Sage Advisory Services, an Austin-based registered investment advisory firm overseeing close to $24 billion in assets, has taken on its first capital partner with a minority sale to Kudu Investment Management, a private equity firm focused on wealth and asset managers.
Sage Advisory was founded in 1996 by CEO and Co-Chief Investment Officer Robert Smith III, who remains a majority owner along with 12 managing members.
The 56-person team provides institutional investment management, primarily in fixed income, liability, socially responsible investing and tactical ETF strategies, as well as retirement plan services for close to 5,000 clients. Institutional investors—including Taft-Hartley funds, insurance and healthcare companies, public funds, foundations and endowments and corporate retirement plans—account for roughly 70% of assets, while the remaining 30% are in retail SMA and UMA accounts managed for individual clients with firms such as Morgan Stanley, Northern Trust and Primerica.
Over the last five years, Sage Advisory has grown assets by more than half. In 2023 alone, the firm added more than $4.5 billion across its various strategies and Smith said the plan is to use the additional capital provided by Kudu to invest in technology, provide liquidity for some of the senior partners and support an eventual transition of ownership.
To that end, Smith said Sage Advisory is offering younger partners—all of whom currently hold minority interests—a discounted internal price while supporting equity financing or simply selling it directly.
“Helping to facilitate the transference of that ownership into the hands of our next generation of partners and really securing that growth and development and culture was something we felt was absolutely pivotal in our transaction,” he said. “They've really worked hard to get an opportunity like this.”
“What we're trying to do is to promote the culture and longevity of the firm,” he added. “I don't want just anybody to be responsible for my baby.”
On the technology front, Smith expects to invest in tools that foster client engagement and communication, such as on-demand investment tracking or self-directed planning and retirement calculators. He also mentioned work to incorporate greater risk management capabilities, particularly around climate risk and ESG factors.
“We’re not focused on the politics, we're focused on the pragmatism and are looking for ways to introduce that into our process,” he said. “There are some very proactive tools available to get a better handle on the potential climate risks associated with my investments, what magnitude of event they could be subject to, how adaptable they are to those risks and how to manage around that. I think that one of the things that we have done very well is we've done a lot of ESG-related investment activity and research.”
"Bob and his executive team have built an exceptionally innovative and agile investment platform,” Kudu CEO Rob Jakacki said in a statement. Citing the focus on SRI and “cutting-edge” solutions as key attractions, he also noted the firm’s “impressive” client roster.
“In many ways, they’re the perfect partner,” Smith said of Kudu. “It is a minority interest, and that's just part of the reason why we elected to work with them to design a transaction that would provide for the independence of the firm and allow us to retain and maintain our culture and our business management activities and to maintain our investment philosophy and process without interference. They have no participation in any of that.”
Backed by insurance companies MassMutual and White Mountain Insurance, Kudu also has a deep well of capital resources and tends to make longer-term investments, he said, and the idea of subjecting employees and clients to a forced liquidity event in the next three to five years was untenable.
“And they understand what we do,” Smith added. “That's the most important thing. If you're going to partner up with anybody, you want to make sure that you're both on the same page in terms of what it is that you do and how it needs to be done. And we definitely have achieved that.”
Since launching in 2015, New York City-based Kudu has deployed more than $914 million in support of 26 wealth and asset management firms across the U.S., Canada, U.K., Europe and Australia—22 of which are still in its portfolio.
Smith said he believes Kudu is working to gain a foothold in all of the major asset classes and that his firm’s focus on fixed income solutions was likely a significant factor in their years-long pursuit of an investment.