Demand for wealth management advice, especially as populations age, is on the rise, leading to consolidation opportunities for private equity, Iñaki Echave, senior managing director at Ontario Teachers’ Pension Plan Board (OTPP) told PE Hub Europe.
OTPP entered into a definitive agreement to acquire a majority stake in Seven Investment Management (7IM) from Caledonia Investments in early September. The enterprise value was between £400 million ($502 million; €467 million) and £450 million, according to sources familiar with the matter. 7IM is a wealth and investment manager with around £21 billion of assets. The company has headquarters in London and Edinburgh.
Several tailwinds are pushing the wealth management industry forward, according to Echave. These include asset appreciation, in line with longer-term trends in capital markets and volume, supported by pension reforms.
“Independent advisers are getting more interest, which was proven during covid too,” Echave added. “Governments want people to save as the demographics get older. All of this is likely to drive single-digit growth in the industry.”
A report by Bain & Company in 2022 predicted customer demand for wealth management would continue to surge, and by 2030, the consultancy firm expects the industry’s revenues to grow by $254 billion, doubling 2021 revenues.
Services in the asset management sector tend to be based on trust and confidence, Echave said, making them fairly stable. “Customer relationships are nurtured, so they tend to be lower churn and more sticky,” he explained. “That gives you the chance to continue improving on your service and build on that.”
For M&A opportunities, “culture is very important, and there also needs to be an industrial rationale, for example cross selling”, said Echave. “We want to acquire businesses that provide additional business for our platform.”
“We want to continue investing in more advisers and people, so we can keep gaining a bigger slice of the pie by growing faster than others,” he added.
OTPP has no plans to expand 7IM outside the UK. “We think the opportunity is very attractive in the UK, so it’s important to stick to what you know,” said Echave, adding that expansion outside the UK would require other capabilities and ensuring the firm met the regulatory requirements.
Despite Ontario Teachers’ being a pension plan, the firm operates much more as a direct investor, which Echave sees as a benefit. In 7IM’s case, OTPP managed to “outrun” all the other bidders. “We were able to pre-empt the process by nearly two weeks – we could only do that due to our sector knowledge and ability to provide the confidence to the seller and management team as a reliable direct investor and a good custodian of the company for the future,” he said.