San Francisco’s private equity firm TPG is making headlines once again, but this time round, by taking the lead and positioning itself at the forefront of the wealth management industry. News just broke out that the company is expected to pay a value of around $2 billion for a minority stake investment in Creative Planning, an independent wealth management firm based in the US. And according to asset management insiders, Creative Planning would be valued at over $15 billion if this deal goes through. But why is TPG going all in for this deal to happen, and what does this mean for the whole wealth management industry?
Creative Planning’s background check
Creative Planning has steadily developed over the years to become a juggernaut in wealth management. The company is based in Overland Park, Kansas, and it currently manages over $300 billion in assets. The firm still caters for other financial needs which range from tax services and investment planning to retirement planning for individuals with high net worths. Creative Planning also acquired Goldman Sachs’ personal finance unit last year to solidify its reputation as a leading wealth management firm in the US. This is exactly what attracted the attention of private equity firms like TMG and the current minority stake investor in Creative Planning, General Atlantic, both of which are eager to capitalize and gain a share of the firm’s cash flow potential.
Bringing TPG into the picture
TPG’s $2 billion plan to acquire a stake at Creative Planning isn’t something that comes by surprise since just a week ago, the company secured a share in another wealth management firm (Homrich Berg), which is based in Atlanta. It’s evident that TPG’s new vision as a private equity firm is to focus on wealth management due to the high fees structures associated with managing valuable assets. The timing of this deal couldn’t come at any better time than this, due to the fact that the wealth management industry is currently fragmented, leaving room for firms like Creative Planning to grow even further. TPG views Creative Planning as a starting point for something bigger in the future rather than just another investment.
Wealth management is BIG MONEY!
Wealth Management has always held a higher appeal for private equity firms, and it’s easy to see why. Personal financial advising firms like Creative Planning tend to generate a consistent cash flow and their business model thrives on acquisitions. TPG manages a wide portfolio of assets which are valued at $229 billion, and this will give the company an upper hand when it comes to financing acquisitions at Creative Planning. The private equity company is now establishing itself as a major participant in this space as more and more firms keep recognizing the value of merging under bigger umbrellas. Creative Planning’s valuation of $15 billion didn’t just come out of the blue, it’s a figure that represents the huge growth potential within the wealth management space in the US.
What this deal holds for the future
Clients will soon begin to receive more tailored and advanced financial services as private equity firms like TMG deepen their stakes in wealth management. The ripple effects of these new changes in the asset management sector are more likely to be felt by high income individuals who feel the need to manage their fortune more professionally. On the other hand, wealth managers will try to create more personalized and diversified portfolios with the support of private equity entities, and this will make them even more appealing to top-tier clients. Creative Planning appears ready and willing to expand its portfolio further through the use of TPG’s resources and the company’s track record. It’s just a matter of time before everything unfolds.
Image source: pexels.com
