Archive for November, 2009

Wirehouse Poaching Fuel’s Young Firm’s Growth

Monday, November 23rd, 2009

Published inFUNDfire – An Information Service of Money-Media, a Financial Times Company
By Tom Stabile

Two former UBS Financial advisors recently joined the ranks at HighTower, a Chicago-based boutique brokerage start-up that is aiming to “double or triple” its roster in the next two years by poaching from the wirehouses. Christopher Davis of Virginia and Matthias Kuhlmey in New Yorkjoined separately from UBS, bringing the firm’s tally, in a little over a year of operation, to 17 advisors with about $15 billion in assets – including 10 teams from the wirehouses or other big-name brokerages.

“We’ll have new people coming aboard in December or just after the New Year,” says Elliot Weissbluth, HighTower’s CEO. “We expect to be at between $50 billion to $100 billion in assets in the next two to four years.”

The goal sounds ambitious, even though the firm has said it is focusing on advisors with $300 million or more in client assets. It added a big chunk of its assets this year with a single advisor team led by Richard Saperstein that had run about $10 billion in client accounts at Bear Stearns.

But Weissbluth says HighTower expects to grab its fair share of the increasing number of large-book wirehouse advisors who are leaving the brokerage environment. The absolute number of advisors leaving remains small – in the hundreds – out of the universe of more than 50,000 wirehouse advisors, but it has nevertheless been growing rapidly.

“The wirehouses are our core target,” he adds. “We look for the elite brokers inside the wirehouses who have made the decision they would like to leave. We want to be on their short list.”

The idea that wirehouse advisors are willing to move is fueling business initiatives at dozens of custodians, managers, advisory firms, and service providers this year. And on Friday, Charles Schwab & Co. released the results of its survey of 200 wirehouse advisors about their attitudes on leaving the brokerage world for an independent firm, and it found that nearly half would “consider” such a move. Schwab is a large custodian that aims to attract brokerage advisors who decide to go independent to its platform. HighTower uses the platforms at Schwab and another large custodian, Fidelity Investments, for investments, custody and other services.

HighTower’s own traction was rapid in its first six months as it added 15 advisors through May. It had a dormant recruiting stretch until adding the two UBS advisors, but Weissbluth says the pause was planned because HighTower undertook a time-consuming effort to set up a clearing infrastructure through JPMorgan, particularly to benefit Saperstein’s large practice.

“That was a big operation,” Weissbluth says. “We decided to allow for JPMorgan and HighTower to have a sufficient amount of time to make sure the infrastructure was working well between the firms. We decided to build instead of trying to build and grow at the same time over the summer.”

The HighTower model appears to promise good results, particulary because it offers an equity stake and share in the firm’s growth, says Andrew Klausner, principal at AK Advisory Partners, a Boston-based consultant. He refers to HighTower’s structure that assigns 25% of the firm’s equity to advisors who come in as partners, with shares allotted by the size of the incoming recruit’s book of business.

“I think the concept has legs,” Klausner says. “The equity option appeals to people.

HighTower’s model also calls for providing the advisors with infrastructure, platforms, and product access similar to what they had at the wirehouses, which is different than the effort required for advisors who go fully independent and start up from scratch. Klausner says having a business infrastructure in place is likely appealing to a wirehouse advisor who is eager to leave but doesn’t want to mind the details of running an office.

Klausner says he has seen other start-ups using this model, including the “equity kicker,” but none have yet matched HighTower in recruiting results. The firm now has eight locations, including “corporate offices” in New York and San Francisco that are equipped to bring in additional advisors, as well as five other offices based around regional teams in other cities.

One of the recent UBS recruits highlights another focus of the HighTower model – bringing in advisors with specialties that can in turn be offered to the clients of other partners at the firm. Kuhlmey brings over a specialty in global asset allocation and international banking, having worked as well at Julius Baer and Deutsche Bank’s private banking operations. His experience includes extensive buying and selling of foreign ordinary securities in native country currencies, an arduous process that many U.S.-based advisors don’t follow but which can offer significant benefits to certain clients.

That example adds to Saperstein’s cash management specialty and to others at the firm who focus on fixed income, Weissbluth says. “The HighTower strategy is to find really high-quality advisors, and many have developed differentiated practices,” he adds.

He says “information arbitrage” stemming from the partnership structure allows advisors to share their expertise with clients of their colleagues. Such occurrences call for the advisors to coordinate both with HighTower’s CFO to establish a revenue-sharing model as well as with the firm’s compliance team to ensure clients are well-informed about the arrangement.

AK Advisory’s Klausner says a specialist model should succeed at a firm where advisors shareequity. “In the brokerages, you’re typically relying on the home office resources,” he adds. “Here, you are relying on other producers who are experts. And, typically, in a wirehouse you’re not compensated to help anybody else. But when you have an equity stake, you have a direct incentive to grow the base of the business.”

HighTower’s recruiting haul so far also includes advisors from Morgan Stanley, Merrill Lynch, and Goldman Sachs. Weissbluth says the advisors get most external investment products, including separately managed accounts, from Schwab and Fidelity platforms or dual contract relationships with managers.

Poll: More Investors to Ditch Active for Passive

Wednesday, November 18th, 2009

Published inFUNDfire – An Information Service of Money-Media, a Financial Times Company
By Gregory Shulas

Institutional investors’ increased appetite for passive products will only grow stronger in thecoming months as interest in active management continues to wane. That’s according to FundFire poll respondents.

Roughly 57%, or 212 voters, said passive strategies will have the most momentum in the near future. That made it the most popular sentiment in a FundFire poll querying readers on whether active managers will continue to lose business to their passive counterparts in the coming quarters.

The majority tally includes 14%, or 52 voters, who said passive will have a “significant” advantage in the near future. It also includes 43%, or 160 voters, who said a “moderate” amount of investors will make the active-to-passive switch. That latter choice was the survey’s most popular individual option.

In contrast, 43%, or 162 voters, indicated that investors will remain loyal, if not increasingly committed, to active management in the months ahead.

The minority tally includes 21%, or 80 voters, who see no change from before, as well as 22%, or 82 voters, who expect investors will actually emphasize active management over passive management in the near future.

FundFire has reported on how institutional investors have displayed an increased interest in passive products in the past several months. For example, the San Jose (Calif.) Police and Fire Department Retirement Plan recently decided to move more than $250 million worth of largecap  equities into passive products as part of a larger asset allocation shift. Meanwhile, a recent survey from Greenwich Associates found that one in five investors have relocated money away from active managers, up from 4% last year. Further, the California State Teachers’ Retirement System has been debating the merits of active versus passive management.

Andy Klausner, founder of AK Advisory Partners, a strategic consultancy serving asset managers and advisors, says he’s not surprised by the poll’s results due to how many industry professionals are still “shell-shocked” from the past year’s events.

“One popular theme has been that active no longer works and that passive makes more sense. However, I think that this is more of a reactive mentality,” he says. “Especially since the markets have come back, I would have expected a little more support for the active side. What is probably clouding the issue is the fact that even though markets have rebounded, the general economy is not doing that well so people are still nervous.”

As of 3 p.m. Tuesday, 374 voters had taken part in the FundFire survey.

Participants were self-selected and only able to vote once. The survey is an unscientific sampling of FundFire’s audience, which consists of asset managers, institutional investors, consultants, financial advisors and service providers.

Poll: Blackrock-Barclays Merger Most Likely to Succeed

Wednesday, November 4th, 2009

Published in Ignites – An Information Service of Money-Media, a Financial Times Company
By Gregory Shulas

The BlackRock-Barclays Global Investors combination is the merger most likely to generate the most success when compared to the other big industry deals. That’s according to a plurality of Ignites poll respondents.

Roughly 47%, or 308 voters, said BlackRock-BGI has the greatest business opportunities ahead of it. That made it the top choice in the Ignites survey, which polled readers on which industry M&A deal will collect the most new assets and retain the most existing clients over time.

Voters said the deal with the second most growth potential is Invesco-Van Kampen Investments, which received 19% of the vote, or 125 votes.

Meanwhile, the Ameriprise Financial-Columbia Management deal garnered 15% or 98 votes putting it in third place. The Wells Fargo-Evergreen Investments deal collected 14%, or 89 voters, to finish in fourth place.

Macquarie Group-Delaware Investments finished last, with roughly 5%, or 32 votes.

Andy Klausner, founder of strategic consultancy AK Advisory Partners, says the high confidence in the BlackRock-BGI deal reflects the name recognition of the New York-based acquirer as well as the respect the firm’s risk management prowess commands.

“The Ameriprise-Columbia Management deal dragged on for quite awhile and that probably left some readers with questions. The other deals are recognizable names, but overall I think the quality of the BlackRock franchise is probably what influenced people the most,” Klausner says. Further, lack of name recognition probably hurt Macquarie Group-Delaware Investments’showing in the poll, he adds.

BlackRock announced in June that it would acquire Barclays Global Investors for $13.5 billion. The transaction gives New York-based BlackRock access to iShares, an ETF market leader.

Industry observers have described BlackRock-BGI as the future model of success in asset management, noting BlackRock’s strong active management capabilities and BGI’s rich passive product mix.

The most recent major deal was Invesco’s purchase of Morgan Stanley’s retail asset management business, including the Van Kampen Investments unit. Under the $1.5 billion deal, Invesco pays $500 million in cash and gives Morgan Stanley a 9.4% stake. The end result will create a fund complex with roughly $536 billion in assets.

That deal came within weeks of Ameriprise Financial’s announcement that it will pay between $900 million and $1.2 billion for the long-only mutual fund unit of Bank of America’s Columbia Management.