By Steve Rosenbush During the last few years countless professionals have left big Wall Street firms to start their own hedge funds, money-management firms, and investment-banking boutiques. In the race to create record overcapacity, the financial-services industry might give telecoms or airlines a run for the title. Now a wave of consolidation is underway as many of these outfits are destined to be acquired.
That's especially true at the lower and middle rungs of the industry ladder. Mindful of that need, an affiliate of private-equity player Centre Partners is launching a money-management firm with Munn, Bernard & Associates, BusinessWeek Online has learned. The two companies will form a new venture called MB Investment Partners, which will manage money for high net-worth individuals and families. A formal announcement is scheduled for Nov. 8.
CAPITAL ADVANTAGE. Centre Pacific, an affiliate of Centre Partners, will invest $50 million in equity in the new firm, according to Robert Machinist, managing partner of MB Investment Partners. Centre already has previously invested an undisclosed amount in the business. The capital will be used to help MB acquire money-management firms. "We want people to be aware we're an active buyer of these assets," Machinist says. "We think we can help some of those firms get to the next level."
Both companies bring a combination of human and financial capital to the task. Machinist is a veteran of private-equity powerhouse Patricof & Co., an early investor in Apple Computer. Other MB executives include managing partner Mark Bloom, a former tax partner at BDO Seidman. Over the last year, 21-year-old Munn, Bernard says it has earned a return of 11.85% for its clients, besting the S&P 500 return of 11.06%.
Centre Partners, based in New York and Los Angeles, has invested $3 billion since its inception in 1986. With a focus on the middle market, investments include Autoland and the Johnny Rockets Group restaurants.
MB will operate at the middle of the financial-services market. It will manage about $750 million in assets. But Machinist says it will have enough capital to acquire other firms with up to $2 billion in assets. He expects several deals over the foreseeable future.
TAILORED TO SUIT. The firm says its market is growing. MB is targeting clients with $5 million or more available for investment. Machinist says such wealth is currently passing from one generation to another, which can create a market for financial advisers. And new wealth is being created on Wall Street and in the world of small business.
The firm pursues a strategy of long-term investments in large-growth companies. It places a big emphasis on preserving wealth. But at the same time it employs various forms of arbitrage to help beat the market during periods of doldrums or bearishness.
MB faces lots of competition. Big financial-services firms dominate the market at the top. Just below them is a group of independent money managers, many of which are being acquired. MB expects to operate just below that level.
But Machinist thinks the outfit can prosper by providing services that are carefully tailored to a client's needs. Unlike larger firms, MB isn't tempted to focus on products developed in-house. And he says he isn't afraid to send potential clients elsewhere if he can't meet their specific needs. The alternative? Ending up on the other side of the acquisition game. Rosenbush is a writer for BusinessWeek Online in New York