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Liquidity Events Expected to Stimulate San Francisco Wealth Market

Liquidity Events Expected to Stimulate San Francisco Wealth Market

The rich are about to get richer: A number of eagerly anticipated high-profile, high-tech liquidity events are bolstering the San Francisco Bay Area’s reputation as one of the nation’s most vibrant wealth management markets.

The gold rush starts in a few weeks, when LinkedIn employees will be able to start selling stock, six months after the Mountain View-based social media company went public. LinkedIn recently filed plans with the Securities and Exchange Commission to sell another $100 million worth of shares to fund further expansion.

“Lock-up” periods for other high-tech companies, including Pandora, will also be expiring over the next year, perhaps triggering more stock sales.

What’s more, high-flying Internet companies such as Facebook and Zynga, are expected to have initial public offerings next year, instantly creating a new class of millionaires in the Bay Area. Dozens of other Silicon Valley companies may also go public next year, including Foursquare, Yelp, Spotify and GrubHub.

High-tech executives and employees won’t be the only ones coming into money, local observers say. Attorneys, real estate agents, car dealers and other merchants and vendors will also benefit as employees cash out. (No doubt tech employees learned from the tech wreck at the beginning of the decade that holding stock options is not necessarily a smart strategy; many employees of, say, Nortel Networks and Lucent, and other tech darlings saw their “paper” net worth evaporate in the meltdown beginning in 2000.)

“All of that money trickles down to the economy,” said Tim Kochis, a thirty-year veteran of the Bay Area market, who is now a principal and president of international ventures for Aspiriant.

Local wealth managers, not surprisingly, are thrilled. “This activity creates a huge opportunity set for new business,” said Aspiriant CEO Rob Francais. Presidio chairman Brody Cobb agreed wholeheartedly. “These events are very good for us, and they’re good for everybody in town,” Cobb said.

Middle-Market, M&A Also Active

Capital formation is not confined to high-profile high-tech companies. Middle-market companies, such as MobiTV, are also expected to be active in the capital markets. “It’s not just the big guys,” said William Welsh, branch manager for Robert W. Baird’s San Francisco private wealth management office. “We’re seeing a renaissance in the Valley of firms coming to the market, not just Internet companies but also clean tech and medical tech. The volume is well above the past few years, and we see no reason why it won’t continue.”

The Bay Area is also seeing increased merger and acquisition activity, say local executives. Like the rest of the country, many companies have excess cash on their balance sheets and are using it to expand. “We’re seeing much more money in motion,” said Silicon Valley veteran Jane Williams, chief executive of Sand Hill Global Advisors. “Companies are being sold and wealth is being created.”

Baird has an active investment bank and private equity divisions in the Bay Area, and according to Welsh, “M&A activity is off the charts across the board. There’s a lot of cash available, and you’re seeing more private equity and corporate acquisitions, creating significant wealth.”

These developments are, not surprisingly, making the already attractive San Francisco Bay Area market more desirable than ever. One of the most prominent new firms to set up shop in San Francisco has been Seven Post, founded by three senior Goldman Sachs Private Wealth Management advisors in September.

The trio, Eldridge Gray, Ali Bastani and Charles Wyman were reputed to be among Goldman’s highest revenue producers, and are seeking to advise clients with at least $25 million in assets, according to filing with the SEC.

Baird has also considerably beefed up its presence in San Francisco, bringing in Welsh from Wells Fargo Private Bank last year, and hiring five new wealth managers this year.
Baird is targeting middle-market, family-owned businesses worth $150 million and above, Welsh said, with an average client size of between $3 million and $5 million in investable assets.

“There’s a huge void of companies servicing the lower end of the market with the demise of firms like Thomas Weisel,” Welsh maintained. “We have people at Baird who can help these companies come to the market and then we have an opportunity to manage the wealth they’ve created.”

‘Opportunity Still Rich’

In addition, the local grapevine is buzzing with talk of more new wealth management firms being formed, national firms coming in and existing firms expanding.

The good news is that San Francisco still appears to be accommodating to new comers, especially independents, who continue to dominate the local market. “The opportunity is still rich, and relatively open, with no dominant player,” said Carol Benz, managing principal for Bingham, Osborn & Scarborough, which has offices in the city, Silicon Valley and Healdsburg. “It’s also a friendly environment. Competition is respectful, and it’s softer culturally than other cities, more intellectual and relationship-oriented.”

But make no mistake, competition can still be intense, local executives caution. “There’s a lot of talk about new wealth creation,” said one veteran executive who asked not to be identified. “But that’s not enough to sustain new revenues. It’s still for the most part a take-away business here. If I gain, you lose.”

Baird’s Welsh agreed. “There’s been a tremendous amount of wealth creation here,” he said, “But the reality is it’s not enough. You can’t build a business on just that. There’s too much competition.”

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