If independent wealth managers want to compete for high-net-worth investors with dominant players like Morgan Stanley and JPMorgan Private Bank, they need full-fledged research departments that can create model portfolios, vet managers and funds, and develop new investment products for advisors. Even huge firms like Hightower don’t have capabilities that measure up to what advisors and their clients could get from a firm like Goldman Sachs.
So, Hightower just took a controlling stake in NEPC, which advises pensions and endowments on their asset allocations, investigates asset managers, and provides access to sought-after venture capital and private equity funds. NEPC also is a so-called OCIO, which manages investments — on an outsourced basis — for institutions. The partnership will create an organization that has $258 billion in assets under management and $1.8 trillion that it advises on but doesn’t manage.
There have been similar deals between wealth managers and institutional consulting or OCIO firms this year. In February, Mariner Wealth Advisors announced plans to acquire AndCo Consulting and Fourth Street Performance Partners. In April, Cerity Partners agreed to combine with institutional OCIO Agility to form Cerity Partners OCIO. (Genstar Capital, a private equity firm in San Francisco, took a majority stake in Cerity Partners in June 2022. Lightyear Capital also owns a stake in Cerity.) And just last week, Pathstone, an advisory firm for family offices, revealed a plan to acquire Hall Capital Partners to enhance its investment capabilities.
As part of the deal with Hightower, NEPC gets access to a fast-growing part of finance: managing investments for wealthy individuals and their growing appetite for private equity, private credit, and infrastructure funds. NEPC has an established OCIO business managing portfolios for the biggest pensions and endowments, but smaller retail investors and their advisors are harder to reach. In turn, NEPC gets Hightower into the OCIO business and capabilities that it would have found difficult to develop independently.
Recent deals show just how active private equity has been in wealth management. “It’s an interesting transaction for a PE firm like Tom Lee [THL Partners] to put together a 1.8 trillion financial services firm with private wealth management and investment advisory for any type of client — taxable or nontaxable — any size,” said Brad Alford, founder of Alpha Capital Management. “PE is all over OCIO, PE itself has become a leading OCIO firm,” he added, pointing out that Wilshire and Agility, now Cerity Partners, both have private equity backers, while the other trillion-dollar-plus OCIOs are almost all public. Callan is the last holdout, he stressed.
In an interview, Hightower’s CEO Bob Oros explained that the wealth manager wanted to leverage NEPC’s expertise in areas like capital markets research, asset allocation, and manager selection — which Hightower doesn’t currently offer to clients in a centralized way.
“They bring us capabilities that would have been hard to build on our own,” Oros said. “The opportunity to make that available to our clients adds a lot of value.”
The partnership will also enable Hightower to offer its clients better access to private markets and preferred investment terms, thanks to NEPC’s scale. Oros added: “NEPC has been doing this a long time, so there is a track record.”
Donald Putnam, managing partner of investment and advisory firm Grail Partners, believes NEPC’s “vast store of proprietary information and insight” was another major draw for Hightower. The acquisition, Putnam noted, means Hightower “can now tap into NEPC’s significant experience and expertise to feed the retail desire for new products without running afoul of the risk of bad product.”
Oros said that Hightower had been seeking to acquire institutional consulting and OCIO capabilities for some time, given the increasing convergence between wealth management and institutional capabilities.
“It was tough to find a partner that made sense, size-wise,” Oros said, until NEPC emerged as a potential match.
“There’s a growing trend with retail clients wanting more exposure to private markets, to non-correlated investments. This gives us an ability to accelerate that,” Oros added.
While NEPC said it was not actively pursuing a sale or merger, Hightower’s offer was appealing. Under the agreement, NEPC intends to retain its executive team and investment process, ensuring continuity in its business operations and client service.
Michael Manning, a managing partner at NEPC, explained that the ability to remain autonomous while having the opportunity to grow made the partnership particularly attractive to the institutional investment specialist.
Additional reporting by Julie Segal