Merchant Investment Management announced Wednesday that it has taken a non-controlling, minority stake in Redwood Investment Management, a Scottsdale, Ariz.-based asset manager and registered investment advisor.
The money will support an ambitious growth plan delayed during the pandemic, said Redwood managing partners Richard Duff and Michael Messinger, enabling the firm to launch an acquisition strategy via a new business vertical, Mulholland Growth Partners. Terms of the deal were not disclosed.
This latest venture, which shares a name with Redwood’s six-year-old RIA, Mulholland Wealth Advisors, launched over the summer with little fanfare. Bankrolled by Merchant, Mulholland Growth is already making cash, succession planning and M&A opportunities available to firms with less than $500 million in assets under management.
Unlike so many larger firms, these smaller practices are finding fewer opportunities to sell without a payout structure that takes years to complete, explained Messinger. The fresh capital will allow Mulholland Growth to pay cash for pieces of firms looking to solve for succession in advance of the principal partners’ retirement, while providing resources and capital to boost growth, as well as access to a community of potential partners.
“We have balance sheet capital,” Messinger said. “We want to partner in a minority stake with advisors that still want to grow. We’re not looking to do a hundred percent succession today—but start today. A lot of the services that we offer with Redwood and with Mulholland Wealth, and now the capital and the succession planning and services with Mulholland Growth, they have the opportunity to really solve that succession planning without just the typical playbook.”
The partners hinted that their first announcement on that front could be coming as soon as this fall.
According to Duff, the partnership with Merchant and its network of financial firms was just as important as the funding when they were looking at potential investors. More relationships with like-minded professionals means more resources, more distribution avenues, more partnership opportunities and more intellectual capital, he said.
“It was really about the people,” said Duff. “If you really look at the people who are leading the Merchant effort and what their skillsets are, what their history in the industry has been, it presented a whole lot of additional opportunity for us from a product development standpoint, from a joint venture standpoint, and just being able to work on potential ideas with other people from the Merchant universe.”
“Having spent my career in the investment management and wealth management space, I’ve found that firms like Redwood are extremely rare,” Merchant Executive Chairman Marc Spilker said in a statement. “All of us at Merchant have already engaged and begun working on the initiatives identified with the Redwood team to further enhance the financial advisor and client experience.”
At least some of the added funding will go toward educating advisors on the asset management firm’s patented RiskFirst investment strategy through a series of summits and training sessions, said Duff. 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 that face-to-face advisor interaction is the best way to attract potential subscribers to their four- and five-star rated funds.
“We recognize this is not a product that an advisor’s just going to buy and use for their client,” said Duff, “and we don’t even want that. We want to help them change the paradigm.”
“We brought in a new analyst class this summer of seven that all just passed all their licensing exams,” he added. “[T]hey will also be advisor facing and supporting our expanded advisor interaction 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’s so much energy, intelligence and commercial application in what they do, how they manage money and engage advisors, we at Merchant sensed something special and worked hard to find a path to partnership.”
With the Redwood partnership, Merchant now has 60 affiliated firms managing combined assets of more than $140 billion.
Berkshire Global Advisors served as Financial Advisor to Redwood.