Nontraded-REIT dynamo Nicholas Schorsch is making his first foray into mutual funds and gaining the potential to widen the distribution of his array of investment products.
Hatteras Funds, a boutique alternative investments mutual fund firm with $2 billion in assets and six funds, has agreed to be acquired by RCS Capital Corp., a wholly owned subsidiary of American Realty Capital, the real estate investment trust sponsor run by Mr. Schorsch.
American Realty Capital currently sponsors close to a dozen illiquid, nontraded investment programs. Those are predominantly nontraded REITs.
The Hatteras funds manages “liquid alts,” or mutual funds with daily pricing and liquidity. It sells through the major asset custodians, regional broker-dealers and large independent broker-dealers. It also counts as distribution partners the four national wirehouses, which have been reluctant to sell nontraded REITs.
Mr. Schorsch said the acquisition of Hatteras would give American Realty Capital a presence in that part of the financial advice business. Gaining entrance to wirehouses “is a meaningful part of this,” he said in an interview Tuesday. “It gives us a whole channel for products that aren't REITs. This is all liquid product.”
He added: “We're focused on diversification. We want to sell more of other product and less of ours.”
According to an investor presentation, RCS Capital will pay Hatteras $30 million in cash at the deal's close and another $10 million in deferred cash over the next three years. There also will be earn-out payments in 2016 and 2018.
Hatteras will utilize the new ownership relationship to “dedicate greater resources toward technology, new product offerings” and personnel, according to a statement from the company.
RCS Capital, which has been publicly traded since June, was formed by American Realty Capital to operate and expand businesses focused on the retail-direct-investment industry.
Mr. Schorsch has been busy working on acquisitions of late. RCAP Holdings LLC, which is controlled by Mr. Schorsch, in June announced it would acquire First Allied Holdings Inc., which included First Allied Securities and The Legend Group. When asked if any other broker-dealer acquisitions were in the works, Mr. Schorsch declined to comment.
The strategy to expand beyond American Realty Capital's primary business line of REITs was partially exposed last week at the InvestmentNews Alternative Investments Conference in Chicago when American Realty Capital managing director Sameer Jain said the company was building its product line and is interested in acquiring a mutual fund manager of liquid alternatives.