LOS ANGELES — Fueled by a flood of money from private-equity firms buying local businesses as well as a spectacular appreciation of real estate values, California’s Orange County has emerged from the shadows of neighboring Los Angeles as a wealth management powerhouse in its own right.
“Orange County used to be looked down upon because it was more suburban and less developed than Los Angeles,” said industry consultant Tim Welsh, president of Larkspur, Calif.-based Nexus Strategy LLC.
“But that’s worked to its advantage. Now it has very strong real estate, a lot of private businesses and many technology, financial services and pharmaceutical companies — and many more corporate executives than in Los Angeles. In some ways it’s a more straightforward wealth management model. And there’s plenty of room to grow,” Mr. Welsh said.
Nationally, only Los Angeles County and Illinois’ Cook County have more households with net worth of at least $1 million, excluding principal residence, than Orange County, according to the financial services division of
London-based Taylor Nelson Sofres PLC (see box).
And that number is expected to increase as local entrepreneurs continue to sell out to private-equity firms.
Getting liquid
“There’s been an unusual uptick of liquidity events,” said Betty Mower Potalivo, president for Orange County and desert communities with Chicago-based Northern Trust Corp. “We’re seeing a lot of capital here lately.”
“There’s clearly more money available now,” agrees Russ Hill, president of Long Beach, Calif.-based Halbert Hargrove/Russell LLC, which has approximately $1.4 billion in assets under management. “There’s liquidity available for any successful business who wants it.”
“Private-equity firms are buying everybody’s business,” added Rick Keller, chief executive of The Keller Group Investment Management Inc. of Irvine, Calif., which has approximately $1.175 billion in assets under management. “And owners are selling because they’re being offered prices they didn’t think the business was worth.”
This influx of capital has given local wealth managers the welcome opportunity to cultivate first-
generation wealthy clients, as opposed to the more difficult task of prying a second or third generation of wealthy family members away from an existing wealth manager.
“It’s a chance to get involved with these families at an early stage,” said Ms. Potalivo, who is in Newport Beach, Calif. “They’re looking for advisers to help them with assets they haven’t had before. Before selling their business, they’ve had limited exposure to investing in the capital markets.”
In addition to Northern Trust, the rapid accumulation of wealth in Orange County has attracted such wealth management heavy hitters as Bessemer Trust Co., U.S. Trust Corp., and the major Wall Street investment banks and wirehouses.
In fact, Mr. Keller said, his firm increasingly finds itself competing for business against big brokerage firms. “That was not the case five years ago,” he said.
Mr. Hill said his toughest competition now is coming from wirehouses, especially for clients with $5 million to $20 million in investible assets.
Most local wealth managers say they rarely travel to Los Angeles, because they have all the business they need within Orange County, particularly in areas such as Newport Beach and Irvine.
“It’s clearly a distinct market,” Mr. Keller said. “It takes me as long to drive to Los Angeles as it does to fly to San Francisco.”
But others say that some of their business does come from Los Angeles. “People out here drive a lot. If someone is in Los Angeles, that won’t prevent us from going there,” said Bob Cluck, president and chief executive of Newport Beach-based Canterbury Consulting Inc.
At present, Orange County remains an underdeveloped market for multifamily offices, especially when compared with Los Angeles, according to Pat Soldano, president and chief executive of Cymric Family Office Services in Costa Mesa, Calif.
“We’re in an early stage of growth, and Los Angeles is further ahead,” she explained. “Our challenge is letting people know we exist.”
Ms. Soldano added that she is concerned that wealth management firms are offering services demanded by wealthy families in an effort to “gather assets.”
“In most cases, they are not doing a very good job,” she asserted. “Wealth management is mostly a sell culture, and family offices are part of a service culture.”
But as the market grows, and competition heats up, wealth managers increasingly are being forced to offer more services, Mr. Hill said.
“It’s a more holistic game now,” he said. “There used to be maybe one or two major non-investment issues for clients, but now there as many as five or 10.”
Complex services
As a result, Mr. Hill continued, a more complex service delivery model is threatening to cut into the profit margins of fast-growing wealth advisory firms.
“It used to be just pure investment asset allocation issues. But with so much wealth being unlocked here, today there’s much estate-planning and distribution issues,” Mr. Hill explained.
Local wealth managers are confident that Orange County will continue to grow and remain profitable, however.
Canterbury’s wealth management business has increased nearly 50% over the past three years, according to Mr. Cluck, a co-founder of the firm. “I think we will see the pie grow for everyone,” he said.
Ash Narayan, an Irvine-based managing partner with RGT Capital Management Inc., a unit of Dallas-based Robertson Griege & Thoele, said he’s seeing more “lateral movement” than startups as wealth advisers switch firms, but he believes that there are “plenty of opportunities” for new firms with “a good story, a good platform and exceptional people.”
“This is a big pond to fish from,” he said. “There’s so much money out there.”
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