When Stan Miranda relocated from London last year, the money manager quickly realized that joining a club of aging, Lycra-wearing finance and technology executives who bike the mountains around Silicon Valley on Saturday mornings would be great for networking.
During an interview at the Rosewood Sand Hill hotel bar in Menlo Park, Calif., Mr. Miranda recalls his first ride with the self-named Over the Hill bike group. "There must have been $5 billion of business there. The West Coast is ripe."
Mr. Miranda co-founded Partners Capital in the U.K. in 2001 and developed a playbook that he's since exported to the U.S. and Asia. The idea is to build a network by managing money for rich individuals, then use those connections to win business from the elite endowments and foundations supported by those wealthy people. Partners, whose backers include British investment banker Lord Jacob Rothschild, has amassed $24 billion of capital, half of it as an outsourced investment office, or OCIO, for nonprofits.
(
More: High times for ultra-high-net-worth families)
The high-net-worth scene in Silicon Valley is totally different from those in London and New York. Over the past two decades the tech hub has turned thousands of young engineers and computer scientists into millionaires and billionaires, creating a potential client base for the wealth management industry of suddenly rich entrepreneurs. As the number of billionaires in the Bay Area has surged, so too has the population of family offices and multifamily offices in the area, such as Iconiq Capital, which manages money for top executives at Facebook Inc., including Mark Zuckerberg and Sheryl Sandberg.
Partners, however, isn't focused on Silicon Valley's young elite. It's targeting those who've helped finance the tech boom — venture capitalists and private-equity executives who also sit on the boards of foundations and endowments. The firm plans to open an office in San Francisco next year, spurred by the expansion of its West Coast business, which now accounts for about $2 billion of its assets in the U.S. and includes clients such as the Museum of Contemporary Art in Los Angeles and the Seaver Institute.
Partners' strategy for turning single clients into institutional-size opportunities isn't unprecedented in asset management. It shows how lines blur between family offices and OCIOs, which manage the entire portfolios of institutions. San Francisco-based Hall Capital Partners opened in 1994 to oversee the fortunes of those such as
private equity innovator Warren Hellman, but morphed into a national firm with more than $30 billion in assets and clients such as Bates College in Maine.
While endowments and foundations are still a bit of a free-for-all, the more elite clients tend to hire what are usually described as boutique firms
Competition is fierce for those making the leap to outsourcing. Barriers to entry are almost nonexistent. The industry is booming, with OCIO assets in the U.S. expected to grow 40% by 2021, to $1.7 trillion, according to consulting firm Deloitte. The number of companies vying for business include bulge-bracket banks like
Goldman Sachs Group Inc., consultants such as Mercer, and startups.
"It is still a bit of a Wild West," Anna Dunn Tabke, a principal at Alpha Capital Management, an outsourcing consulting firm in Atlanta, said of the OCIO business. "There is no industry standard yet. You just have to build a model and see if anyone will pay for it."
Big banks and consultants dominate outsourcing for pensions because they have the scale to oversee huge portfolios. While endowments and foundations are still a bit of a free-for-all, the more elite clients tend to hire what are usually described as boutique firms, which is where Partners competes.
(
More:
Rich Russians start family offices)
Outsourcers vying for the elites include Strategic Investment Group, which last year won a bid to manage Barnard College's $327 million endowment, and Perella Weinberg Partners, which was tapped by the New York Botanical Garden this year to oversee its $320 million fund.
Partners' assets have almost doubled in about five years. New clients include the Metropolitan Opera in New York, which hired the firm last year to oversee $465 million.
Partners was founded in London by Miranda and financial executive Paul Dimitruk, who was his neighbor. American expats, the two shared a frustration with the money management skills of private banks. They were intrigued by the idea, popularized by Yale endowment manager David Swensen, that institutional investors could make more money shifting out of liquid stocks and bonds and into illiquid assets.
(
More:
Money managers prep for $1.5 trillion in corporate cash)
Mr. Miranda, who was a director at Bain & Co., had left the Boston-based consulting firm after spending 19 years there. Partners initially targeted wealthy individuals, specifically upper management at Bain. His big break came when Rothschild took a stake in Partners along with Sir Ronald Cohen, an early venture capitalist.
The firm opened its doors to institutions in Europe that were beginning to embrace the Yale endowment model, including Eton College, the elite boarding school that Rothschild attended. "Stan was attracted to the endowment model," said Mr. Cohen, who co-founded Apax Partners, one of England's first
venture capital firms. "It seemed to me this was going to be the future."
Partners employed a similar strategy in the U.S. out of its Boston office, managing money for wealthy individuals through Mr. Miranda's Bain network, which led to clients such as Milton Academy in Massachusetts and the Cancer Research Institute in New York. With Partners' West Coast clientele and investments growing, Mr. Miranda bought a home in Woodside, Calif., so he can split his time between the U.K. and U.S. overseeing the firm's expansion.
(
More: Active money management isn't going to disappear)
In the Valley, Mr. Miranda is working closely with people such as Geoff Rehnert, who helped start
Bain Capital and is co-founder of private equity company Audax Group, which has offices in Boston, New York, and San Francisco. Mr. Rehnert, who invited Mr. Miranda to join the cycling club in Woodside, thinks the newcomer will have plenty of business. "A lot of folks are senior in their firms and getting ready to retire," Mr. Rehnert said. "It's very well-suited to Stan's model."
Mr. McDonald is an endowment reporter at Bloomberg News in Boston.
