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AlphaCore Wealth Advisory, a La Jolla, Calif.-based, alternatives-focused registered investment advisory firm managing $2.6 billion for around 1,140 clients, has become the first capital recipient of Karl Heckenberg’s new private fund management company, Constellation Wealth Capital.
After disclosing plans earlier this year to raise $1 billion for a private equity fund to buy minority, non-controlling stakes in RIAs and other wealth advisory platforms, Constellation has purchased more than a quarter of AlphaCore’s equity, replacing two family office investors in its inaugural transaction.
Heckenberg, who founded Constellation after stepping down as CEO of Emigrant Partners, declined to be interviewed for the article but said in a statement that AlphaCore’s growth record and expertise in private markets and alternative investing “align perfectly with CWC’s investment philosophy.”
Founded almost nine years ago, alternative investments are central to AlphaCore’s asset allocation strategy and a key differentiator for the firm—which also offers traditional asset management, financial planning and advice around taxes, retirement, insurance and trusts and estates, as well as corporate retirement plan services,
CEO, co-founder and majority owner Dick Pfister launched AlphaCore in 2015 after leaving alternative investment firm Altegris, where he spent more than 16 years and became partner. He remained with the firm for a short while after it was sold to Genworth Financial in 2013, but found he needed a financial planner to help manage windfall from the sale and was unable to find a firm with an investment strategy that he didn’t consider too risky.
“They were using an outdated asset allocation approach,” he said, characterizing the traditional 60/40 stocks to bonds ratio as “too risky” in 2015. “I’ve lived through the tech wreck of the early 2000s, where stocks went down 50% or 60%, and I’ve lived through the subprime crisis where market went down even faster and deeper. You had this dilutive effect on the fixed income side and, if rates were to rise, you could lose money on bonds too.”
Not interested in having to worry about losing half of his invested assets every five or six years, Pfister created the AlphaCore investment model, which places alternatives at the center of an allocation strategy utilizing multiple strategies and managers.
“Everything from private credit, private real estate, private equity,” he said. “We also include alternative strategies that are hedging. So, long-short equity, long-short credit, merger arbitrage, global macro. Those are what I would consider alpha generators. Around that, we will consider traditional beta like stocks and bonds, because I’m still a big believer in the U.S. economy and that companies will make money over time . . . but I don’t want to pay a lot for it because you should be able to get beta very cheaply.”
The partnership with Constellation represents a new phase of growth for AlphaCore, which has increased staff to 30 and grown assets by 50% annually since its inception. The influx of capital will be used to continue hiring, improve client service and pursue acquisition opportunities.
“We always have a pipeline of advisors that are interested in joining or being acquired, and that will be ramping up dramatically over the next couple of years,” said Pfitzer. Acquired firms must be aligned with the alts-centric investment strategy and have a collaborative mindset, he added.
Since launching Constellation in April, Heckenberg has hired a dozen team members, including CFO Jack Yates, who spent time with private equity firms KPMG and GTCR before joining Winona Capital in a CFO/CCO role; Head of Investments Pat McHugh, who worked with Heckenberg as a managing partner at Emigrant Partners; and Head of Advisory Lisa Crafford, BNY Mellon | Pershing’s former head of business consulting.
Constellation plans to invest between $25 million and $200 million in wealth management businesses with between $1 billion and $200 billion in assets, according to federal filings. The company, which is majority owned by Heckenberg and minority backed by Black Owl Capital Investments, has indicated that it expects to have committed more than $150 million in fund investments before the end of January.
Pfister said Constellation is looking to invest in firms with some existing infrastructure where the founder or principals want to remain actively involved in the business.
“Also, this idea of alternatives is not new to Karl and his team,” he said. “They are believers in that as well, so that’s a critical piece.”
“I think Lisa and her team are just some of the best people in the industry,” he added. “They’re involved just as much as we want them to be, and that’s with everything from best practices and technology to career trajectory planning, onboarding and training of new employees. There’s a team that helps with M&A modeling, which they have built out really thoughtfully, and that’s exactly what we needed—someone that has done it before but still has a team that is really passionate and hungry themselves to help grow these firms and their investment.”
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