Predicting wealthtech's next big players

Investors in wealth management share where they’re placing their bets, what’s exciting them in terms of technology as a gamechanger and which fintechs to fear and partner with.

Transcription:

Lori Hardwick: (00:08)
Good morning, everyone. I'm Lori Hardwick. I'm super excited to be here. And I really appreciate you attending this session. It's sure. To be a good one. I will say we had a little switch Aruba pivot this morning. About two hours ago, found out one of the panelists, David Jegen from F-Prime could not make it stuck at Logan airport. And so I so appreciate the fact that Stefanie was able to join us from Hg Capital today. And I mean, literally two hours ago, she's like, yeah, I guess I'll do it. So this'll be like a real life, just fun conversation because she's really not seen many of these questions. So Reggie Tucker is here with me today as well and jumping right into it. I'd like for you both to just give a little bit of background and then I'll give some background on myself. So Stephanie...

Stefani Raiola: (01:02)
Sure. So Stephanie Raiola, I'm a principal at Hg Capital. Our offices are actually located right around the corner in Midtown. And so Hg focuses on B2B software investments. We're a global firm offices in London, New York, soon to be San Francisco and Munich. And, we primarily focus on, the FinTech industry and within FinTech wealth management and wealth tech.

Lori Hardwick: (01:27)
Reggie.

Reginald Tucker: (01:28)
So, Reggie Tucker, I like to call myself a former slash reform trader. So started my career back in the late nineties on the trading desk. So I've seen a lot of the fun in action that we've been seeing recently after that I pivoted to the allocator size. So it was a long time allocator. So three tours, which I call 'em at state of Connecticut, New York home retirement fund and orange county employees, retirement system. So at those institutions spent time and have allocated about 10 billion building out alternatives portfolios, and also managing and building out emerging manager programs. And so taking that experience to Manhattan West, where I'm building out a venture platform, we are on one side of the house, a wealth manager, REA multifamily office with also business management, tax management insurance. And then on my side of the house, we have alternative investments covering most of the key alternatives. So private equity, private credit, real estate, and most importantly venture where we're building out three specific strategies. So we do have a digital asset fund, which is another way to gain access to crypto and digital assets. We have my hybrid fund, which is investing in funds and direct and co-investments, and then we have a separate late stage team that does late stage SPDs and secondaries, and also has a small fund that they're managing.

Lori Hardwick: (03:05)
Great. Thank you and I am Lori Hardwick. Most people know me for the 16 years. um, at Envestnet, I was one of the original partners there. And then I did some time as COO at Pershing. today I am focused mostly on private equity. I work with Genstar capital as a senior advisor, I'm on the board of Orion and also of Cetera, which they own, and then and they own jointly with TIA for Orion. And then I'm also on the board and chair of a firm called Vestwell, which is a retirement team. So let's jump right into it. I think it's gonna be a fun conversation because obviously I have two experts from the industry from very different views on kind of what's coming next. What is it in emerging markets from a FinTech perspective that we, that might be looming around the corner that we haven't thought about or things that you guys are investing in and finding to be pretty attractive in the market. So starting from a wide lens and Reggie, I'm gonna start with you for this one. what are kind of the biggest opportunities and or problems, I guess that you see in the industry as far as the focuses that your portfolios are focusing on?

Reginald Tucker: (04:28)
Yeah. I mean, I guess I'll start very high level, which is probably of most relevance for this room and it's this idea around the democratization of markets and the evolution of the small and the non-traditional investor that's something as a platform that we're really trying to capitalize on and this idea of offering access to this new so to this new set of investors that have entered the alternative markets primarily on the private equity and venture side. And so I work with a couple of groups like cap table coalition is one of them where we're, giving founders access to capital, but then also providing this diverse network of angel investors access to interesting opportunities alongside leading VCs, that are basically signed up to offer their best deal flow to the to the team. And these are often oversubscribed deals. And so the idea that opening access and leveling the playing field, I mean, we've seen the growth of, investors, high net worth and multi-family offices, family offices being involved in both, direct deals and co-investments as well working alongside top VCs. And so, I believe that this will continue to happen again, kind of this idea that access is in opening the aperture, in the space and giving investors like advisors represent in this room. The opportunity to participate in the next generation of tech and FinTech in particular.

Lori Hardwick: (06:12)
So what would you say just as a quick follow on, what is an example or two of some of those FinTech opportunities you've been able to bring to your investors?

Reginald Tucker: (06:23)
Yeah. And so, I mean, so as a firm we've been invested in platforms like, better and then, other more so on the crypto side and platforms like crack in we've looked at everything from, open sea to to discord some of these we've, some of these we've passed on based on valuation, but it's more this idea that we are seeing the same deal flow that the top VCs are seeing. Yeah. So we're enabling our clients to access the same deal flow and SpaceX opens around. We're able to give our investors the same access and offer that to them on a direct basis anytime those deals arise.

Lori Hardwick: (07:11)
Okay, great. Stephanie.

Stefani Raiola: (07:13)
Sure. So it's funny HGS mission is actually to help build businesses that change the way we all do business, and so when we first sat down to take a look at the wealth tech and wealth management industry, what we found as well, this is a really resilient industry of advisors. Everyone's always going to need financial advice despite the robo advisors out there, or a lot of the direct to consumer things. And so at the end of the day, we see clients wanting a better seamless experience, more digital experience, especially with this whole transfer of generational wealth. And we see advisors needing a better experience managing the client life cycle. And so what we found are there's a whole landscape of, really well developed tools and technology to help advisors better fit and do their jobs within each part of the client life cycle and their daily work flows. And so you look across the wealth tech space, you'll see everything from CRM in the front office to portfolio management and reporting and analytics and compliance. And so that's sort of where we focus our time on these days.

Lori Hardwick: (08:25)
Great. And as a follow on question to that, it'd be interesting to know if you're seeing specific trends in the industry wealth management and financial services industry that are interesting to you as a private equity fund. And, what's looking maybe more interesting than others.

Stefani Raiola: (08:47)
So I'd say this shift towards holistic planning versus just being a stock picker in trying to generate alpha, but really how do you help your client plan for retirement plan for their children's educational savings plan for a potential death in the family, whatever it may be. So it's less of, let me try and generate alpha for your portfolio and actually to read this point, let me find you interesting opportunities how can I differentiate myself from the next advisor? how can I introduce you to alternative assets, whatever it may be. So I think it's, it's going away from being sort of an in-source or in creating your own models. And I still think there's validity to that particular, persona within the management space, but I also think it's, it's going a little bit more towards someone being a relationship manager versus just focusing on the portfolio of a client.

Lori Hardwick: (09:44)
Great. Reggie, any thoughts on that in particular?

Reginald Tucker: (09:48)
Yeah I mean, I think it just came from a think tank discussion on this and, this idea that also the evolution of the tools that we're using to be able to give access to these unique opportunities, I think is gonna be a key area on both sides. So it's gonna be a key area on the investment side from a VC standpoint, and it's gonna be a key opportunity from the financial advisor side to increase engagement and allow them to ensure that they're on the cutting slash bleeding edge of technology in terms of not just the utility and using it, but really understanding it and pushing these things forward. Because if you don't understand the newer technology, it's hard for you to invest in it and fully engage and really provide your clients access to the best longer term opportunities that are out there.

Lori Hardwick: (10:48)
Sure. in fact, I was at a conference a couple of weeks ago that many of you probably were at were all in this conference circuit right now, but they brought up the concept of death tech, which sounds morbid and sounds awful. I was kind of like, what is death tech? And it's this new kind of like, I guess emerging area where there's metrics on how long people are gonna live, what technology people will need as they age and as they're aging longer kind of all the metrics around aging and death, which is again morbid, but is there any areas I'd love to know from you guys, your perspectives that maybe we haven't heard of, or that you're kind of zoned in on as far as new emerging, intersections that are happening in wealth management? So Stephanie, I can start with you.

Stefani Raiola: (11:44)
Yeah. I would say it's developing a picture of the client, right? So a lot of the times you'll have disperse information or data on a client within either a larger office or for example, at a local bank. And so how can you put together the different pieces of data to help the business as a whole, a better service that client? So if I'm thinking about a local bank, that client has a mortgage with them, maybe they have a personal or auto loan, they have a checkings account, but none of that data is in a central location. So how do we centralize that data, provide it in a nice package to the advisor and understand and help the advisor understand, like what is the LTV of this client? How important are they to me? How can I better give them services? So I think solutions around that aggregation of data and packaging it nicely to provide sort of insights and analytics for the advisor is something that we're looking into. Sure. Reggie,

Reginald Tucker: (12:42)
Yeah. And again, back to this idea of both investment opportunities and investment tools, I was actually really intrigued with the past panel, because I was also going to touch on this comment by by bill gates and, regarding, NFTs in the really great oversimplification of what is, and kind of summing this whole technology up to a over price JPEG and the idea around, and somewhat also scary that again, the lack of understanding around things like blockchain and NFT's and how the true value of the technologies and the smart contracting and the ability to facilitate, and verify, transactions and then on the other side, yes, you certainly have like this creator economy and the value of NFTs to that side of the world, which I also play on the side and have sold NFTs. So, I understand these platforms intimately from an investor standpoint and from practitioner standpoint and again this is technology that will be highly disruptive to when we look at things like financial services in legal services, the ability, again to utilize these technologies and look at these platforms that are building infrastructures and tools for us to use going forward, I think is gonna offer a great investment opportunity. And this is not just this idea of investing in all coins and investing in, pictures of apes crypto punks. So it's a, again the simplification of that space and what's happened has been really interesting. And I have been working with some people that have taken this blockchain, this NFT technology and they've taken it over to places like real estate and what they're able to do just from again, from a transaction standpoint, and really leveraging that technology up is gonna be highly disruptive.

Reginald Tucker: (15:06)
And I think it's a place again whether you put your money into Bitcoin or directly, or any of these alt coins salona cardano on those understanding the technology as a financial advisor and as an investor, I think will be key going forward.

Lori Hardwick: (15:27)
Yeah, totally. I at Genstar, we constantly are trying to read the demographic trends of kind of where the puck is going next, for example. And one of the more shocking metrics that I've seen lately is that 70% of women who are recently widowed find a new financial advisor within 12 months of being widowed. And women are much more likely to lean into financial planning and road mapping, less transaction, and kind of like the myopic view. They're more big picture. So certainly when we look at our investments they own Mercer advisors, Genstar does as well as you know we just acquired sarity as well. And so, as we're thinking about what tools they need, to really kind of think about how to grow as the industry's evolving or as not the industry, but the world is evolving, those are some areas that we're kind of focused on as well. So, alright, so you guys both have a pretty unique vantage point having been at different areas throughout your career, Stephanie and I were talking earlier, she's been in lots of different industries, and I'd love to hear from your perspectives how has your past experiences shaped your views on what types of companies you're leaning into, what ones you devoid Reggie, I'd start with you on that.

Reginald Tucker: (17:08)
Sure. I mean, so when you think about VC, you've seen the evolution of the space, and it's partly the growth that has attracted people from, other parts of the investment industry and with that, you have seen people bring over best practices from private credit and private equity in particular. And so, when I'm looking at VCs, I often tend to really focus on those managers that are bringing this more holistic view of how they're investing. So, they may be in early stage investors, but they do have a view on the growth in the later stage and obviously the public markets and in what I'm doing also, just given the institutional experience that I've had is really, taking that experience coming at these markets and these investments, like an institutional investor and being keenly focused on things like portfolio construction and trying to create this more of a hedge fund term, an all weather portfolio, which you never hear VCs using. You never hear them talk about risk management and portfolio management and diversification. And I think when you look at people that are in this room and, the people that we work with, those things are really important to them they want to ensure that they are not losing money. They wanna make money, but putting, again, putting back on my old institutional path, we would certainly give up some upside to ensure that we had more downside, risk management and protection. And so, yeah, looking at portfolio's and ensuring that each investment that I make also has a very specific role that it serves in my portfolio specifically return enhancing diversifying or strategic in really balancing that, to create that portfolio that does give the diversification in a really risk managed way.

Lori Hardwick: (19:29)
That's fascinating, especially since in the lower end of the market, it's hard to look at the risk side so much. So I like that is fascinating, comment from you. So Stephanie, same question, with your past experiences, how has that informed or is informing the types of firms you're interested in investing in?

Stefani Raiola: (19:52)
Yeah, it's an interesting question. First we always take the lens of what is, what are the trends happening in the end market? And so in this case, what are the trends happening in the advisor market? you see a lot of breakaways from wirehouses and larger broker dealers into these smaller RAs. And I think I once heard the term that RAs are becoming sort of what social influencers are to the wealth tech, market. So they, they've been a little bit more of the pioneers on the tech front, so I'd always say from past experiences, like what's the resiliency of the end market are there tailwinds, are there headwinds? I think a lot of the times and advisor market in particular, there's been a lot of, regulatory tailwinds actually, where they do need to make sure they have the tools and the technology in place to remain compliant, to be able to deliver responsible fiduciary advice to their clients.

Stefani Raiola: (20:48)
And so we've always had conviction there and then I think going a level deeper which tools are mission critical. So again, you go through all these cycles but which tools can advisors not live without that just they help them on a daily basis to deliver quality and seamless services to their client. And then I think with the overlay of COVID now, everyone's trying to find a way to be productive, but in a very efficient manner. And so what are some tools and technologies advisors can use that, that saves them time at the end of the day, while growing their book of business, because who doesn't wanna leave the office early on a Friday and go play some golf, and so I think that's sort of the areas that we tend to look at, and it certainly has prior to my current life and financial services, I was in the hospitality and leisure industry. I was telling Laurie, and I was there in the middle of COVID. And I can tell you things went from going very well to not going very well overnight. Right. And so what you, at the end of the day, we were invested in businesses that consumers really liked and used on a weekly basis. And so I think it's, it comes down to the resiliency of the end market. That's using that product.

Lori Hardwick: (21:57)
Yeah. As she's telling me yeah. As in hospitality and, I was like, oh, that sounds like fun. And she's like, no, not during COVID it was not fun. So, yeah, there's always two sides to the story. So I'm gonna ask one more question and then we'll open up to questions in case there are any so I know both of you invest in some early stage firms. And when you do that frequently there's lack of EBITDA metrics at Genstar, our minimum investments, 300 million, it goes up far beyond 5 billion, but it is, we always look at EBITDA as a grounding metric for whether or not we want to invest in that. So I'm really interested to hear, like, with lack of EBIDA, what are the other characteristics that you're looking for in a firm when you go to invest just I'd be interested to know. So Stephanie, I'll start with you.

Stefani Raiola: (22:54)
Yeah. I think first and foremost, for us being software investors it's gross retention and net retention, and it really just sort of shows the health of your product and how well customers like it and use it. And then I think beyond that everyone can be very focused on the KPIs, but a lot of time people miss the bigger picture of how good is the technology and how good is the product. And sometimes I've been in diligence sessions where no one's even asked for a product demo and you're about to invest whatever upwards of a billion dollars into something and not have received a product demo is a little scary. So definitely gross retention at retention or top KPIs for us. And then I would say really getting under the hood of the technology, what's the IP, how differentiated it is. Is it replicable? and then another one I don't know, how other people would define it as a KPI, but how good is the management team from an operational standpoint, a strategic standpoint a cultural standpoint, right. And an entrepreneurial standpoint. So I think those would be the three things that we'd look at outside of EBIDA obviously, and revenue growth.

Lori Hardwick: (23:56)
Interesting. Reggie, how about you? What are you looking for

Reginald Tucker: (23:58)
Yeah, a little more art than science. I mean, yeah. Markets wise looking at big growing markets that are either fragmented where the entrepreneur is able to carve out, a new a unique niche or just really large Tams where they can carve out a piece of it totally addressable markets where they can carve out a piece of it and become a and become a market leader, in those particular segments tend to avoid kind of winner take all situations, which tend to be expensive places to play in and very binary types of very binary types of outcomes, but also will instead look at places where there have been those first movers, which is effectively taken the early risk.

Reginald Tucker: (24:56)
And I've identified parts of that market, where there are opportunities and where there are gaps. Cause it's often like this second phase of companies that come in that really benefit, from these big technologies that come. And I think we'll definitely see that in places like, crypto, where most of these coins and, quite frankly these layer one technologies some of them will go away or they'll consolidate and they've shown, their strengths and their weaknesses. And I think it'll be those next that next phase where really the key investments are made and the money is made. Yeah.

Lori Hardwick: (25:41)
All right. Let's open it up to questions if, there are any, and if there aren't, I've got a few more, so any questions I'm coming right behind you?

Speaker 4: (25:56)
Hi just had a question. I was going to ask about the supply of capital coming in to be invested, not the opposite end. Are you guys seeing any differences in that? I mean, I know enough about private equity that you don't just like real time, like allocate capital, but still like, you're closer to that? Are you seeing any differences now that things are turning the economy is turning for lack of a better term?

Lori Hardwick: (26:21)
Yeah, that's a great question. I can start at Genstar, we funded a $10 billion fund last year. And so we do have a lot of dry powder as you'll probably see through firms like Orion that are built buying Redtail and other big companies up underneath them that we're trying to put that money to work. We do not get paid until we put that money to work. And obviously we wouldn't be as responsible as we can but that's, from my perspective would be interested to hear from you guy's perspective.

Stefani Raiola: (26:56)
Yeah. I think we're in a similar boat as Genstar. So we just raised a couple of funds and that's when liquidity was still available out there in the market to, raise whatever 5 billion plus dollar funds. And so our thinking these days, given the downturn, the volatility in the market is to place our bets in really high quality businesses. So not ones that are bragging about their cash, their monthly cash burn, but ones that we feel have good margins, have good profitability and are number one or two in their market and have a reason to win is mostly we're replacing our bets these days, cuz otherwise we feel we're, we're wasting good value of our dry powder investing in something that's a long shot for us.

Lori Hardwick: (27:40)
Yeah.

Reginald Tucker: (27:41)
Yeah. And so, and we're midway, so we're a little bit of also we've raised some and we have more of the mode more to raise expect probably a protracted, fundraising fundraising environment. But it's interesting because most people, on the investment side that I'm talking to and our view is that, you know the 2022 2023 vintages in the private markets, PEVC in particular will be really good years. I mean, it's much, much better entry points for things right now, valuations terms, have a lot of the pendulum has shifted back towards the investor. And so, able to structure in protections and things like that. And so from a vintage year standpoint we think it'll be one of the best times to invest the issue is there's fear in the market right now. Yeah. And that causes people to at least try to wait to get clarity on a couple of things like interest rates, which we saw. We got once, once we had a little bit, we got a little bit of a relief very small be it. But yeah, I think once we get clarity around things we'll, get back to business as usual.

Lori Hardwick: (28:58)
Right. Great question. Any others? I think we're just about out of time, but there is, we just have one more question. Okay. Yeah. I'm so sorry, cuz I honestly cannot see that one row.

Speaker 5: (29:09)
Thank you, just curious, what steps are you taking to expand access to participating in your funds into, advisory markets that may have been excluded in the past?

Stefani Raiola: (29:26)
I don't think that we're necessarily, I looking at it that there's some advisory markets that have been excluded from the past, but we try to focus our efforts on a piece of technology where gained a lot of traction and then how do we bring that technology to, different types of advisors? Right. So like I mentioned before, we think that the RA space are, have been the pioneers of at least testing out this newer technology, and quite frankly, challengers to a lot of the larger incumbents like Orion or investment or Morningstar or great piece of technology as well. But, how do we give advisors the option of choosing the best tech stack for them and for what they do? And so I don't, I would be Remis say it would be only be relegated to the RA sector, but anyway, anywhere from smaller RAs, whatever one or two advisor shops all the way up to wirehouses is eventually where we'd want the businesses that we invest in to go, cuz who doesn't want a large enterprise contract at the end of the day, it's it makes for good revenue.

Reginald Tucker: (30:33)
Yeah And I would say that's exactly why I'm here. I've spent most of my time on the institutional side our clients our firm is based in LA. So a number of, sports, media, entertainment folks and new tech entrepreneurs that tend to be part of smaller personal networks but now, attending events like this, looking to connect with directly with financial advisors, RA platforms that don't have that don't have venture and looking forward to look are interested in partnering with someone like us. And so, we're spending time trying to have those conversations and find those platforms where there'd be a good partnership fit.

Lori Hardwick: (31:18)
Right. And from our perspective at Genstar, we are known for buying one company and then tucking in up underneath with anything that is going to either save the advisor some time and energy building their capacity or allowing us to kind of build out a more comprehensive platform that could even extend our footprint into new new markets. So, great questions. Thank you both for joining me this morning. Thank you all for your attention and I hope you have a great rest of the day. Thanks.

Speaker 6: (31:52)
Thanks.