This year might end up being a step back for money management firms and their super-rich clients, if for no other reason than the fact that 2021 will prove hard to top.
“We probably won’t have another great 20% run,” Brad Larsen, a Los Angeles-based managing director and market executive for Bank of America Private Bank, said. “The market likely won’t roll over, but we will see a shift.”
 
Larsen’s group, a Bank of America Corp. subsidiary advising some of the nation’s wealthiest individuals, had a record year for business generated in 2020, despite initial expectations that the pandemic would cause a significant, long-lasting decline.
“And then we ended up outperforming what we did in 2020 by 175% (in 2021). It’s been super busy,” Larsen said. “Clients have been very active.”

Clients are handling more things electronically, Larsen said, meaning they’re spending less time on the road and in meetings and more time on their business. That change has translated to a lot of activity for the group, as clients looked to put their significant wealth to work at a time when markets were primed for a runup.
“Anytime there’s dislocations and high volatility — where some industries are doing well while others are not — it’s creating opportunities,” Larsen said.

In Los Angeles and other major markets, Larsen said clients have been especially active in real estate and property investments to head off inflation. While inflation is “one of the big drivers” behind the shift into real estate, he suspects it’s primarily being driven by the future that potential clients are seeing in these properties.

“They’re buying a lot of properties in prime locations that in 20 to 30 years will still be very prime locations,” said Larsen. “So, you’ll see that in a lot of markets that are tertiary … that won’t see a lot of traction. But you’ll have 50 bidders on a prime location in Los Angeles.”

Record year for RIA mergers

The past year wasn’t just lucrative for the money managers’ clients but for the industry itself, with registered investment advisor (RIA) firms reaching a new all-time high for mergers and acquisitions. The San Francisco-based wealth management research firm DeVoe & Company reported that RIA M&A activity exceeded 200 transactions for the first time in a calendar year by mid-December, dwarfing the previous year’s 159 transactions.

Karen Barr, president and chief executive of Washington, D.C.-based trade group Investment Adviser Association, said RIA M&A activity is showing no signs of slowing in the new year, as the market remains heavy with eager buyers and sellers.
“There are serial acquirers who are continuing to look for growing firms, and there are still quite a few firms that are looking to achieve scale and to make their back office and their technology investment more scalable and efficient,” said Barr. “That way, they’re really able to make their business client-facing.”

Sawtelle-based RIA Aspiriant announced Dec. 1 that it had acquired San Diego-based Hearthstone Private Wealth Management, an RIA valued at $350 million, in its first merger deal since 2017. Aspiriant now services approximately $15 billion in assets across the United States. The company beat out more than a dozen competitors for the merger.

“Firms are being approached by multiple potential acquirers, and so they’re not only looking at the valuations, but they’re also looking for the right fit for them culturally,” said Barr.

Looking forward, wealth managers are concerned about a slightly less friendly investing environment in 2022 caused by concerns over inflation and supply chain issues, Barr said. But she said she suspects the real story over the course of the year will be the potential for new regulations and rule changes that shift the way wealth managers do business.

“Folks are keeping an eye on Capitol Hill, where they’re debating tax and retirement changes. Those could have an impact if Congress makes a move there,” Barr said. “In terms of sustainable investing, we expect the SEC will propose rules in the near future… that will affect asset managers.” 

Additional Content On Money Managers

Ares Managment Corporation

Established in 1997, Century City-based firm Ares Management Corp. focuses its investment activities on the private debt market. The company closed its Senior Direct Lending Fund II in December with approximately $14 billion and totaling $19 billion in capital after the closing of its junior direct lending fund two months earlier. In the past month Ares announced that it added approximately $8 billion in complementary investment capabilities to its previous activities after acquiring AMP’s PrivateMarketsCo infrastructure debt platform. It subsequently made strategic new hires in its Ares Credit Group and Ares Secondary Solutions Group divisions to bolster its assets under management and lead efforts going forward to manage private placement credit investments.

Aspiriant Wealth Management 

After growing its company to manage more than $14 billion in client assets, Sawtelle-based investment firm Aspiriant Wealth Management announced its first merger since 2017 in December 2021 when it joined with San Diego-based registered investment advisor RIA HearthStone Private Wealth Management, bringing in another approximately $350 million. The 100% employee-owned company was partnering with other RIAs long before the trend became popular, operating on a strategy to grow and add value for its now almost 1,800 clients. On the company’s website, Aspiriant lists a variety of wealth management services and an approach of “warmth and expertise,” led by Chief Executive Rob Francais. 

Gamble Jones Predicts Headwinds in 2022

Pasadena investment firm Gamble Jones noted in its fourth-quarter newsletter that stock market returns were above the historical average for the third consecutive year but that fixed income returns in 2021 were muted.
 
Not surprisingly, Covid-19 greatly impacted the ebb and flow of the market, and now inflation, supply chain issues and higher interest rates are expected to further affect investments in the coming year.
 
Even as new Covid variants emerge, much progress has been made with expanded testing and the development of vaccines. This progress “made it possible for investors to start looking beyond the pandemic as they evaluate the future” and had a positive impact on the stock market in 2021, according to the firm’s article.

Gamble Jones, which just marked its 65th year in business, stated in the newsletter, “Partly offsetting the progress against Covid, a jump in inflation rates to levels not seen in 39 years has the market on edge. Inflation depresses stock and bond prices because it reduces a future cash flow stream’s buying power. As economies reopened, pent-up demand, fueled in part by fiscal and monetary stimulus, encountered a supply chain that was tied up in knots.”

The firm said this uncommon combination of “strong demand and limited supply created inflationary pressures not seen in decades. Time will tell whether the supply chain bottlenecks can be removed and whether demand will return to more normal levels. Over the long term, we believe demographic trends and the deflationary forces unleashed by technology will keep inflation in check.”

While the Federal Reserve has supported the economy during the fight against Covid by keeping interest rates low and purchasing trillions of dollars of mortgages and government debt, the government is now shifting its strategies, according to Gamble Jones.
 
“In November the Fed announced that it would start removing its support, first by slowly reducing its mortgage and debt purchases,” according to the newsletter. “In December the Fed said that it would accelerate the reduction of its purchases and that it expects to start raising interest rates in the first half of 2022.”

Gamble Jones wrote that this change in the Federal Reserve’s monetary policy “away from an extremely accommodative position” will be important. “Higher interest rates will likely create headwinds for future investment results. Interest rates are the discounting mechanism used to value the future cash flow stream that a company or bond is expected to generate, and higher interest rates reduce the present value of future cash flows. Higher interest rates will also make it more difficult for the economy to grow.”

In October, Gamble Jones Investment Counsel was named to the CNBC FA 100 list for the third year in a row. The firm — which is led by Thomas Jones, principal and chairman, and Alison Gamble, principal and president — ranked 23rd on the list of the top 100 financial advisory firms in the nation. The company provides customized individual portfolios and capital management services.

RNC Genter Capital Management 

RNC Genter Capital Management oversees investment portfolios for high-net-worth individuals and families, banks, foundations, endowments and mutual funds. As of October, the company had $5.8 billion in assets under management and about 10,700 clients. Daniel Genter, president and chief executive of RNC Genter, is a frequent guest on CNBC’s The Exchange and has been with the company since 1979.
 
The Brentwood-based firm is a registered SEC advisor and concentrates on individualized private client and institutional separate account management, employing a modern approach to customized financial strategies. It describes its investment strategy as “fundamentally sound, bottom-up stock and bond research.” The company selects securities based on individual merit, tax-advantaged status and ability to perform in the given economic environment. The firm diversifies the number of issues owned in addition to the sectors represented in the portfolio.
 
The company philosophy states that it does not “chase hot investments or seek fast results with inappropriate levels of risk.” Instead, the firm opts to look for investments with consistent results to grow clients’ wealth.
 
On the company website, Daniel Genter notes that the firm chose the Peregrine falcon as its logo because the “Peregrine is the fastest creature alive and is blessed with the best vision in the world. We hope to emulate the Peregrine as we remain watchful and alert.”

Keeping a watchful eye on the markets, the company stated in its fourth-quarter market letter, “We project (gross domestic product) growth of around 4% in 2022, even as the Federal Reserve removes some support from the economy by eliminating bond purchases and raising rates.”

Sierra Investment Management Inc. 

Sierra Investment Management Inc. ushered in a new era in October with the hire of Skip Schweiss as chief executive. The company created the role for Schweiss, who will oversee company growth and tout the firm’s investment strategies to investors. Sierra co-founders David Wright and Kenneth Sleeper continue in their capacity to manage company business, work with clients and handle various other duties. The company manages or advises over $9.6 billion in assets as of September.

Schweiss has more than two decades of experience in management positions, including his recent position as president of TD Ameritrade Trust Company and managing director of advisor advocacy. While there, he helped the company grow its retirement services to more than 12,000 retirement plans and more than $40 billion in assets under administration.

Established in 1987, Santa Monica-based Sierra Investment Management maps out investment strategies for individual investors, mutual funds and turnkey asset management platform models. The company’s goal is to help retirees and other individuals with an approach to investing that limits risk and provides returns for conservative investors.
 
In October, Barron’s named Wright a Top 100 Independent Advisor (No. 27). Wright noted in a statement that the honor validated the firm’s “relentless focus on client service with a unique, rules-based investing process focused on mitigating downside risk and providing satisfying returns over a full market cycle.”

Zuma Wealth

After a quarter century managing money at other firms, financial adviser Terri Spath founded Malibu-based Zuma Wealth in January 2021, believing that she could serve clients even better. In November, and the company launched and initiated client positions in the Zuma Wealth Hedged Equity Strategy. This strategy builds on the decades of experience among the firm’s leadership using “covered calls and put spreads to generate income, enhance gains, provide guardrails and hedge declines,” according to the company. Zuma also launched and initiated client positions in a rising interest rate/inflation portfolio for conservative growth. It incorporates the Zuma Wealth Hedged Equity Strategy and is designed for the higher probability that interest rates will be flat to rising in the future, not falling as they have for the prior three decades.