Debt-strapped Kestra Holdings is selling a large chunk of its wealth advisory business to Atria Wealth Solutions, a $100 billion broker-dealer and investment advisor in New York.
The sale comes as Kestra's
Warburg Pincus acquired a majority interest in Kestra in 2019. The firm also has backing from Dallas-based real estate holding company Crescent Partners. Kestra advises on $146 billion in assets and directly manages another $60 billion.
In March, a Moody's Investor Services analyst wrote that Kestra's debt load had spiked 87% over 14 months to around $850 million and that interest payments on that debt would soar by the same percentage in 2023, to $84 million. The analyst noted that while Kestra has strong revenue earnings growth, it was "constrained by its high leverage and low profitability." Atria is backed by private equity firm Lee Equity Partners.
Kestra CEO James Poer said in the joint statement that "our highest priority is to ensure the continuation of Grove Point's success and for the firm to be best positioned for the future."
'Streamline'
Peter Nesvold, a partner at Republic Capital Group, an investment bank in Houston for the wealth management industry, said that when markets turn volatile, "what often happens is that companies will look at their portfolio of assets and start to streamline things."
With Grove Point, he speculated, Kestra may have decided that "it just wasn't integrated with the rest of the company and could potentially thrive more under somebody else's banner." Kestra's sale, he added, "would be indicative of some small, minor hears about just where the market is going."
Nesvold said there was another message in Kestra's sale: that smaller broker-dealers were vulnerable. The sale is "an illustration that scale, true scale in the independent broker dealer world is still very elusive," he said. While a registered investment advisory firm with $5 billion in client assets can be a player, an independent broker at $15 billion — Grove Point Financial — "is still a little bit of a tweener. They need to either double down and continue to grow, or they need to combine with somebody."
Doug Ketterer, Atria's CEO and founding partner and a former Morgan Stanley wealth management executive, said in a brief interview Tuesday that "We're not interested in being the biggest, we're interested in being the best. That's by design."
Under the deal, Grove Point will maintain its existing clearing and custody relationships with BNY Mellon's Pershing, one of two providers that Atria uses (the other is Fidelity Investments).
Grove Point President Michelle Barry said in the statement that both firms' use of Pershing "will enable our financial professionals to continue to focus on their clients, with no need to repaper." She added in a brief interview that Kestra "did everything we asked for to help to invest in the firm" but referenced different technology systems throughout Kestra. By folding into Atria, she added, "we have growth aligned, an organization that really helps bring more resources — and to me, it's about resources that really scale."
