Private-equity giants start targeting wealthy advisory clients

Blackstone has focused on investors with $5 million in assets while Carlyle has partnered with OppenheimerFunds to reach individuals seeking higher yields

Oct 17, 2017 @ 4:44 pm

By Bloomberg News

Big Wall Street banks have come to rely on their money-management units as pots of gold in uncertain times for trading revenues.

Morgan Stanley is a perfect example; it reported earnings on Tuesday that highlighted its wealth management as a bright spot, posting its third straight quarter of record pre-tax earnings.

But these divisions have growing competition, with private-equity firms in particular looking for ways to attract this business. The Blackstone Group LP, for example, is relying on wealthy individuals with up to $5 million in assets for its next phase of growth, according to a recent Wall Street Journal article.

The Carlyle Group, meanwhile, is teaming up with OppenheimerFunds on a joint venture marrying Carlyle's asset-management reach with the other firm's distribution network, according to a press release Monday.


This is an important development to watch and a direct challenge to money-management teams at, for example, Morgan Stanley and The Goldman Sachs Group Inc. Both banks pool funds from rich people to funnel into buyout firms, taking fees along the way. Now private equity is trying to cut out the middle man – namely, the brokers at big money-management units at large banks.

(More: Private equity firms see hidden value in 401(k) record keeping.)

This is a change from years ago, when these behemoth alternative-investment firms had no time for such small-potato clients individually. Now private equity could potentially automate a lot of the paperwork and tax documentation, alleviating some of the hassle and costs that might have dissuaded firms in the past. Retail money is attractive because it's typically stickier than other allocations – although that may not make a difference to private-equity strategies that usually include longer-term lockups.


Meanwhile, wealthy people own a growing pool of money. High net-worth individuals in the U.S. had nearly $18 trillion of assets at the end of last year, up from about $11.4 trillion in 2011, according to data compiled by Capgemini.

This development should raise some concerns at the biggest banks. It marks a new front of the money-management war – how to strip away all extra fees by eliminating unnecessary intermediaries so that any extra payments go to the people making the investing decisions.

(More: Rich times embolden private equity dealmakers to fly solo.)

This is different from past failed private-equity attempts to attract small, mom-and-pop investors to mutual or closed-end funds. While these latest efforts may also fall flat, they address demand from wealthy individuals, a growing pool of sophisticated investors willing to trade liquidity for access to higher-yielding assets not widely available to others.

It's unclear whether Blackstone can have the same kind of success with rich people as it's had with institutions. But shots have been fired in the war over advising these clients. It's only going to get harder for the largest banks to depend on their lucrative investment units for growing revenues in the years to come.


What do you think?

View comments

Recommended for you

Featured video


3 Questions to ask yourself when making your succession plan

Michael Futterman from Janus Henderson Investors has sage advice for advisers as they approach retirement.

Latest news & opinion

The power of philanthrophy shifts to women, and advisers are taking notice

Philanthropic women are growing in number — and stature.

Cetera brokers may go elsewhere with no stay bonuses on horizon

Some may feel spurned and leave, while others will simply shrug off latest slight and stay.

Fidelity backs away from being 'point in time' fiduciary for 401(k) plans

Some advisers think this indicates other providers will pivot in light of DOL fiduciary rule's death.

Morgan Stanley CEO is happy that brokers are staying put

Firm has seen little attrition since it dumped the broker protocol last fall, Gorman says.

Bills to reform adviser regulation, increase sophisticated investors and protect seniors pass House

Measures included in package of 32 bipartisan bills meant to ease rules, spur investment


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print