Private equity groups are now investing in wealth management businesses after being conspicuously absent for a long time. Just recently, Permira acquired Bestinvest from 3i for an undisclosed amount. According to a report from Citywire Wealth Manager, the retail distribution review (RDR) is one of the factors behind the interest of private equity funds in wealth managers.
The RDR was implemented by the Financial Services Authority, the regulatory body for financial services in the UK on January 1 this year. Information given by Skipton Financial Services Limited on Guardian investing revealed that the aim of RDR is to increase the professional standards in the industry, provide for greater clarity in the different kinds of services offered and clearly specify the cost of the advice given.
Charles Cade told Citywire Wealth Manager on the Permira investment, "Permira is seeking to use Bestinvest as a platform to exploit consolidation within the UK wealth management industry following the implementation of the RDR." The reforms have led to the consolidation of firms in the UK wealth management industry which in turn reduces the regulatory overheads and facilitates brand-building.
Aside from the RDR, private equity is also attracted to wealth management because it is a growing industry. Citing ComPeer, the report said that assets of the UK wealth management industry have been steadily growing by over 10% per annum in the past few years. The market, however, is still fragmented with a lot of subscale companies with less than GBP 3 billion in client assets.
A Bridgepoint spokesperson said that private equity likes growing markets. Bridgepoint acquired Quilter from Morgan Stanley in 2012. Bridgepoint said about the acquisition, "Quilter was not able to make acquisitions in a still highly fragmented market under its previous shareholder structure, but that has now changed under private equity ownership."
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