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IPO VIEW-Wealth firms may gain by holding back on IPOs
November 5, 2010 / 11:18 PM / 7 years ago

IPO VIEW-Wealth firms may gain by holding back on IPOs

(For other news from the Reuters Wealth Management Summit, click here)

* Many wealth management businesses file for U.S. IPOs

* IPO can raise money for acquisitions, compensation

* Quarterly performance measures inappropriate - execs

* No “first mover” advantage for wealth firm IPOs - exec

By Clare Baldwin

NEW YORK, Nov 5 (Reuters) - Wealth management firms are lining up to go public, but some in the industry wonder if clients will suffer.

Going public might help a firm raise money for acquisitions or to pay employees -- but it also pressures it to perform profitably on a quarterly basis in a business some say can only be evaluated over the long term.

“Our business is a very long term business and you have to put your client’s interest before your own. And I think, frankly, that it would be very difficult to manage that if you had the pressure of quarterly earnings,” said Glenmede Chief Executive Officer Gordon Fowler, speaking at the Reuters Wealth Management Summit in New York.

Still, a number of wealth management firms have recently gone public or are moving in that direction.

Financial Engines Inc (FNGN.O), which sells financial analysis based on the work of Nobel laureate and co-founder William Sharpe, kicked off the IPO rush in March.

Private equity-backed LPL Investment Holdings Inc, parent of one the largest independent U.S. brokerage companies, filed for an IPO in June and on Thursday finalized terms that would enable it raise about $445 million at the midpoint.

Neuberger Berman, which manages money for the wealthy among other clients, said in June it will will most likely pursue an IPO at some point in the future. [ID:nN09153611]

And it is not just home-grown companies that are looking to tap the market. Noah Holdings Ltd, an independent seller of wealth management products to wealthy clients in China, hopes to raise about $84 million in its IPO next week. The company has 300 financial advisers in 28 offices in some of the most-developed regions of the country, including the Yangtze River Delta, the Pearl River Delta and the Bohai Rim.

SKIN IN THE GAME

Still, executives speaking at the Reuters Wealth Management Summit in New York earlier this week urged caution.

GenSpring Family Offices Chief Executive Officer Maria Elena Lagomasino said being partially owned by management ensures that a wealth manager’s incentives are aligned with those of customers.

GenSpring is majority owned by SunTrust Banks Inc (STI.N), but over time Lagomasino hopes a bigger share will be owned by GenSpring employees, or, potentially, the families they serve.

“There is a huge interest and value from our (employees) to be able to say to a client, I own a piece of this company ... I have my skin in the game,” said Lagomasino.

Focus Financial Partners, which is backed by private equity firms Summit Partners and Polaris Venture Partners, is viewed as an eventual IPO candidate, but founder and Chief Executive Officer Ruediger Adolf insisted there is no rush.

“I would disagree that there is a first-mover advantage,” said Adolf. It is better wait and see how the market responds to the other wealth firms lining up to go public, he said.

Focus also recently refinanced, meaning some of the pressure to divest has eased as private equity funds typically hold their investments for 5 years to 10 years before exiting.

“I‘m a big believer of not being at the bleeding edge,” said Adolf. (Reporting by Clare Baldwin; additional reporting by Helen Kearney; editing by Andre Grenon)

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