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Genworth Wealth Moves Upscale

IBD supplier turns attention from mass-affluent to HNW investors.

The allure of wealthy investors and their preference for fee-based advisors has permeated the radar of another provider of investment management solutions.

Genworth Financial Wealth Management, Inc. is paying more than $35 million to buy Altegris, a platform of hedge funds, managed futures and other alternative investment products used by advisors to high-net-worth clients. GFWM also has plucked Michael Kim from Fidelity Investment’s registered investment advisory business to help integrate Altegris products and other services into a new “channel” for those upscale advisors.

Until now, GFWM – a leading turnkey asset management platform, or TAMP -- has aimed its outsourcing services at independent broker-dealers whose advisors typically focus on lower-tier “mass-affluent” clients with less than $1 million of investable assets.

“We’re trying to go deeper with some of our larger and more successful advisers as they go upmarket,” said Gurinder Ahluwalia, president of GWFM. ”Michael’s role is to figure that out for us.”
The acquisition of Altegris gives him a good start.

When GWFM’s advisory board met about 18 months ago, the major complaint of 85% of its members was that Genworth’s platform of funds and managers lacked alternative investment products uncorrelated to traditional stocks and bonds, Mr. Ahluwalia said. That prompted a search for a new asset class for the GWFM platform, and quickly morphed into acquisition talks beginning early this year, he and Altegris president and CEO Jon Sundt said.

“We liked them so much we said let’s try to buy them,” said Mr. Ahluwalia, who did not use an outside banker for the deal and had about four other firms on his short list. “It was like when Hershey got together with Skippy to make the Reese’s peanut butter cup.”

The chemistry was helped by both firms’ insistence on open platforms – Mr. Sundt founded Altegris eight years ago after futures giant Man Financial, his former employer, told him to put together a platform solely of proprietary funds – and by their desire to appropriate each other’s client constituencies.

Altegris, which is based in La Jolla, Calif., and will retain its brand name when the deal closes by yearend, hopes to expand distribution among the 300 or so smaller broker-dealers served by Genworth. The futures firm, which has about $2 billion of institutional and retail assets in private placements and commodity pools on its platform, just six weeks ago launched its first mutual fund, Altegris Managed Futures Strategies Fund (MFTAX). It has raised about $60 million to date and with relatively small minimum investment requirements is tailor-made for the end clients of some Genworth advisors, Mr. Sundt said.

GFWM, for its part, wants to leverage Altegris’ client base of registered investment advisers and large brokerage firms – including ten wirehouses and regional firms. It’s also betting on Mr. Kim, who worked for a dozen years at Fidelity’s Institutional Wealth Services unit for independent investment advisers, where he most recently served as senior vice president in charge of the RIA custodian’s practice management program.

“We expect the bulk of the new business to be from the RIA channel,” said Mr. Kim, who joined Genworth in September as senior vice president of business and channel development.

GFWM, a subsidiary of publicly traded insurance giant Genworth Financial Inc. in Richmond, Va., is not dedicating a sales effort to the new channel. Mr. Kim is thus dependent on the firm’s 80 internal and external relationship managers, and is working closely with GFWM’s national sales and consulting director, Dan O’Toole, to adapt products and practice management tools developed for independent brokers to the high-net-worth advisor.

Mr. Kim is also reaching out to the large discount brokers and clearing firms who service RIAs and their clients. Genworth Financial Wealth’s website already advertises its relationships with Fidelity, TD Ameritrade, Pershing Advisor Services and Genworth’s own trust company, and he’s negotiating to add Charles Schwab Corp., the biggest custodian, to the list, according to Mr. Ahluwalia.

Genworth is a little late in addressing the high-net-worth advisor’s market, but is no worse off than other major TAMPs focused on independent broker-dealers, such as SEI Investments, Inc., Russell Investments and Pershing’s Lockwood Advisors, Inc., said Chip Roame, managing principal of consulting firm Tiburon Strategic Advisors. What’s more, he added, there remains opportunity because successful RIAs are focusing more on servicing and expanding their client lists while outsourcing their investment management operations.

“Outsourcing is growing rapidly as more wirehouse brokers go independent and take the RIA route, as independent reps throw in the brokerage towel to go fee only and as more RIA channel members consider it,” said Mr. Roame, whose firm sponsors seminars that are sponsored in part by Genworth. “There are fewer outsourcing choices in the RIA market than you’d believe.’’
Mr. Kim said he plans to market the “institutional-quality” suite of strategist and managers on GFWM’s platform, the more-than-80 regional client networking events the firm plans in 2011 for advisers and the “intelligence we have on the buying behavior of the high-net-worth investor” with the help of GWFM’s practice management affiliate, Quantivus Consulting.

Genworth officials wouldn’t elaborate on terms of the deal, but Mr. Sundt said the initial $35 million payment will be all-cash while the deferred performance-based payout “is very attractive.” He would not disclose the timing for measuring the additional payout.

Altegris has 72 employees, all of whom are expected to remain with the firm when it combines with GFWM’s almost 100 employees. On a pro forma basis as of Sept. 30, the firms said they have about $23 billion of assets under management.

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