Merchant Investment Management announced on Wednesday that it has taken a non-controlling minority stake in Redwood Investment Management, an asset manager and registered investment adviser based in Scottsdale, Arizona.
The money will support an ambitious growth plan delayed during the pandemic, said Redwood managing partners Richard Duff and Michael Messinger, allowing the company to launch an acquisition strategy through a new vertical venture, Mulholland Growth Partners. The terms of the contract are not disclosed.
The latter firm, which shares a name with Redwood’s six-year-old RIA Mulholland Wealth Advisors, launched over the summer with little fanfare. Funded by Merchant, Mulholland Growth is already making cash, succession planning and M&A opportunities available to companies with less than $500 million in assets under management.
Unlike so many large companies, these smaller practices are finding fewer opportunities to sell without a payment structure that takes years to complete, Messinger explained. The new capital will enable Mulholland Growth to pay cash to companies seeking to resolve pre-retirement succession of key partners, while providing resources and capital to drive growth, as well as access to a community of potential partners.
“We have balance sheet capital,” Messinger said. “We want to partner with a minority stake with advisors who still want to grow. We are not looking to do a 100% succession today, but start today. A lot of the services that we offer with Redwood and with Mulholland Wealth, and now capital and estate planning and services with Mulholland Growth, they have the ability to really solve that estate planning without just the playbook typical.
The partners have hinted that their first announcement on this front could come as soon as this fall.
According to Duff, partnering with Merchant and its network of finance companies was just as important as funding when they were looking for potential investors. More relationships with like-minded professionals means more resources, more distribution channels, more partnership opportunities and more intellectual capital, he said.
“It was really about the people,” Duff said. “If you really look at the people who are leading the merchant effort and what their skill sets are, what their history has been in the industry, it’s presented a lot of additional opportunities for us from a product development perspective, from a joint venture point of view, and just being able to work on potential ideas with other people in the Merchant universe.
“Having spent my career in the investment management and wealth management space, I have discovered that companies like Redwood are extremely rare,” said Merchant Executive Chairman Marc Spilker said in a statement. “All of us at Merchant have already engaged and begun working on the identified initiatives with the Redwood team to further improve the financial advisor and client experience.”
At least some of the additional funding will go to training advisors on the asset management firm’s patented RiskFirst investment strategy through a series of summits and training sessions, Duff said. Messinger and Duff say their “disruptive” asset management strategies are based on proprietary market assessments that provide more specificity than “nebulous” and broad risk categories, and said face-to-face interaction with advisors is the best way to attract potential subscribers to their four- and five-star rated funds.
“We recognize that this is not a product that an advisor will just buy and use for their client,” Duff said, “and we don’t even want that. We want to help them change the paradigm.
“We introduced a new class of analysts this summer of seven people who have all just passed all of their licensing exams,” he added. “[T]They will also face advisors and support our expanded advisor engagement efforts over the next 6, 12, 18 months.
“We wanted to partner from the start,” said Tim Bello, co-founder and managing partner at Merchant. “There is so much energy, intelligence and commercial application in what they do, how they manage money and hire advisors, we at Merchant felt something special and worked hard to find a way to a partnership.”
With the Redwood partnership, Merchant now has 60 affiliates managing combined assets of over $140 billion.
Berkshire Global Advisors served as financial advisor to Redwood.