Vancouver-based independent wealth manager Harbourfront Group has secured its first private funding to help boost its growth plans, which include two possible acquisitions this year.
The company, which has about $4-billion in assets under administration and $2-billion in assets under management, announced Tuesday that it has secured financing from Boston-based Audax Private Equity, which values Harbourfront at $425-million.
The company would not disclose how much it secured from Audax, but Harbourfront chief executive Danny Popescu told The Globe and Mail it is a “nine-digit” amount that includes a special dividend of about $30-million that will go directly to Harbourfront shareholders, who are primarily its investment advisers.
Audax has invested more than US$9-billion in more than 150 platforms and 1,100 add-on companies and is currently investing out of its US$3.5-billion, sixth private equity fund.
The Harbourfront transaction, which is subject to regulatory approval, will see the majority of Audax’s investment distributed among shareholders but also “opens the door” for additional funding to be used for larger acquisitions, Mr. Popescu said.
The company launched in 2013 with about $10-million in personal funding. Over the next five years, executives hope to hit $15-billion in assets under administration, which Mr. Popescu said will give the company a valuation of about $1.5-billion.
Harbourfront wasn’t actively looking for funding, but after Raymond James approached it last August to discuss financing possibilities – ultimately serving as a financial adviser on the deal – the wealth manager fielded 12 offers from both U.S. and Canadian private equity firms, including Audax.
Harbourfront uses alternative investment strategies with its clients, particularly in private securities, an area that until recently has been more accessible by institutional investors, such as pension and endowment funds, than the retail market.
“While most retail investors compete for the same, limited number of public companies listed on global exchanges, there are tens of millions of private businesses that exist worldwide, many of which also seek to raise capital by issuing equity or borrowing from investors,” Mr. Popescu said.
“Advisers are realizing in today’s environment that in order to protect clients’ assets they need to diversify beyond the stock market, which is one of the reasons we are seeing some great success right now … if you have a good differentiator, then you can use the nervousness of the market to offset some of those challenges.”
For decades the wealth management space in Canada has seen a flurry of consolidation, particularly among smaller investment dealers who have felt the pressure of increased regulatory costs and upgrading back office technology. Canada’s Big Five banks have also been boosting their wealth management divisions, paying top dollar for independent asset managers and financial advisory companies.
But by offering advisers equity ownership in the firm – as well as access to private markets – Mr. Popescu hopes to draw high-end adviser teams with books of business of about $250-million.
He said his company is already in “advanced” talks with two independent brokerages that are interested in a possible acquisition. Harbourfront currently has 22 branches across the country and 23 adviser teams (with two to three advisers per team). Over the past several years, the brokerage has been actively recruiting advisers from both independents and Canada’s major banks, but a larger deal would push things along at a greater speed.
“The investment by Audax in our company validates Harbourfront’s approach to diversify beyond traditional asset classes – something that is much needed in the Canadian space – and a business formula that is disrupting the independent investment dealer space in Canada,” Mr. Popescu said.
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Clare O’Hara