealth unit ( now called Corient ) as part of a Bain Capital consortium . These might be the first among many deals to come .

Last year , my partners and I published “ Welcome to the Jungle ,” a white paper ( which can be found at www . dpripro . com ) that provides a road map for industry participants on how we believe the wealth management industry will evolve over the next 10 to 15 years . Included in the paper ’ s many prognostications are several reasons sovereign funds will become the prime source of capital for the advisory industry ’ s largest firms and aggregators in the coming years .

First , sovereign funds are charged with building intergenerational wealth over many decades , and the wealth management industry provides a compelling opportunity . It is both stable and fast growing , and the emergence of multiple large aggregators has created an opportunity to put to work material amounts of money for a long time .

Equally important , one of the greatest competitive advantages for any industry participant is an owner with a very long investment horizon . Organic

Partnering with a sovereign like ADIA shifts an organization ’ s focus to what the wealth management business will look like in 15 years instead of the next few quarters or even years . growth is by far the largest opportunity to build enterprise value over the next 10 to 15 years as the number of potential clients is likely to more than double . However , client recruitment is brutally hard and requires a lot of patience . Partnering with a sovereign like ADIA shifts an organization ’ s focus to what the business will look like in 15 years instead of the next few quarters or even years .

Sovereign funds already indirectly own stakes in most aggregators . A large portion of the PE fund capital currently invested in aggregators was provided by sovereigns .

However , these organizations also undoubtedly have observed PE firms repeatedly selling the stakes they own in wealth managers to themselves , shifting them from maturing funds to new ones , using the sovereigns ’ money to get paid increasingly larger management fees over time . Directly buying stakes in large wealth management firms will save such capital providers hundreds of millions of dollars .

That said , taking money from a sovereign fund is not without risk . These organizations are political entities , re- continued on page 62

64 | FINANCIAL ADVISOR MAGAZINE | JULY / AUGUST 2024 WWW . FA-MAG . COM