Koda's Steve Tucker (left) and Paul Heath

Koda Capital has become the latest advice group to secure a tie-up with off-shore investors after US-based wealth backer Emigrant Partners took a minority stake in the group, giving founders Paul Heath and Steve Tucker a capital and knowledge boost they hope will take the $10 billion AUM firm to its second phase of growth.

Emigrant Partners, which has its hand in 17 wealth firms in the states that have a combined AUM of $90 billion, purchased a stake in Koda this week totalling less than 25 per cent of the firm’s ownership.

According to Paul Heath, who founded Koda with ex-MLC boss Steve Tucker in 2015, the equity stake is a way to inject capital and know-how so the business can grow, while still preserving the professional partner model that sees majority ownership stay in the hands of adviser partners.

In 2019 Heath says the two sat down with the other major stakeholders and agreed that the operating scale for the firm’s professional services model was “in line of sight” to get them through the first stage. For stage two, hatched during the heady lockdown days of early 2020, they needed a partner that could bring further funding and external know-how.

“We knew we had the right model – independent, conflict-free advice delivered by staff and partners who owned the firm – but we knew that to scale further we had to do it differently,” Heath says.

The two flew to the states and courted suitors, with Emigrant Partners – owned by Emigrant Bank, the largest family-owned and operated bank in North America – quickly emerging as what Heath calls the “logical choice”.

Emigrant can not only fund Koda’s growth now, Heath says, but when the next phase of growth nears. This means the advice group won’t need to broach the risk associated with bringing further partners into the fold.

Emigrant gets no chair seats in the deal, but Heath figures the group’s expertise will be just as valuable as its capital.

“They don’t want voting rights or a board seat; they’ve been doing this for a while and they’ve decided the minority stake is the best model,” he says. “But there’s a menu of help we can choose from, with things like M&A for example.”

So does that mean Koda is looking to expand overseas, with the US and its burgeoning ‘Registered Investment Advisor’ movement a likely target?

“No,” says Tucker. “We’re not going out and doing a deal a week or anything. We’re not an aggregator.”

Ticking the right boxes

While Koda’s wholesale advice model was attractive to Emigrant, Tucker reckons it was the ownership platform that really ticked the investment group’s boxes.

“Wholesale wasn’t a stipulation for them,” Tucker explains. “They like the market we’re in, but the main aspect was the professional partnership model, it’s key to what they’re looking for.”

The advice stalwart hits on a couple of emerging themes Koda sits at the nexus of. Offshore capital into advice is the big one, with the Italian Azimut Group’s investment in Paul Barrett’s AZ NGA and US buyout king KKR’s interests in CFS being other examples. The comparisons are far from analogous – AZ NGA isn’t licensed and CFS is a multi-faceted wealth group – but the thematic is clear; overseas investors see value and huge potential for growth in Australian wealth management.

Another emergent theme is the owner/partner model in advice.

Koda staff own over 75 per cent of the firm. With the market for adviser talent tightening, he believes, investors want to know the people that matter – the advisers that have relationships with clients – are in for the long haul.

“If you look at the advice mid-market and the exodus of advisers we do believe there will be more of these professional-style models as the market restructures,” he explains.

“The capital is looking for access to the new model, they know those firms are run well and are profitable. Groups like Azimut and KKR are looking for secure and strong, growing revenue streams. Go back to conversations with Colin [Tate, Conexus chair] 15 years ago… we’ve always had the view that the professional services model can be successful.”

There will always be capital flowing towards large scale vertically integrated structures, Tucker says, without naming AMP or Insignia. “But we don’t think that’s where the future lies.”

More broadly, Tucker believes overseas investment and the tidal shift towards professional partnership models are yet more signs that the advice industry is on its way back to prominence and prosperity after a bruising period marked by the royal commission, tough new standards and steep regulatory hurdles.

“All roads lead to a very successful transformation of the advice system as we move through a period of reformation,” he says.


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