Aequitas Capital Partners is wading into the financial advisory space with a merchant banking model that provides access to growth capital in exchange for a significant business relationship that might not be for everyone.
Launched as a unit of Aequitas Capital in July, ACP is being marketed as a platform that provides advisers with access to private-equity investments, private credit strategies and private real estate funds.
The basic structure, under which Aequitas already claims more than three dozen advisory firm relationships, involves the adviser's making a $10 million commitment to invest in alternative investments on the platform in order to access either debt or equity capital provided by Aequitas.
“We want to be an alternative investments growth partner for RIAs,” said Keith Gregg, president of ACP.
While the menu of alternative investment options is limited, the sales pitch leans heavy on the idea that the platform is offering difficult-to-access strategies, which plays on the
growing appetite for alternatives across the financial advice industry.
“Advisers increasingly are looking for exposure to assets less correlated to traditional stocks and bonds in an effort to add diversification and income to their portfolios,” said Todd Rosenbluth, director of mutual fund research at S&P Capital IQ.
“But some alternatives can be less liquid and are harder to analyze, so investors need to be mindful that there are risk that might be harder to quantify,” he added, suggesting that ACP might be targeting a very small market with its current list of product offerings.
Mr. Gregg said the objective is to expand product offerings to include registered alternative-strategy mutual funds, closed-end funds, and access to business development companies.
“This will be an alternatives-based platform,” Mr. Gregg added. “But we are building it out.”
The ultimate build-out is significantly beyond just providing alternative products to financial advisory firms, because the real hook in the model is tapping Aequitas' ample access to capital to buy up ownership stakes in a growing network of advisory firms that have shown an affinity for alternative investments.
“We're building distribution here,” is how Aequitas Capital executive vice president Brian Rice put it.
Although the ACP platform is less than six months old, Aequitas Capital is a 21-year-old company with $1 billion worth of assets in high-yielding fixed income and other private notes.
The company has always been heavily focused on the credit side,
which has been a large part of its growth pattern, so far.
Aequitas Capital was originally started as a lender to troubled companies, but morphed into more of a private-equity firm. In 2004, it launched its CarePayment unit, which acquires uncollected medical-related debt owed by individuals to provide payment plan options.
A recent black eye for Aequitas Capital involved a
lawsuit related to a portfolio of student loans.
A federal judge has required Aequitas to set aside $2.48 million, which plaintiffs claim they are owed, ahead of the December trial in the civil lawsuit.
Representatives from Aequitas did not respond to requests for comment on the lawsuit, but wrote in in an emailed statement:
“As a matter of practice, we generally do not comment on ongoing litigation. In this matter, Aequitas is in a dispute with a consultant regarding commissions. The matter will be resolved in court."
