Alts manager FS Investments doubling size with merger

FS Investments, a leading manager and seller of alternative investments like nontraded business development companies that has $35 billion in total client assets, said Thursday morning that it had entered into an agreement to merge with Portfolio Advisors, a private equity, credit and real estate manager with $38 billion in assets, creating a firm with $73 billion in alternative assets under management.

Terms of the deal, which is expected to close by June, were not disclosed.

One thing different about the merger, aside from the overwhelming focus on alternative investments, is the roots of each firm: FS Investments since its opening in 2007 has mostly focused on retail wealth managers, while Portfolio Advisors, which launched in 1994, has worked with institutional investors. Since the credit crisis of 2008, Wall Street titans like Blackstone Inc. and Goldman Sachs Group Inc. have increasingly turned to retail financial advisors to sell products and services.

With this deal, Philadelphia-based FS Investments appears to be turning that approach on its head, with the non-Wall Street firm that focuses on financial advisors acquiring an institutional manager, Portfolio Advisors, which is based in Darien, Connecticut, a few miles up the road from the Wall Street suburb of Greenwich.

Another key ingredient in the combination is Portfolio Advisors' MVP Private Markets Fund, a registered private equity fund with more than $500 million in assets, which is structured for both wealth management and institutional clients. While alternative asset managers like FS Investments and Blackstone have figured out how to sell nontraded BDCs and REITs through financial advisors, managers have not had nearly the success with private equity investments for retail wealth managers.

"This transaction is transformative for FS Investments, accelerating our efforts to broaden our institutional client base, diversify our offerings to include growth-oriented products such as private equity, and deepen our in-house investment capabilities," FS Investments CEO and chair Michael Forman said in a statement. "This combination also enhances our financial profile, diversifies our revenue streams and positions us to invest in further growth."

"FS Investments' deep product development expertise and robust distribution platform will bring our leading private markets investment strategies to a broader audience," added Brian Murphy, co-founder of Portfolio Advisors.

Portfolio Advisors will become the institutional investment arm of FS Investments and will continue to operate with its full complement of employees and its offices in Darien, Dallas, London, Zurich, Hong Kong and Singapore, the companies said, while FS Investments' and Portfolio Advisors' executives will have representation on senior leadership committees across both organizations.