Daunting UHNW Challenge: Can Pathstone Reach $50 Billion?

Charles Paikert

5 April 2021

Anticipating an increasing wave of consolidation in the advisory industry, . (He is also a member of FWR’s editorial advisory board.)

Pathstone’s track record in the family office market since it was founded in 2010 is impressive. Average client size is $25 million and the average family office client is $114 million, according to Fleissig.

Dry powder
And Pathstone has a number of formidable weapons in its arsenal.

Foremost is an ample supply of capital, thanks to private equity firm .

Pathstone’s goal of becoming a top tier $50 billion RIA is “quite achievable,” Tibergien maintained. The high rate of wealth creation in the US and the corresponding need for help to deal with complex financial issues will drive more than enough demand, he asserted.

But any temptation to follow the lead of other top RIAs by appealing to a broader market segment should be avoided, Tibergien cautioned. If Pathstone goes “too far out of its lane,” the firm risks diluting its hard won branding, he cautioned.

Louis Diamond, president of recruiting firm Diamond Consultants, agreed.

“Pathstone is one of the more impressive firms in the industry,” Diamond said. “They’ve done a nice job integrating the high-end firms they’ve acquired and have a very successful service model for the UHNW market. I think they would be very careful about any strategic shift because they don’t want to dilute their brand.”

Missing link
Nonetheless, it seems unlikely that Pathstone can achieve its lofty goals without several more major M&A transactions.

Pathstone averages 10 per cent organic growth a year, according to Fleissig, but the firm’s big growth spurts have come from big M&A deals such as its 2016 merger with Federal Street, which added $4 billion to its AuM.

Without inorganic growth, reaching $50 billion by 2024 is “impossible,” according to McLaughlin. Pathstone is on track to do one or two deals a year to “get better not bigger,” Fleissig said. M&A is a “very important” secondary goal for the MFO, Armstrong said, but organic growth is a priority.

Part of that growth will be adding “in-house trust capability” this year, Armstrong added. And Fleissig notes that all of Pathstone’s investments are designed to enhance the firm’s high touch model. “Spending more time with clients means you can deliver better service,” he said. “And that still gets you incredible referrals.”

PE time horizon
As for Lovell Minnick, the private equity firm sees itself as a seven-year investor, Armstrong said.

Lovell Minnick’s strategic planning framework has a five-year time horizon and is refreshed every year with Pathstone’s long-term future in mind, he said. The investment is “not just about doing well for us but also for the firm in the future,” he maintained.

Short-term gains at the expense of long-term growth would just be “window dressing for a sale” and counter-productive, Armstrong said. “Buyers see right through it. They’re too smart.”