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Daunting UHNW Challenge: Can Pathstone Reach $50 Billion?

Charles Paikert, April 5, 2021

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This news service has a detailed analysis of US multifamily office Pathstone, a firm that intends to be among the top firms of its type as big changes sweep through the sector.

High flyer
Pathstone, which has a $10 million investible asset minimum for new clients, has no plans to deviate from the UHNW market that Fleissig estimates has around $2.5 trillion in assets.

“There’s plenty of room to grow in that area,” he maintained. “We don’t feel we need to go down market at this point.”

Other large RIAs, who also want to be among the dozen or so large national firms in a post-consolidation era, have targeted mass affluent and high net worth clients, however.

Aggregators including Focus Financial, Captrust, Mercer Advisors, HighTower and even Goldman Sachs, which bought United Capital two years ago and is about to roll out the rebranded firm to a mass market, have all made room for clients with less than $1 million in investible assets.

“If Goldman Sachs can’t avoid going down market, who can?” Lauzon asked.

Remaining committed to the ultra-high net worth market may be challenging, but Pathstone is “as well positioned as anyone,” according to industry consultant Jamie McLaughlin, a co-founder and board member of the UHNW Institute. (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 Lovell Minnick Partners, which has owned a majority stake since November 2019.

The PE firm has helped Pathstone secure credit lines totaling over $100 million to date, which is being used for mergers and acquisitions, tech upgrades and other operational enhancements.

The credit line gives Pathstone “the capacity to significantly increase investment” in the firm, according to Brad Armstrong, partner for Lovell Minnick. The RIA has already tripled its tech budget, Armstrong said, as it strives to “be the best multifamily office for multigenerational clients.”

Acquiring Cornerstone gave Pathstone instant credibility in the burgeoning impact investing market as well as over $3.5 billion in assets from institutions such as endowments, family and community foundations and other not-for-profits.

Karp, who spent 25 years on Wall Street before starting Cornerstone in 2013 after leaving UBS as head of global sector research, is staying on as Pathstone’s chief impact officer. 

ESG investing will continue to grow and is “still misunderstood” by institutional investors, she said. “They still don’t realize that they don’t have to give up returns to align their assets with their mission.”

Pathstone is also convinced that its in-house software system, which ties performance reporting to general system ledger accounting, is the “Holy Grail of family office accounting,” as Fleissig puts it.

Pathstone’s executive team of Fleissig, co-CEOs and founders Steve Braverman and Alan Zachariah, executive managing director John Elmes and chairman emeritus John LaPann, the former chairman of Federal Street Advisors, is also a plus, according to McLaughlin.

“I don’t know of another firm that has that many quality leaders,” he said.

Last year Pathstone attracted two other notable executives to its board: former AssetMark CEO Ron Cordes and Mark Tibergien, the former CEO of Pershing Advisor Services.

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.”
 




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