Carlyle takes stake in Captrust

Carlyle Group is providing a cash infusion to acquisition-hungry Captrust Financial Advisors, the latest sign that private equity is still very much interested in registered investment advisors and that deals in the space may still be ramping up.

Funds managed by Carlyle are making “a minority growth investment” in the firm, Captrust announced Tuesday. It marks the second such PE stake in the firm, following GTCR’s taking a 25% stake in Captrust in 2020, a deal that provided the RIA with a war chest for acquisitions. Since then, Captrust has bought up 29 firms and boosted its valuation from $1.25 billion to $3.7 billion, according to the firm. Currently, it oversees more than $832 billion.

“Captrust is one of the premier brands within the RIA industry, with a deep bench of expertise and resources that support a premium and ever-expanding service model,” Jim Burr, head of global financial services at Carlyle, said in the announcement. “The firm has the unique position of leveraging its size and scale to benefit not only clients, but also to benefit the communities it serves. This differentiated position, coupled with Captrust’s vibrant culture and strong leadership, makes us incredibly excited to collaborate with our new partners.”

Captrust co-founder Fielding Miller remains as CEO and is the largest individual shareholder, the company stated.

“GTCR made its investment three years ago, and there has been a three-time increase in value,” said Dick Darian, founding partner at Wise Rhino Group. “If you look at Carlyle, for my money, they’d have to believe in investing in the business and providing the growth capital — they have to believe in the bridge, which is putting the retirement business and the wealth business together.”

Captrust’s presence in the retirement plan business is viewed as giving it significant potential for expanding into wealth management through its existing relationships with 401(k) participants.

“When an RIA aggregator buys a wealth management firm, they’re getting a lot of back-office efficiencies and resources, but they’re pretty much on their own for lead generation and prospecting. That’s a big issue,” said Fred Barstein, CEO of The Retirement Advisor University. “On the retirement plan advisor side, they have access to tens, hundreds of thousands of participants in the plans they manage … When you combine them together, it’s explosive, and Captrust is right at that intersection.”

Similarly, in 2021, Aquiline Capital Partners picked up a majority stake in SageView Advisory Group — a sign that private equity firms see retirement plan participants as a mostly untapped market for wealth management, Darian said.

Captrust didn't disclose the size of the stake Carlyle will have, nor did it say how much money will be available to pursue acquisitions. A company spokesperson said in an email that Captrust would not comment further on the terms of the deal.

About 13,000 advisors in the U.S. have more than half of their revenue coming from defined-contribution plan businesses, compared with the other 288,000 advisors, Barstein said. Many in the retirement plan business are extremely small, making them poor candidates for acquisition, he noted. It takes a long time to build a large retirement plan advisory business, unlike in the wealth space, where if “you get three good clients, you’ve got a firm,” he said.

This year through August there have been 154 RIA acquisitions in the U.S., in addition to three deals for independent broker-dealers, according to data from Fidelity.

Most of Captrust’s acquisitions are likely to focus on the wealth management business, given its existing footprint in retirement, Darian said.

In a statement provided by a Captrust spokesperson, president Ben Goldstein said, "Culture is a priority. We are looking for firms across the country that are a good fit and can successfully integrate into Captrust. A major part of our strategy is to enter into the 35 major metro markets with all three business lines, retirement plans, wealth management and endowments and foundations."

Even with interest rates rising, “the appetite for [acquiring] RIA firms and retirement plan advisor firms just keeps growing,” Barstein said.

“It has not diminished. We’re not hearing about prices coming down, valuations going down,” he said. “I think there’s actually more money coming in.”

Another firm, Creative Planning, started expanding its business from the opposite side, buying up retirement plan advisors to support its wealth management side, he noted.

For now, much of the attention has been on scooping up smaller advisors. But the RIA space could follow trends seen in the retirement plan record-keeping and institutional consulting businesses, where the available small businesses have dried up and only larger competitors remain, Darian and Barstein said.

“The question is when will the RIA aggregators be buying each other,” Barstein said. “I don’t think we’re there yet.”

Editor's note: This story was updated with commentary from Captrust.