A group led by money manager Todd Morgan, who handles some of L.A.'s wealthiest and most famous people, is buying back the firm that was sold off to State Street Corp. four years ago.
The purchase price for Bel Air Investment Advisors LLC was not disclosed, but it is believed to be a fraction of the $220 million that the group's 75 percent stake sold for in 2001.
Rumors of the deal have been growing since State Street, the Boston-based financial services firm, said last year that it would write down between $150 million and $170 million of its stake in Bel Air. The firm manages $3.7 billion in assets for a roster of big-name clients that include Barbra Streisand, Sylvester Stallone, Geraldo Rivera and Lee Iacocca.
Though State Street had ambitious plans to expand Bel Air's presence nationwide, the stock market downturn and lackluster performance halted its growth and forced the company to abandon its strategy. That also opened the door for competitors to poach a handful of Bel Air's wealthy clients, who now number 265.
Morgan would not discuss details of the transaction except to say that the deal is expected to close in June.
"It was a good deal for them at the time and it was a great deal for us to buy it back at an attractive price," he said. "They decided to sell it and take a loss. They didn't want to be in our business anymore."
The purchase by Bel Air's management highlights how market conditions have shifted since the late 1990s, when large financial institutions coveted asset management firms during the height of the bull market. Many big deals have since been unwound, proving how tough it can be for large companies to maintain a soft touch in such an ego-driven business.
Building a roster
Morgan spent six years building the high-net worth advisory business of Goldman Sachs & Co. in Los Angeles, but left in 1997 to form Bel Air. He took several Goldman veterans with him, including his brother, Thomas Morgan, a former senior vice president at Lazard Asset Management in New York.
When Bel Air sold the 75 percent stake to State Street four years ago, competitors in Los Angeles jumped at the opportunity to steal the firm's clients. Several local wealth managers said poor returns forced a few of Bel Air's clients to leave.
At the time, Bel Air had limited investment products and its acquisition by State Street was expected to expand beyond a core product mix of large-cap growth stocks and fixed-income securities.
The market downturn was particularly tough for investors in large-cap growth stocks, which initially underperformed the broader market. In the past three years, Bel Air has shifted its mix away from equities and more toward fixed income.
Morgan said that when he sold the company but stayed on as managing director with a minority stake competitors tried to portray senior managers as sell-outs. (Even now, some competitors are taking off-the-record potshots at the firm, although others note that Bel Air continues to be a tough competitor with a particular strength on the Westside.)
"We had a frontal attack from the competition when we sold out because everybody thought we were just going to go fishing," he said, adding that executives still abide by the old trading model learned at Goldman getting to the office at 4:30 a.m. to follow the stock market.
Bel Air created a model that lavishes attention on clients who typically have an average of $14 million in assets to invest. Asked why he had been so successful in attracting rich clients, Morgan said: "We work like crazy.
"People come to us and they feel very comfortable and believe that we really understand their problems because we've seen the same issues thousands of times before," he said, adding that the advice ranges from the personal to estate planning. "We're in the problem-solving business. Many of our clients come after a change in circumstance they've sold their business, inherited money and now they want to preserve their capital."
Before the dot-com bubble burst, wealth management firms were in high demand, capturing lofty valuations during the market boom.
Goldman Sachs did the original valuation on Bel Air when the company was sold in 2001, around the time that Paris-based Societ & #233; G & #233;n & #233;rale Group bought Los Angeles-based TCW Group, an $80 billion asset manager, for $1.2 billion.
At the time Charles Schwab Corp., the discount broker, made a push into private wealth with the purchase of U.S. Trust Corp. of New York. Last year, Schwab solidified its presence by buying State Street's private asset management business not including Bel Air for $365 million.
For reprint and licensing requests for this article, CLICK HERE.
Stories You May Also Be Interested In
- The Money Book: Todd Morgan
- MANAGERS---Low-Profile Managers Keep Watch on Mega-Fortunes
- He Wasn’t Ready to Sell, Until ...
- Canadian Wealth Manager Pursues Heat in L.A.
- Likeability a Factor in Competing for the High Net Worth Clientele
- Deals & Dealmakers
- Wall Street West - Mega-Account Managers in Demand at Top L.A. Firms