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Private Equity in Wealth Management: Genstar

The Majority Partner.

Founded in 1998, Genstar Capital has some 40 team members in a San Francisco office managing more than $36 billion in assets, across 47 portfolio firms, focusing on technology, industrial production, healthcare and financial services—including current stakes in Mercer Advisors, Cetera Financial Group, Cerity Partners and Alera Group, an employee benefits firm with retirement and wealth management businesses. 

Genstar’s first wealth management investment came in 2015, when it took over a controlling interest in Mercer Advisors from Lovell Minnick Partners (LMP stayed on as a minority investor). The firm acquired majority control of Cetera in 2018, and in Cerity last year.

The firm had previously focused on asset managers in need of transition plans, but the rise of low-cost indexing and ETFs negatively impacted the value of those firms, according to a source with knowledge of Genstar’s strategy. At the same time, the business of financial advice was growing, with sticky revenue and opportunities for higher margins.

“You saw all these parts of the value chain really decreasing, but that core relationship between an end client and an advisor was one that really stayed consistent and was valued, and people would pay for that,” they said. “Everyone talks about investing in software businesses because they have recurring revenues. The wealth management space is the same thing. It’s recurring revenue. Clients don’t move that much from advisors if they have a good one.”

The firm is willing to invest in both independent broker/dealers and registered investment advisory businesses, according to the source, looking primarily for strong leadership teams with a desire to grow revenue through acquisitions and additional services, and expand margins with better technology and more efficiently run businesses, while maintaining a high level of client satisfaction.

Mercer and Cerity are both RIAs, and Cetera is a hybrid firm. But at least some on the Genstar management team expect to see a resurgence of growth potential on the broker/dealer side due to the established market presence and an ability to pivot to bring a broader suite of wealth management services.

“[Genstar] thinks there’s going to be a resurgence in the broker/dealer space because they have a little bit more flexibility on being able to advise you on your whole financial outlook,” said the source. “That implies a broader role than a purely fiduciary RIA, because a fiduciary typically doesn’t touch insurance and doesn’t touch other parts of the equation. They might advise, but they’ll refer you out.”

All acquisitions are “very tailored” to the target, but Genstar eschews structured dealmaking, preferring instead to make direct equity investments on a three- to seven-year timeline (“five years is the sweet spot”), reinvesting when the growth opportunity is still there. In the case of Mercer, Genstar has restructured the investment twice, bringing in Oak Hill Capital in the fall of 2019 and, two months ago, Altas Capital became an owner.

“This industry has been so dynamic, a lot of firms have reinvested in their own platforms, or kept holding them for a long time, because there are such great macro tailwinds to the sector,” the source offered.

Since Genstar’s initial investment, Mercer has completed more than 78 acquisitions and grown assets from around $5.8 billion to approximately $48 billion.

While the firm takes controlling interests in its portfolio companies, they don’t generally like complicated deal structures, and day-to-day management is left to in-house leadership, the source said. After an attractive firm is found and five-year growth plan is identified, that plan is backward engineered to establish achievable benchmarks—with flexibility for unforeseen events such as global pandemics.

“They try to stay out of the way,” the source said. “They provide the resources and support but are not the operators themselves.”


With billions of dollars invested, PE firms are driving the industry's rapid consolidation. Here are some of the most active participants:

Thomas H. Lee Partners - The Active Operators

Lightyear Capital - The Domain Experts

HGGC - The Co-Investor

Bain - The Structured Dealmaker

Stone Point Capital - More Opportunities Than Capital

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