NEPC's sale of a majority stake to wealth manager Hightower Holding looks set to accelerate an ongoing push by institutionally focused investment consultants into the fast-growing U.S. registered investment adviser marketplace.
But in light of the deal's scale, industry analysts say they'll be watching to see whether NEPC, in partnership with Hightower, is able to bolster its high-net-worth client business without diluting the firm's institutional focus.
As of June 30, NEPC had $1.66 trillion in client assets, including just over $100 billion in outsourced CIO assignments.
“The ultimate question for any acquisition that’s shaped like this is: 'Does having to distribute down into that wealth management sleeve water down the institutional process?’” noted Jim Scheinberg, managing partner of Marina Del Rey, Calif-based North Pier Search Consulting, which vets outsourced CIO providers such as NEPC on behalf of institutional clients.
NEPC's goal is to ensure that the answer is “no” but “the proof is in the pudding (and) time will tell,” Scheinberg said.
Who benefits?
Competitors contend that the benefits of the deal announced on Oct. 21 — including the provision of NEPC’s cutting-edge private markets research to its wealth management partner's financial advisors — are, at first glance, more obvious for Hightower clients than for NEPC clients.
Hightower brings roughly $156 billion in assets to the deal, among the 140 financial advisory practices the Chicago-based firm has consolidated since its founding in 2008.
While the deal could help Hightower, majority owned by Boston-based private equity firm Thomas H. Lee Partners, advance its strategy of getting bigger and eventually listing, it’s not immediately clear how this will advantage NEPC’s clients, noted Michael A. Rosen, chief investment officer of Angeles Investment Advisors, a Santa Monica, Calif.-based investment consulting firm.
Mike Manning, managing partner of NEPC, in an interview said institutional business will continue to be "the lifeblood of what we do.” Facilitating Hightower’s ability to tap into the Boston-based consultant’s capabilities — whether on manager selection, alternatives or outsourced CIO services — won’t find NEPC’s professionals working directly with Hightower’s financial advisory practices, he added.
Hightower’s “expertise is working with the end clients. They don’t need us to come in and help with that,” said Manning. Instead, in some cases, Hightower may just be taking NEPC’s intellectual capital and figuring out how to deliver that to clients; in others, NEPC could be part of a package solution crafted by Hightower to solve a problem for the firm’s RIAs, he said.
Up until now, said Bob Oros, Hightower’s chairman and CEO, in an interview, when Hightower acquired a financial advisory practice, it took over back-office functions such as human resources, finance and compliance technology, but left investment-related functions such as market research and portfolio construction to those financial advisers.
“We didn’t have the ability from the center to do that for them,” he said.
Now, with NEPC, Hightower can “go to an adviser and say ‘you know what? You have one (or two people) focused on doing this … you could redeploy them to do something else (such as estate planning or trust services) and let us do it,” said Oros.
Separately, having a sophisticated partner such as NEPC will be an added attraction for financial adviser practices that might consider joining Hightower in the future, Oros said.
Opening up a new growth segment for NEPC, meanwhile, should ultimately benefit the institutional clients who currently account for more than 90% of the firm’s assets under advisement or management, NEPC executives say.
If NEPC’s tie-up with Hightower “allows us to accelerate growth,” that will enable NEPC to reinvest back into its business, bolstering its investment team and back-end infrastructure as well, said Steven F. Charlton, a Boston-based NEPC partner and head of client solutions.
Still, Charlton conceded, gatekeepers could opt to put the firm “under the microscope,” for the first six months in particular, on alert for signs of change.
Shrinking pension margins
Market veterans say the Hightower-NEPC deal, set to close at the start of 2025, could spur further couplings of wealth managers and institutional investment consultants.
“Retail investors want the best of institutional capabilities, and (institutional consultants) want to gain access to retail as well, just because the size of the pie is so large,” said Hightower’s Oros.
The current year has seen a pickup in such combinations. In February, for example, Mariner Wealth Advisors acquired institutional investment consulting firms AndCo Consulting and Fourth Street Performance Partners, followed in April by wealth advisory firm Cerity Partners’ acquisition of Perella Weinberg Partners Capital Management. Then this month, private-equity backed Pathstone acquired Hall Capital.
For investment consultants, watching corporate defined benefit pension plans that account for the bulk of their client assets freeze or shut down, the wealth management segment is increasingly taking on the aura of a great white whale, promising solid growth and relatively attractive margins.
Family offices and the rest of individual after-tax wealth “are the two fastest growing institutional investment consulting segments on the planet, in terms of the number of clients,” said Rich Nuzum, executive director, investment and global chief investment strategist with Mercer.
Wealth management offers opportunities to fill the gap created by shrinking DB totals, agreed Nimisha Srivastava, Willis Towers Watson’s U.S. head of investments. “The size of the wealth market is now larger than the size of the U.S. defined contribution market,” she noted.
Different paths
But if there's a growing consensus that wealth management could be an increasingly important business segment, consultants have beaten a variety of paths to its door.
Rosen said his firm’s entry into the segment came from reverse inquiries from trustees of the endowments and foundations that accounted for the bulk of Angeles’ clients. “People would come and say, ‘Hey, I’ve got a chunk of money. Can you manage it for me? Because I like what you’re doing for the foundation that we work with.’”
Angeles began handling such requests as a “one-off thing,” but the service model required — including estate planning and communication across generations — was markedly different from that for the firm’s pure investment management focus, Rosen said.
Then, a dozen years ago, when Jonathan Foster, a wealth management veteran serving as a trustee of one of Angeles’ clients suggested the firm “create something for families,” Rosen said “great, you need to lead it, because I don’t know what I’m doing with that.” Foster became president and CEO of Angeles Wealth Management, which currently accounts for about a quarter of the group’s $8.4 billion in AUM, which includes $6.5 billion in institutional client assets.
WTW, at the start of October, acquired a stake in atomos, a U.K.-based advice-led wealth manager with more than $8 billion in client assets backed by Oaktree Capital Management funds, said Srivastava.
For wealth management platforms that have billions in client assets but just a handful of professionals overseeing research and investments, WTW’s ability to step in and serve as an investment engine and solution provider should provide continued opportunities, she said.
Gregory C. Allen, Callan’s CEO and chief research officer, said his firm’s latest forays into the wealth management space include a revenue sharing partnership Callan forged in 2022 with one of the 30 or so RIA platforms for which Callan's long-standing independent advisors group provides research, together with middle and back office services.
“We’ve known them for 30 years. We think they’re treating this marketplace in a very institutional way (and) we came to, basically, a service agreement where we’re providing a whole bunch of services to support them and…allowing them to essentially license our brand” as Callan Family Office, Allen said. Callan Family Office reported in April that its client assets surpassed $5 billion.
In February, meanwhile, Meketa Investment Group, a Westwood, Mass.-based investment consulting firm with $2.9 trillion in client assets, announced the launch of Meketa Capital to serve RIA clients.
Stephen P. McCourt, San Diego-based managing principal and co-CEO of Meketa, said that business — bringing best practices from the institutional marketplace to the wealth management segment — was hived off to a separate corporate structure because “we didn’t want to distract ourselves from our primary focus, which is supporting our institutional clients.”
“It’s still a relatively new enterprise and endeavor for us but it’s gone quite well so far,” McCourt said.
NEPC first foray
Like Angeles, NEPC’s first foray into wealth management, in the 1990s, was in response to trustees with the endowments, foundations and hospitals the firm advised saying “hey, can you come and help us,” said Manning.
The firm eventually opted to bring in the talent needed to pursue a more structured business plan, and over the past six or seven years, it grew to be a “full-fledged business line,” with the fastest growth of any NEPC business segment, Manning said.
Up until now, that business for NEPC has focused on the family office market, the ultra high end of the wealth segment, but working with Hightower should “allow us to bring our capabilities to a broader audience,” he said.
Oros said the Hightower-NEPC deal should prove to be a milestone in the institutionalization of wealth management. Putting together a “scaled RIA with a scaled institutional consultant” should prove “transformational” for the industry, spurring further combinations, he said.
If so, said Manning, NEPC could benefit from having “picked our dance partner” early.
