Private equity will continue snapping up investment platforms - Cerulli

Sophie King
clock • 3 min read
Private equity will continue snapping up investment platforms - Cerulli

The UK platform sector has seen several cases of private equity (PE) buy-outs in recent years, and that trend it set to continue, research by Cerulli Associates has found.

For the most part, private equity focus has been on buying mid-sized advised platforms, a trend Cerulli, which provides data for asset and wealth management firms, predicted will continue.

According to the data firm's latest issue of The Cerulli Edge - Global Edition, PE ownership of platforms has increased from 2% of the market to 15% over the past five years.

Non-advised platform markets represent more interest from private equity because it is more fragmented and diversely advised."

Cerulli said that opportunity for PE firms lies in consolidation. There is a high proportion of smaller firms that have decent customer books, the firm said, which are struggling to achieve profitability due to regulatory and technological demands.

In addition, the firm noted that, through these acquisitions, investment platforms can deliver high returns on capital. It said platforms are "capital light" and specifically in the D2C platform sector, direct investment customers tend to stick around, even if levels of service fluctuate.

The UK adviser platform market as seen several purchases made by PE firms in the last couple of years. In 2019, James Hay, which recently bought platform rival Nucleus, was snapped up by a PE firm.

Then, in December last year, Novia was acquired by a PE firm AnaCap Financial Partners.

The latest private equity acquisition involved Standard Life Aberdeen (SLA), which sold its adviser platform Parmenion to Preservation Capital Partners for £102m.

European PE holding periods average around six years before they exit to try and bank their profits, but advice firms tend to look for long-term partnerships with the platforms they work with.

Even though consolidation by PE firms is set to continue, the report warned successful re-platforming takes time, money and commitment, and so must be done right.

The report said: "The short-term modus operandi of private equity clearly does not sit comfortably with that, especially when an acquisition raises the prospect of migration and re-platforming exercises."

It noted that PE firms will have to also navigate the expectations of the platform users, i.e. advisers.

"Advisers are less sticky and loyal than direct investors. Anything that affects platforms can have implications for the service that advisers provide clients and the suitability of the chosen platforms for an advice firm's client book."

Cerulli director of European institutional research Justina Deveikyte said: "Non-advised platform markets represent more interest from private equity because it is more fragmented and diversely advised.

"With pricing under constant pressure, smaller players are increasingly becoming inefficient, making them targets for consolidation and creating potential for private equity to build scale through mergers and acquisitions.

"The day-to-day mechanics of platforms and the ability to navigate the twin challenges of regulation and technology will determine the real impact of private equity's forays into the market.

"There is clearly a reward to be gained for private equity firms venturing into platforms, but they will need to be patient and prepared to commit," she said. 

First published by our sister title Professional Adviser