Asset Management Consolidation - Simon Krinsky, Hall Capital and Tim McCusker, NEPC (EP.421)

Consolidation in asset management is one of the industry's most important trends. When any industry enters a mature phase, consolidation brings the benefits of economies of scale, product depth, and broader services to meet client demands. We've seen a rising tide of merger activity in recent years, effecting both asset managers and allocators alike. My guests on today's show are leaders of two organizations that announced mergers in October – Simon Krinsky, a Managing Partner at Hall Capital and Tim McCusker, CIO at NEPC. Hall announced a merger with Pathstone, adding its $45 billion in assets to Pathstone's $100 billion. NEPC announced a sale of a majority stake in its firm to Hightower Holdings, adding NEPC's $1.8 trillion of assets under advisement to Hightower's $130 billion of assets under management. Both Hall and NEPC have been longstanding independent organizations that are selling to a partner backed by private equity owners. Simon and Tim walk through their rationale for the transactions, deal process from idea to signing, and opportunities and challenges going forward. The organizations share similarities in their long independent history, broad equity ownership, and investment capability, while also having significant differences in their new partners, incentive structure, and plan to service clients. Together, Simon and Tim offer an inside look at dealmaking in asset management. Take Capital Allocators Audience Engagement Survey https://www.capitalallocators.com/annual-survey/ Learn More Follow Ted on Twitter at @tseides https://twitter.com/tseides?lang=en or LinkedIn https://www.linkedin.com/in/tedseides/ Subscribe to the mailing list https://capitalallocators.com/ Access Transcript with Premium Membership https://capitalallocators.com/signup

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Ted Seides?

  Capital Allocators is brought to you by AlphaSense. Every allocator sits at their desk for hours preparing the work around investment decisions, getting up to speed on a new theme, prepping for the next investment committee meeting, and tracking what changes across an entire portfolio. AlphaSense just launched something built to help. It's called SuperAnalyst, an always-on agent that works like a power user on your behalf. It draws on over 500 million premium sources, including broker research, expert transcripts, company filings, and earnings calls, and keeps working long after you've gone home for the day. Point SuperAnalyst at a theme, company, or market, and it learns the coverage universe

• 0:46Ted Seides?

  so you can easily turn new insights into the briefs, models, and memos you'd otherwise build by hand. It was designed to work like an extension of your team, so it remembers your projects, follows your templates and processes, and links every output to its source so you can see where each conclusion came from. The best way to judge its quality is to give it a whirl. Pick the research task on your desk before your next committee meeting and hand it to SuperAnalyst. Start a free trial at alphasense.com/capital and see what it has ready for you.

• 1:24Ted Seides?

  Capital Allocators is also brought to you by RidgeLine, the investment management platform built for firms who are rethinking how work gets done. You're at your desk looking at a line graph of your firm's growth. The line is moving sideways, linear growth, and you know exactly why. You're constrained by your operational bandwidth that's been the same for so long, it just feels like the cost of doing business. RidgeLine is built to change that line's trajectory, to be the inflection point that takes your growth from incremental to accelerated with the team you already have in place. RidgeLine is the only AI-native investment management platform that brings together

• 2:06Ted Seides?

  the front, middle, and back office with one set of data and powerful AI agents that automate away operational drudgery, so your talent can shift from managing old technology to materializing new ideas. RidgeLine helps asset and wealth managers understand and improve their firm's growth trajectory. To see how your firm compares to 16,000 of your peers, visit ridgeline.ai/trajectory. If you file Form ADV, your firm is already there. Then talk to RidgeLine about how you can do more with the team you already have. Capital Allocators is also brought to you by Juniper Square,

• 2:47Ted Seides?

  the operations partner trusted by the leading private market GPs. One theme that keeps coming up on the show is GPs that build the strongest and most durable relationships with LPs are the ones that have both strong returns and strong operations. AI raises the stakes on operations and having Juniper Square as your operations partner helps ensure your data is organized, accurate, and accessible, so you can unlock operational alpha. That's why thousands of GPs trust Juniper Square. Learn more at junipersquare.com/capitalallocators.

• 3:32Ted Seides?

  Hello, I'm Ted Seides and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation. Through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can join our mailing list and access premium content at capitalallocators.com.

• 3:59Speaker 01

  All opinions expressed by Ted and podcast guests are solely their own opinions and do not reflect the opinion of Capital Allocators or their firms. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Capital Allocators or podcast guests may maintain positions in securities discussed on this podcast.

• 4:18Ted Seides?

  Consolidation in asset management is one of the industry's most important trends. When any industry enters a mature phase, consolidation brings the benefits of economy of scale, product depth, and broader services to meet client demands. We've seen a rising tide of merger activity in recent years, affecting both asset managers and allocators alike. My guests on today's show are leaders of two organizations that announced mergers in October. Simon Krinsky, a managing partner at Hall Capital, and Tim McCusker, CIO at NEPC. Hall announced a merger with Pathstone, adding its $45 billion in assets to Pathstone's $100 billion.

• 5:00Ted Seides?

  NEPC announced the sale of a majority stake in its firm to High Tower Holdings, adding NEPC's $1.8 trillion of assets under advisement to High Tower's $130 billion of assets under management. Both Hall and NEPC have been longstanding independent organizations that are selling to a partner backed by private equity owners. Simon and Tim walk through the rationale for the transactions, deal process from idea to signing, and opportunities and challenges going forward. Their organizations share similarities in their long independent history, broad equity ownership, and investment capability, while also having significant differences in their

• 5:42Ted Seides?

  new partners, incentive structure, and plan to service clients. Together, Simon and Tim offer an inside look at dealmaking in asset management.

• 5:52Speaker 02

  Before we get going, I want to tell you about our year-end raffle. To enter the raffle, you'll need to complete our annual audience engagement survey. The responses to this survey really do help shape some of the decisions we make at capital allocators, and we thought we'd provide a little incentive. Completed surveys give you an entry into this giveaway. Duplicate entries are disqualified, so one per person, and we're giving away one of three prizes. The first prize: some new capital allocator swag. Just place an order of some of the softest hoodies you've ever worn and some Patagonia vests. The second prize: Ted's latest book, Private Equity Deals. In fact, let's make a signed copy of Ted's latest book.

• 6:31Speaker 02

  And third, free admission to Capital Allocators University hosted in 2025. So if you're an LP, you'll gain free admission to Capital Allocators University for allocators. If you're a manager, you'll gain free admission to Capital Allocators University for investor relations professionals. If you're not an investor relations professional, you can tap a peer or a colleague, and you will be a great friend. You can find the survey in the show notes of this episode and episodes for the next few months, or go to capitalallocators.com/annual-survey. That's capitalallocators.com/annual-survey. Thanks so much for spreading the word about Capital Allocators and our audience engagement survey.

• 7:15Ted Seides?

  Please enjoy my conversation with Simon Krensky and Tim McCusker.

• 7:21Ted Seides?

  Tim, Simon, thanks so much for joining me.

• 7:23Speaker 03

  Thanks for having us, Ted.

• 7:25Ted Seides?

  Well, we're going to talk through what you guys have gone through in the business the last couple of weeks. I want to start with this whole concept of consolidation. And in your eyes, what's going on? I'll open it up to either one of you to start.

• 7:37Speaker 03

  I feel like consolidation has been happening in the consulting world for years and years, that this is just a continuation. We go back 15-plus years to Enes Kanup getting sold to Aon, and it goes on from there. So we're just in the latest cycle of it, which is new and different. The previous phases of consolidation were consulting firms mashing together and trying to get scale in a challenging business where there's not a lot of new growth, and you're trying to win market share. Those same challenges have existed for those that got to scale, and we've had to add new business lines as different types of consultants. It's hard to just be one type of consultant, just consult to endowments, just consult to

• 8:18Speaker 03

  pensions. The tailwind that has helped all of us the last decade is the OCIO channel, and that has been a great source of growth for us and many others. So you look forward and think, how are we going to grow in a business that continues to have fee pressure, just like the investment management world? And you look for another new channel, and you see the RIA space that is growing, that's going through a different Different kind of consolidation with all these smaller independent RIAs. But you see this tailwind of new wealth coming in there. RIAs needing a lot of investment help and these platforms that have been created that really maybe don't have that full investment engine that a lot of the larger institutional consulting firms have been able to build out.

• 8:59Speaker 03

  And there's a nice fit there with the skills and strengths that we have and what some of these RIAs have.

• 9:05Ted Seides?

  So Simon, Tim talked about this from the perspective of a consultant where there's been a lot of merger and consolidation. Yours is slightly different perspective. So love to hear about what you've seen.

• 9:14Speaker 04

  Just picking up on that last bit from Tim about RIAs. I would go way back further. So I joined our firm 23 years ago from Goldman Sachs. And the couple of things I recall, one was this just breath of fresh air of, wait, maybe this might be a better way to manage money for very, very wealthy families. Independent, conflict free. That was clear on day one. And also pretty clear, maybe on day two, was that there was not a lot of competition. That was a pretty novel business. Our firm had been around for seven or eight years, but we really didn't bump into firms that looked like ours. That's changed a lot in the last couple of decades. The world's caught on that it might be a better way to manage money, especially for wealthy families,

• 9:59Speaker 04

  also for institutions as well. And there's been a lot of competition and good competition, and they're very, very steady businesses. The biggest change has been private equity capital, which solves a bunch of problems around innovation and in some instances around business succession. And the competition has become better and deeper, and I think that drives consolidation too.

• 10:21Ted Seides?

  So there's a lot that makes sense, what you're saying from the perspective of your businesses and trying to compete. How important is growth to what you're delivering for your clients?

• 10:34Speaker 04

  Absolutely critical, absolutely critical. Growth at our firm has always started with growth opportunities for our people. So in most businesses, I think if you're not growing, you're dying. Certainly, that is the case for ours. So the markets help. We invest well and performance helps and clients generally spend less money than they make. But we need to be growing in absolute numbers of relationships to provide the growth opportunities for people. That's really, really hard to do. I think both of our businesses, we joke that at some point along all of these journeys, it feels like you've reached scale and the next client you can add without adding people. That is categorically not the case.

• 11:15Speaker 04

  This is like service firms that are wrapped into investment organizations. So it's very, very challenging to grow absolute numbers of clients. The other thing we've observed is that the customer, it's a college endowment or a wealthy family, wants more stuff from fewer people for less money. So that to us has translated to a need to either create or provide services for clients that are more than what we used to do 20 years ago, which is pick great managers and put them together. We started a trust company. We've done a bunch of work on reporting and risk management, but there's always a thirst for more from the customer's perspective.

• 11:53Speaker 03

  A lot of the same dynamics, having the OCIO business and growing that over the last decade, helped us with scale. It's not true scale, it's better scale than classic advisory consulting, but it's far from all the way there. And Simon made the point about giving your people opportunities. I've always had this more theoretical thought than practical that you could run a business that's not growing. You just have to turn lots of people over and you extend that out and you realize to keep a culture in place, you really can't manage an organization that way. If you want to have a culture that has ambition, that wants to push things forward, that wants to do better for our clients and do better as employees, you've got to grow. You've got to continue to win in the marketplace.

• 12:37Speaker 03

  You've got to find new innovative things to put into client portfolios. It's a cornerstone of DNA of professional service businesses generally, but advisory businesses in the investment world.

• 12:49Ted Seides?

  How do you think about the continued effort for organic growth compared to where these most recent transactions have brought you inorganic growth or some type of merger consolidation?

• 12:59Speaker 03

  We've always tried really hard to have that organic growth. We've been able to create it year after year in our business, but it's still somewhat inorganic because we've had to add great people over time to create some of our growth. You have a simple model. If you have two great consultants with 10 clients each, you get to that 21st client, you've got to add another great person. So since it's not a super scalable business model, it's always somewhat inorganic. This is a great opportunity for us to have that more scalable growth. If we can bring solutions to Hightower's RIA platform and have them invest in it, that's a more scalable model than we've been able to create historically.

• 13:41Ted Seides?

  Let's dive into the process that you guys each went through. Simon, why don't we start with you? At what point in time did this process that led to the transaction with Pathstone begin?

• 13:52Speaker 04

  So there's really two moments in time with a pretty big gap in between. The first was in the winter of 2021, in the middle of the pandemic, when really for the first time in a long time, I think all of us had the time and space to think critically about our businesses. I went on a walk with a mentor, a guest of your show, one Bill Ford, wonderful human, and said, Bill, like I've been doing this for a long time. Just help me think about what's the right direction for the business. That was a moment and it really got the wheels turning, but we didn't really act on it until early in 2024, when it actually started, the two managing partners and myself, Sarah Stein, Eric Alt and me, decided that we really needed to pick our head up

• 14:35Speaker 04

  and make this a professional project of figuring out what's going on in the marketplace and whether we should do something. And it was important to us that we consider doing something only at a point of strength, and that was a point of strength in the firm's history. So I had lunch with John Peruzan, who was the chair of the board of a nonprofit that I was on years ago and has become a friend and mentor too, and said, we need help. What should we do? He said, you should hire this guy, Terry Sullivan at UBS. I hired him many years ago. He's terrific. I'll call him and tell him to be nice to you. And that was the start of this professional journey.

• 15:08Ted Seides?

  And Tim, how about you?

• 15:09Speaker 03

  The starting point was probably a really thorough strategic planning exercise that we went through really coming out of COVID, so summer of 2021, where we looked at the map of ways that we can bring our services to the markets we're in and markets we could potentially be in and charted that out. And looked at some things that we're doing right now that we thought we could do a lot more of, like private wealth, where we have a number of great family office clients. We have a great team. That's a growing market and we thought we could go after that more. The endowment and foundation world continues to grow and we thought we could serve that even more. And then off on the side was the RIA marketplace.

• 15:51Speaker 03

  We had a few one-off RIA clients that were using us for some of our research capabilities, getting our preferred lists from us or getting the occasional one-off manager idea. We weren't very strategic about it. We didn't know a lot about it, but we knew it was a growing market. We knew there was a lot of opportunity there. We didn't really go after it. We looked at some of the big private equity firms, starting to raise 100-person sales forces to attack that market and we thought, well, that's not really implementable for any PC. So let's keep it on there, but we don't really have anything right now. We'd love it if something comes along, but we didn't really take any action on it. Fast forward a couple of years to what I guess was the late spring of 2023,

• 16:33Speaker 03

  got an inbound phone call indirectly from someone at Hightower asking for a meeting to talk about, could we engage in some way? We've been fully independent, employee-owned, our entire almost 40-year existence. But no surprise, we always say yes to those meetings. You never know what might come out of it. You get some market intelligence, you meet interesting people. We'd learn more about the RIA marketplace if nothing else. Had that initial meeting before the summer and honestly walked out of it saying, okay, nice group of people, but I don't know that there's anything there. And we agreed to pick it back up in the fall. And as we had deeper conversations and looked at the way a partnership could work, the fitting of pieces together, the strengths that we have versus the strengths that they have,

• 17:13Speaker 03

  just continued to move along and realized that this would actually be a great fit for us strategically and really allow us to accelerate our growth in a way that we probably couldn't do on our own.

• 17:24Ted Seides?

  So Simon, let me turn back to Terry starts to bring you on this educational tour. What happened as you started to learn more about that market?

• 17:31Speaker 04

  It was fascinating. He carried us along like tiny babies who had literally never even thought about this stuff before, which was just what we needed. Cast a super wide net. We probably met with a dozen firms across a really wide range of business models from big insurance platforms to RIAs to a bunch of others. And it became pretty clear that we should do something. That was probably the first revelation, which was, but man, the world is innovating really quickly around us. And why? Because they have a balance sheet. You know, on our business model, money comes in, we pay people, money goes out. That's how it works. A balance sheet really, really matters. So that was the first revelation.

• 18:13Speaker 04

  The second was that services as a business was really attractive to us. It's needed. We feel like we had the scale at that point at a firm to grow from a people perspective, from an access to investments perspective and from a systems perspective. But scale has always been really, really challenging on the service front. And that really helped us narrow the potential list of partners from a dozen to a little less than half a dozen. And then it was really just finding what we thought was the best cultural fit, the best strategic fit. We didn't worry for a second about solving capital structure problem at our firm,

• 18:53Speaker 04

  because that's been a 20-year successful journey, moving equity from the founders down to future generations. So it was really about those other things that mattered most.

• 19:02Ted Seides?

  So we've got a full-blown process across the spectrum to get six. And Tim, you just had one suitor. How did you dive in with the one to make sure you knew what you didn't know?

• 19:14Speaker 03

  Simon, you said a couple of important things that we were able to check off in the process. The cultural alignment and the strategic alignment. And then, thirdly, not needing to do something. So, we were, throughout the process, feeling like we were in a position of strength because we had gone through the generational transfer and had done it over many years, had a sustainable model from an ownership perspective, that at any point, we could walk away if we didn't feel like it was the right fit. So, it was really about, is Hightower the right partner for us? And we were able to develop, first, before the strategic conviction, the cultural alignment conviction. We knew that we were working with good people that had an understanding of our business

• 19:59Speaker 03

  and what we prioritized. Putting our clients first, being able to give our best objective advice to clients, having a culture of teamwork, not having different stars get to shine. So, we figured that out pretty early on, just with the various people that we were able to interact with and understanding how they worked with their underlying advisors, how they served their clients. I think the harder part was the strategic alignment, because we just didn't understand the RIA marketplace. So, we had to get educated on that. We engaged an investment banker to help us, not so much scan the universe and bring in other potential suitors, but just help us understand, who are the other players besides Hightower? Where does Hightower fit in terms of how they work with their advisors, how they go

• 20:43Speaker 03

  to market for their advisors to win new business? And how any PC could potentially fit into Hightower and into that RIA marketplace? So, that was really helpful for us, just much like we'd want our clients to hire us for great independent advice, we were able to get that from an investment banker throughout the process. And we just dug really deep on the specific opportunity of working with Hightower and helping them better meet some of the needs of their advisors on the alternative side and on the total portfolio solution side.

• 21:13Ted Seides?

  You both threw out these classic buzzwords, strategic fit, cultural fit. Tim, you touched a couple of cultural things, but when you're talking about taking your long storied firm and merging it into another, what does that mean, that cultural fit?

• 21:29Speaker 03

  Some of the elements of the transaction reflected this. Hightower typically, when they're acquiring advisors, buys 100%. They've done a lot of deals over time and they've figured out that that's the best way to move forward. That was a nonstarter for us. A really important part of our culture is having ownership in our business, being really well-aligned, and then being able to pass that ownership on to the next generation. So that was a deal killer if they wanted to go 100%. They fully understood our culture and the importance of that. I mentioned serving clients, putting clients above everything else and doing what's right for clients. If this was going to in any way disrupt our relationships with our existing clients,

• 22:10Speaker 03

  our ability to serve our clients, our ability to give objective advice to our clients, that would have taken things off the table. We got really comfortable that this was going to allow us to be a stronger, more financially healthy firm if we can execute in the RIA marketplace, can allow us to invest back into our business, grow our investment team, grow our consulting team to better serve our clients. And that's showed up in the actual transaction details, but it was really about those things.

• 22:40Ted Seides?

  How do you think about the people's side of the cultural fit?

• 22:44Speaker 03

  That was hard and we can get into it because we're a 50-person partnership. So in some ways, it's a challenging process to get a vote from 50 partners, but it also gives you really good representation of your entire employee base. So you get a really good sense of where things stand and how employees will feel about this process and about a change in ownership. So that was probably the longest part of our process. Having our partners keep it confidential for what amounted to about seven months, which is a borderline miracle at the end of the day. We got partners involved and that doesn't mean all 50 partners were on every call, but we had different work streams of diligence. We're investors in Hightower Equity through this transaction. We had to do due diligence on Hightower as a business.

• 23:29Speaker 03

  We had to understand that strategic opportunity of rolling out funds and investment solutions to the advisors. So we put a diligence work stream on that. We had to understand integration and what that would look like. Who would be working with who between NEPC and Hightower if we were to integrate and work together? So lots of people got involved in the process and that helped create buy-in across our partnership. And then there's a financial aspect to it. We made sure that all of our 350-plus employees are getting something out of this transaction. There's a bonus for every single person who's employed when the transaction closes.

• 24:03Speaker 04

  I find this so fascinating because I feel like our cultures are similar. And talk about two sides of the same coin. So when we went through this process, it was pretty important to us when we were getting close to the finish line with Pastone, that we'd be 100% owned by Pastone. Now, they're only maybe two and a half times bigger than we are. So the piece which is very, very relevant of making sure that you have representation across your organization is super important. But it seems so clear to me that if we're all going to be on the same team, we've got these wonderful relationships we want to integrate with Pastone. And our investment team will lead the research effort for the combined organization. All of that just screamed, we all got to have the same security. And that's from us to them, to their private equity backers.

• 24:48Speaker 04

  All of us need to be rolling in the same direction. But I was as passionate about that as you were on the other side.

• 24:53Ted Seides?

  So Tim, how do you think about that? On the one hand, we now have whole Pastone. Everybody owns some piece of the same security. And you have a slightly different setup with Hightower.

• 25:04Speaker 03

  We do, so we own some of Hightower. So we're certainly aligned with the financial success of the bigger organization. And I'm curious to hear from you, Simon, how much you'll be integrating the two organizations.

• 25:16Speaker 04

  Me too.

• 25:18Speaker 03

  Part of the story for us is that there's really no disruption to our day-to-day activities. For our different business lines, we continue to serve them in the exact same way. So we have this NEPC business that doesn't get changed at all. Our consultants continue to serve them. Our investment team continues to find great ideas for them. And then we put next to it, trying to build solutions for the advisors. So we've thought of them very distinctly. And that probably flowed through to our mindset about ownership, that we wanted to stay really well-aligned with that core business and our DNA of serving clients, but also want to grow that new business and be successful there as well.

• 25:58Ted Seides?

  So Simon, why was the setup, having it wholly owned by Pathstone, a better solution for you than what Tim described with the legacy business effectively staying the same?

• 26:08Speaker 04

  Firstly, that makes a ton of sense. And I think, given different fact sets, you're going to make different decisions. So not necessarily better, but for us, we won't have a legacy business that stands independent from the combined business. And our relationships with our clients aren't going to change. We still invest in the same way. We have the same investment philosophy. In fact, the same people making the investment decisions. I imagine over time, our reporting and risk management will be improved and we'll learn from each other. So I expect there will be some changes over time, but the core of how we interact will be the same and we'll be able to provide a bunch of additional services for our clients. Pathstone has a lovely à la carte business model around the service platform, which,

• 26:53Speaker 04

  as I dug in, I was like, man, that is a great business. That is just a really smart way to service clients. So most of our clients have solved those problems over the years and won't need Pathstone services, but to the extent that they do, they'll be available and they'll be fully integrated.

• 27:09Ted Seides?

  So Simon, I want to come back to this question of if you were fully integrating with Pastone, that quote unquote "cultural alignment" has to be super tight. So what was it that you learned in your diligence process that made Pastone the right cultural fit?

• 27:24Speaker 04

  There's some things that are super important and headlinie and some things that are just convenient, that it's a little bit like pushing the easy button. So in the convenient category, Pastone is this beautiful national business. They have no office in San Francisco or New York. Our offices are in San Francisco and New York only, which is great. They have built out a fabulous trust business in Jackson. We built a trust company that we own in Reno, Nevada. In the world of trusts, that's a flywheel effect. They don't cannibalize each other. So those things were convenient. You know, I'd say they're little things like in-office time and lunch once a week in the office. Those kinds of things were convenient and

• 28:06Speaker 04

  useful and a nice validation of the way that they treat people is similar to the way we do. There's also some really important strategic alignment, starting with, for us, which was a threshold issue of not selling products. And Tim mentioned this too, but it's easy to say, it's hard to execute having a pure fiduciary business, which they most certainly do. We also really like the leadership. Matt Fleisik, who's the CEO, is a super ambitious, super energetic guy who has built a leadership team around really terrific partners that they have picked up along the way through a series of combinations. And we just really enjoyed the leadership team.

• 28:46Ted Seides?

  So as you both are going down this path, you're understanding their businesses and you're getting more excited about it. How do you get to know the people that will be your future partners?

• 28:58Speaker 03

  It probably boiled down to, at the end, almost weekly conversations. It started out, there were three months between the first meeting and the second meeting, then it was monthly, then it was weekly and probably even daily. Towards the end, you're spending a lot of times with these folks. Some of it's in-person. You do a dinner. You do some stuff outside of the office and you just spend time getting Trying to know each other, similar to hiring someone, similar to working with a new client. You're trying to build a relationship and figure out, is there a connection here? Are we aligned in the things that we value? And those values drive through to culture. I don't know that there was a point where the light bulb went off and we said, oh, I like these people. It just happens that you realize, wow, we are really well aligned.

• 29:43Speaker 03

  We care about the same things. We want to do what's best for clients. It's not about making that very last dollar. It's about building for the long term and having great relationships with clients. It just happened very naturally over the period of over a year.

• 29:58Speaker 04

  Ours was the exact same of a whole bunch of meetings, two quick points. One, my wife, Kim and I had dinner with Matt and his wife Fawn. That was a very formative dinner. She's terrific. They have a great partnership. It says a lot, actually, including that they slept out to have dinner with us, which we were very grateful for. The challenge is what's to come. We haven't closed this transaction yet and most of our firm has met very few members of the Pastone team. And the vast majority of Pastone employees have met zero people at our firm. So for the next six months to a year, that is going to be a major priority. Just getting people in the same room, ideally in person, otherwise a bunch of Zooms.

• 30:43Ted Seides?

  So Tim, you mentioned seven months where all 50 of your partners knew this was happening. Were there any surprises along the way that took this, what sounds like a nice path where you thought this might derail?

• 30:55Speaker 03

  There were. It feels like a long time ago, given everything that's played out. There was a moment where there was a rumor out there that we were being bought by one of our competitors, which if you're going to have a rumor out there, having it be the wrong rumor is actually ideal because you can deny it and you don't have to give any more information. So I could say the idea that Mercer was buying us was not accurate at all. So we could just deny, deny and not worry about it. As it got close, the number of people that get involved, not within any PC or within a high tower. But the different investment bankers, the law firms, it feels very confidential, but there's a lot of eyes that get on this thing and it started to filter out again.

• 31:37Speaker 03

  And we were hearing from investment managers to our employees that there was something in the works. They didn't know exactly what. We were far enough along at that point that we could have sped things up to get things done, even though it felt like we were going as fast as we possibly could. Those were the external moments that we worried is something going to pop up here that really derails things or just gets us really distracted. I think there were a lot of internal moments too, within the partnership, getting that buy-in. There were lots of points where partners wanted more information, wanted to be more involved. You just can't get everyone involved when it's something to that scale. So we had to spend some time, we had almost bi-weekly calls with our partners, just updating them, everything that was going on to keep them informed and help them feel like they were part of the process, even if they weren't in the meetings day to day.

• 32:22Ted Seides?

  As you were building momentum towards getting to finish time, were there any moments where you thought about breaking the deal?

• 32:29Speaker 03

  No, there were no moments where we thought about breaking the deal. There were moments when you get into the nitty gritty of a negotiation and you're getting down to details of various kinds and they're holding the line and you're holding the line and you think, oh, is this a partner I want to work with? If they're really this hung up on this and they're probably thinking the same exact thing. And that was the point where it was incredibly helpful to have an external advisor because they could pat us on the shoulder and say, it's just the deal. These things happen all the time in these transactions, or this is getting slowed down by a week because of something they need to work on. And you're throwing your hands up saying, we're there. Why are we worried about this? And they brought that external perspective of

• 33:14Speaker 03

  being involved in lots of deals and saying, it's going to be fine. Once you're working together. And I think we've already seen that. There's just elements of getting through a transaction where you've got to hold your ground in different spots. And once it happens, everyone's on the same team. And that's the point where we are now.

• 33:30Ted Seides?

  Simon, I remember there being a leak at some point in time. Walk me through what happened as you started to march down this process and word gets out.

• 33:40Speaker 04

  Yeah, that really stinks. I don't wish that on anyone. Obviously, the hindsight, it worked out okay, but we were really quite early in the process. We hadn't even narrowed it down to a handful of potential partners at that stage. And there was a leak, still don't know who leaked it, but it said, "Hall Capital hires UBS to explore." They said a majority sale or something like that. And it was a proper, proper fire drill, starting with our employees. We had not shared the news, mostly because we weren't certain that we were going to do anything. We really didn't have a preferred partner lined up. And we knew it was going to be a big distraction to have the word out.

• 34:22Speaker 04

  So this had been a very, very tight group of internal partners who were aware even that we were having the conversation. So the first thing we had to do was tell all of our employees, partners on down, which we did in 24 hours, a little bit sequentially. And then we needed to reach out to all of our clients, which we did. And maybe with hindsight, that turned out to be a little bit of a blessing because we could say, "Look, we don't need to do anything. We're just exploring. There's nothing to deny because there was nothing super specific." We certainly said, "Yes, that is true. We hired UBS to help us explore, but we really don't know if, what, or with whom, where this process will take us." So when we did finally announce a deal, the clients had been warmed up to the idea. And we'd had months at that stage to talk to them about what it might look like.

• 35:06Speaker 04

  And it turns out to be the best version of that series of possibilities that we previewed with them.

• 35:13Ted Seides?

  So after that initial fire drill, same question about your process. Points in time where you thought maybe it wasn't the right thing to do, maybe Past Home wasn't the right partner?

• 35:23Speaker 04

  Tim said it perfectly well. That tension that exists between what just feels like hills we're all going to die on. And in our case, they were the tiniest of hills, but they were important to us. It was never about economics or titles or things. It was little details that really mattered. Having bankers that have been through this before was very, very helpful. And in our case, Sarah, Eric and I have worked together, Sarah and I for 23 years and Eric for 18 of those years. So having each other, we've got pretty different personalities, but we really know and trust each other well. And there were moments where one or two of us was at our breaking point and the second or third would step in and pull us back over the edge.

• 36:08Ted Seides?

  We're going to take a quick break in the action to tell you about Brookfield. Brookfield invests in the thing behind the thing behind the next big thing. Their focus across infrastructure, energy, real estate, private equity and credit is helping to build the backbone of the global economy. Brookfield combines deep operational expertise with disciplined, long-term investing, uncovering value and partnering alongside clients to shape tomorrow's economy today. Invest in the businesses that shape tomorrow. Learn how you can own what's next at Brookfield.com/own. This is not an offer to sell or investment advice. Investing involves risk, including the loss of capital. And now, back to the show.

• 36:55Ted Seides?

  So, once you make this announcement, I'd love to walk through the reactions of various constituents. So, Tim, why don't we start with your clients? Because unlike the leak that turned into a blessing, your clients probably didn't know anything at that point in time.

• 37:09Speaker 03

  That's right. So it was all hands on deck to call clients as close to at the same time as we could. We had essentially a two-hour window before it started going out through various channels. It was employees first, first thing in the morning, then clients, and then it started hitting the press and becoming public information. There's a wide range across our clients. You have those clients that you've Been with a long time that have a lot of trust in you and take a lot of pride in the relationship they have with NEPC. The same way we take a lot of pride in the relationship we have with them. And some of them are excited for the new opportunity for NEPC. And that's great. Really happy for you guys. Let me know when I need to sign.

• 37:50Speaker 03

  You have other clients that are naturally more skeptical, that want to dig in and ask a lot of questions and understand the rationale for it. There's a couple cohorts of clients that were unique in their reservations about it. One is any clients that we brought on in the last six to 12 months in any competitive situation, where we didn't know if a deal would go through. We couldn't say it in that process. And you do feel terrible about that, that you can't be completely upfront and honest when you're trying to build a long-term trusting relationship. And you're getting off a little bit on the wrong foot. Those clients appropriately were disappointed by that, but also many of them, whether it's folks on a committee or on an investment staff, they're professionals and they understand that you can't say anything. The other, and we're still trying to learn a lot from these clients.

• 38:35Speaker 03

  One of the places of really nice inorganic growth for us has been bringing on consultants from other organizations, where maybe there was a merger that didn't go so well. So some of these clients have been told a set of promises by their consultants, by the consulting firm that they were working with, and have seen integrations not go well, have seen product pushed to them, or an aggressive push to get them to go to OCIO, even though upfront they were told that that wouldn't happen. And they're working with some of the same people that they were working with then, because it's people they trusted and they followed when they came to NEPC. But I can totally understand that, that if you've been through something that was pretty disappointing for a relationship that's really important to your long-term investment success,

• 39:18Speaker 03

  you're going to be skeptical when we're telling you, hey, we think this is going to be great. We do have a different setup where we're not going to be trying to sell products from a larger organization. We've tried to set up the structure of the transaction where we've still got ownership. We've still got all the things that keep our DNA in place, but it's on us to prove it to them now.

• 39:36Ted Seides?

  How did you calibrate the expectations with Hightower of, say, what percentage of your clients were going to stay?

• 39:43Speaker 03

  Hightower has gone through a lot of acquisitions. They've acquired 140 advisor teams. So they understand that when you go through an event, you can press pause a little bit in the marketplace. So we had great conversations about that where they're willing to look past that six-month period of maybe being in the penalty box. They also understand that churn is a natural part of any professional services business. You have a range of outcomes in all the clients that you work with, and you're going to have some where you just didn't make the best decisions for them. Maybe you went through the right process, but just bad investment outcome, even though it was well thought out, good decisions. So you're going to have clients at risk. This will accelerate some of those clients at risk. If we'd have natural churn of 3% of our business every year or so, that probably accelerates a little bit quicker.

• 40:27Speaker 03

  Clients that were unhappy might go to a search a little bit faster. This is not a one-year relationship that we're engaging in. It's a lifetime relationship that we want to see be successful over the long term.

• 40:37Ted Seides?

  So Simon, in theory, you're bringing your same investment chops with a whole bunch of added services. This is just even better for your clients. How did your clients respond in practice?

• 40:48Speaker 04

  Very similar to most are a version of, you know, if you're happy, we're happy. And they get the strategic rationale. And they importantly get that it's a way to keep the team together, hopefully for decades. The single criticism that keeps coming up is rarely well articulated. It's a version of they're backed by private equity, and that's bad. And you're going to have some kid looking over your shoulder, and you're going to have to learn about, they're called KPIs. And that, it's just easy to hate, apparently, the private equity folks. Our experience, I must say, with LevelMatic and Kelso, the private equity sponsors for Pastone, has been great. They're much more traditional growth investors than PE. It is a growth story. I think that is, well, it's certainly clear to me

• 41:32Speaker 04

  when clients stop and think about maybe connecting the dots about how capital is required to innovate and add additional services, and that this really is a growth story and not a consolidation or a cost-cutting story that come around to it. But that initial reaction of, I hate that there's private equity involved, runs pretty deep.

• 41:52Ted Seides?

  So one of the things that neither of you said as a response from clients is a client just saying, great for you, what's in it for me?

• 42:00Speaker 03

  I think we've heard that a lot from clients. And Simon, it sounds like you're offering your clients some new services that you didn't have before. It's a little different for us where that institutional service of our business is, we hope, not going to be changed. But there's not a suite of tools that Hightower gives us that we're not already providing for those clients. So we don't have that easy answer for them to say, hey, here's this new thing you're going to get by us working with Hightower. So the answer's a little bit more nuanced. And what we've said is, the reason why we're doing this is we think this can make us a more successful business over the long term. It can allow us to invest back into our business, to continue finding you great investment

• 42:43Speaker 03

  ideas, to pay our people well so they want to be here for the long term, and you've got continuity with your team. The other thing is, this is going to continue to happen. I don't think these are the last two firms that are going to tie up with RIA platforms. It is a growth story. There's a lot of tailwinds to the RIA marketplace that aren't in place for the institutional world, where we're going to see more of these consolidations. And we know who our dance partner is, and we're ahead on the race. And that's definitely a good thing for us, and we hope for our clients, too.

• 43:15Ted Seides?

  How about your internal teams? In both instances, they're by force, by design, there was some knowledge. When the transactions actually got announced, how'd the teams respond?

• 43:27Speaker 04

  So we have 180 people, 125 clients, and we know our people really well. And I would say, generally speaking, they responded exactly how their personalities would predict they would respond. There are some who just are wired to love a new challenge. All of them saw the industrial logic of the combination. But there are some who love a challenge, or some who are just wired to be afraid of change. Or we have a bunch of highly analytical partners who just wanted to go deep into the details of the deal immediately, as much out of curiosity as what's in it for me. There was a common, common thread of, how are our clients going to take this? And is this going to be an easy story or a hard story to tell? And can I say it with high integrity and earnestly?

• 44:12Speaker 04

  They responded in a very, very human way.

• 44:15Ted Seides?

  How did you navigate the trickier situations?

• 44:17Speaker 04

  The way we navigate everything at our firm. This is what happens when you have one and a half employees per client. You solve every problem as it comes. There were just a ton of one-on-one patient conversations with follow-up that our whole management committee basically put on their individual shoulders, because that's what it took, and talked to almost everybody at the firm.

• 44:39Ted Seides?

  Tim, team reaction?

• 44:40Speaker 03

  Two points, because I think very similar. The full range of outcomes and in line with expectations down to the individual of how they would react. One funny thing that happened is our manager research team, they're dealing with things like this all the time. They're dealing with managers buying other managers, private equity, buying an investment manager or putting something onto a platform. So there was no BSing them. They went right to their playbook of questions that they would ask an investment manager. And appropriately, they had the natural skepticism that a manager researcher should have. And we didn't bother trying to bullshit them, basically. We had to be honest and upfront, as we would be anyway. But what it boiled down to for me, and it's something I've said to a lot of clients, is we're on watch right now.

• 45:24Speaker 03

  We would put a manager on watch if they were going through a transaction like this. And we'd make sure, over an extended period of time, we're monitoring them more closely. And what they said they would do is actually playing out. And if it starts to play out differently, then we've got to react to that and learn. Simon, I'm curious how you handle this with employees, because I'm struggling with it. They're looking to us for all the answers. And there's a ton of stuff we don't have answers for right now. We're embarking on a journey and we're doing it all together. I don't know when we're going to roll out something to the RIAs. We're just getting to know some of these RIAs on the High Tower platform. So we're learning a lot and we're asking our employees for patience as we figure that out. And it's hard that we don't have all the answers, but that's the nature of this.

• 46:08Speaker 04

  Matt and Kelly said to us, we're going to figure this out together. And I don't believe that "together" was a throwaway comment. I think that is a true statement, and I imagine it will be the case for you, too.

• 46:20Ted Seides?

  Tim, you mentioned that some of your manager research people who are used to dealing with this have these pointed questions. What are some of the most pointed questions they ask you?

• 46:28Speaker 03

  Simon made the point they got right to private equity ownership. So Hightower is owned by TH Lee. It's been a very successful investment for them. They've rolled it into a continuation fund. That continuation fund has a life on it and they'll have to figure out something. There will be another transaction a few years from now. We spent a lot of time with the TH Lee team, understanding how they view the Hightower investment, how they view the Hightower marketplace. It was part of what gave us a lot of energy and excitement about the RIA opportunity because they talked about how they still view it as really early innings and they want to be in this over the long term. So you don't know when that time comes. If they have end investors, they've got to realize goals for them, whether they will roll it or do something else with it.

• 47:11Speaker 03

  But we look at it as just looking at the overall opportunity, regardless of what the ownership is, the fundamentals of the marketplace are really, really attractive. There'll be a lot of buyers for this that can work out well.

• 47:23Ted Seides?

  Any other key questions?

• 47:25Speaker 03

  Wanting to get to know the Hightower management team and understand how they work and operate, how they work with advisors. And it's tricky because you want to give access and we've had fireside chats between the CEO of Hightower is great, Bob Oros, and the head of our firm, Mike Manning, for everyone to listen in on and ask questions. So they've been great about giving us access. At the same time, the way we're setting this up, there's lots of folks at NEPC that shouldn't have to deal with Hightower at all, even post-transaction. They should be continuing to serve clients, continuing to work in operations, continuing to find investment ideas. So you want them to get comfort that Hightower is a great organization and they have great leadership, but you don't want them to get too distracted because it's not going to be part of their day job.

• 48:08Ted Seides?

  Having gone through this deal process, I'd love to hear if your views of managers going through a similar process has changed and what you've learned that you would now use as a lens to look at managers.

• 48:22Speaker 03

  It's humbling. I hear the things that I'm saying and the things that I have a lot of conviction about in looking forward about this. And I hear managers having said that to me in the past, and I know the skepticism and the bullshit meter was running pretty high when I heard those things. Having lived in and experienced it now, I understand more of where they were coming from. But it's humbling because we don't know what the future holds. We're trying to get it right, and we're trying to move forward in the best way we can. But things are going to be different than the perfect ideal of how we want this to play out. And I think that's where I hope our clients will give us the chance to prove to them that we're going to figure it out, that we're going to make decisions that are in their best interest, not just in our best interest. And I think when you have a really strong management team and a really strong

• 49:07Speaker 03

  partnership, you can make those decisions and hopefully drive it forward in the right way.

• 49:11Speaker 04

  Yeah, with our longest standing manager relationships, when they've done transactions of one stripe or another, they have basically said to us, give us a chance to show you that we're going to be able to deliver in the way that you expect. And it's easy to do that when you've got a 10 or 20 year relationship. And that is in effect what we're asking of our clients as well. And to Tim's point, somebody who hired you last Thursday, it's a tougher sell. And for clients that have been clients for a long time, I think their instinct is to hold us to a high standard, but let us show them that we can deliver.

• 49:45Ted Seides?

  So the other interesting constituent in all this, for both of you coming from the manager research side, are your portfolio of managers who have seen this, but also they have a certain relationship that could bring some optimism if you're growing. So we'd love to hear what you heard from managers in your portfolio.

• 50:00Speaker 04

  Starting with when the leak occurred, we got a bunch of inbound calls from private equity funds saying, if this is true, we want in. So that was very flattering and validating.

• 50:17Ted Seides?

  How'd you manage that, by the way?

• 50:19Speaker 04

  Don't call us, we'll call you. The part about hiring an investment bank is true. Let's let them. But anecdotally, as an aside, one of our private equity GPs that I won't name, but has been very, very active in the RIA space was extremely helpful to Sarah, Eric and me. We sat down and he didn't tell us what to do. He asked all the right questions and just helped us think about the art of the possible. So that was super, super helpful. Our managers have been happy, supportive, glad we're growing, happy nobody's cashing out. We can come back to that later. They've also had really terrific things to say about the people they've met over the years at Pastone, which was also quite validating.

• 51:04Ted Seides?

  Tim, manager response?

• 51:05Speaker 03

  So I haven't had a manager say, I don't get it. What are you guys doing? Everyone thinks it's great. Managers are always flattering us and telling us how smart we are and how funny our jokes are. So that has continued through this process. Similar to what Simon was saying, managers are looking at the RIA marketplace and trying to engage. Some are already doing it. So in those cases, we got a lot of inbound calls saying, we work with Hightower, happy to share who we've worked with. We think it's a great team, but happy to give you background on how to navigate the organization. And then those that haven't cracked the code yet on the RIA marketplace are super excited that we can be a channel for them to access that world.

• 51:48Speaker 03

  So consultants can be an access to scale for them. So they see this as a new channel for them and they're excited about it.

• 51:55Ted Seides?

  So Simon, you opened the kimono by mentioning the words cashing out. Now, you both have been working at your organizations for a long time, not being the original owner. How has the economics of this transaction impacted you personally?

• 52:10Speaker 04

  It requires a little bit of context at our firm. So we are about 80% owned by 45 employees and 20% owned effectively by our first handful of clients. And over the last 20 years, and truly great credit to Katie Hall, who founded our firm, the business has borrowed money, back when you could borrow money for free, and bought back the outside shareholders, Katie, her first partner, John Boymaster, and reissued equity in the form of these funky units that we have to employees. So we facilitated a full generational transition, really eight years ago, when Sarah and Eric and I took over managing the firm day to day from Katie.

• 52:55Speaker 04

  So fast forward to today, nobody owns 10% of the business. It's really well distributed across a wide group of employees and some early clients. So the transaction itself, this is pretty unusual, although I've done now precisely well, zero. Next week, hopefully one of these transactions, every one of us signed the same deal. Now, there's earnouts and that stuff is different, but as far as the transaction next week, every single owner, including our clients and Katie and John and the three of us, all the way down to the vice president who was promoted last year and got her first units, are rolling the same percentage of our equity into Pastone stock and receiving some cash.

• 53:38Speaker 04

  It is not solving a capital structure, so we're all taking some cash out, which I think is appropriate, and we've all worked at this firm for a long period of time, but nobody is using this as an exit, including Katie and John. And our clients are happy to be owners of Pastone, as they have been happy to be owners of Hall Capital for 20-plus years.

• 53:57Speaker 03

  So much is similar for us. We had a single founder, Dick Charlton, who made the decision very early on that he would share ownership, made the decision as he was stepping away to make sure that that ownership transitioned to a new generation. And in a very similar way, we've had that LLC model in place and didn't need to solve for an event. One owns more than 6%, so it's very well spread out across 50 partners. What happens at least in our LLC structure is that longevity matters a lot. You build up that value as partners are retiring. The partnership collectively is buying that value back. So one challenge that we've faced in this is that you can have two partners with similar levels of contribution.

• 54:42Speaker 03

  One with 15 years in the partnership and other with five. They may own the same percentage of ownership going forward, but that 15-year partner has built up a lot more value. So one of the things that we decided to do is to, in addition to make sure that every employee got a bonus, newer partners weren't participating in this to the same financial degree. So we carved out some of the proceeds and have put some longer-term retention bonuses in place to try to make them whole for not fully participating to the same degree that some of the longer-standing partners are. But that was part of why having that 20% ownership, so we're still tied in, having high tower equity, so we're tied into high tower. We wanted to make sure that those incentives for long-term growth were still in place.

• 55:25Ted Seides?

  So these transactions are very fresh in the process of closing. Simon, you mentioned earlier, a lot of your current employees don't even know the people at Pastone yet. Walk me through your map for the first 100 days.

• 55:40Speaker 04

  The first 100 days for us starts on Monday. The president and CEO of Pastone will be in our office on Monday in San Francisco for a celebration, some swag, some meet and greet. This is not a, you know, let's spend an hour with your new boss kind of meeting, just fun and social. And then they live on an airplane, so this is common ground for them. They're going to jump on a plane and do the same thing in New York on Tuesday. And the flip days will be the integration team. So the head of human capital and the head of integration and the chief of staff, they'll be in New York on Monday and San Francisco on Tuesday. Then we're planning a boot camp for services in early January, so that'll be a few days.

• 56:23Speaker 04

  And then very conveniently, we have a wonderful cultural thing at our firm of every year getting the whole firm together. In San Francisco, it's a proper delightful elegant dinner and then it devolves into karaoke, which I tend to lead and I don't love the iPhone era. But Pastone has a 15th anniversary party in Florida in May that coincides with when we would have done what we call our spring fling. So we're going to get the whole company together, 800 or so strong folks in Florida for that. And I think along the way, there'll just be other very intentional events. Pastone's done 15 acquisitions, not as many as Hightower, but it's not their first rodeo. And I think they're quite good at integration.

• 57:06Speaker 03

  Little different for us. We close in the new year and where there's less integration. In a lot of ways, the Hightower advisors are NEPC's newest, biggest prospect. So we've got to figure out what their needs are and how we can take some of the strengths that we have and deliver on those needs. So we're starting on that now. We're having calls with those advisors to understand where they might have gaps in their portfolio, where they might have gaps in their investment process, where we can help. There is an investment team at Hightower that's doing some of that work, but we can step in and play a different kind of role. So it's more of a early stage prospecting process for us with a mindset throughout that

• 57:48Speaker 03

  we want to do it right, not just do it fast. There is some need for speed here to show our employees and show Hightower, the advisors that we can deliver and that this was the right call to go down this path. But we don't want to make any suboptimal decisions just for speed of execution. So there's less integration for us. We're going to be our own operating entity. We'll still have the NEPC brand. So in some ways, January 2nd, nothing really changes for us for the vast majority of what we do. It's a learning process that will take place over, I think, multiple months before we're really ready to roll something out to the advisors.

• 58:24Ted Seides?

  On the investment side, one of the aspects of any RIA rollup is this large tail of manager relationships that every RIA comes in, might have a different manager than what it might have been on your platform. And I'm curious how you're thinking about your research platform going forward when you're attached to a long tail of investment relationships in place.

• 58:47Speaker 03

  That's something that Hightower has done a lot of work on already. Hightower has tilted towards we'll leave you alone and let you be great at what you do. And there's really good things that come with that. And that attracts certain advisors because they can get new things from Hightower and get some structure and scale, but they don't have to change a lot, which means a very wide range of portfolios and managers, to your point, Ted. Our goal on day one is not going to be to cover the world of Hightower's existing manager lineup. They've got resources and structure in place to cover that. Our goal is going to be to bring them new things that aren't in their portfolios. They are underallocated

• 59:27Speaker 03

  to private markets. There's a generational transfer happening within the RIA leadership, where you have folks who led their RIAs from an investment perspective, and the next generation wants to be more planning oriented and wants to hand off some of the investment work. And that's where we come in. We do have to figure out when they want to look at new ideas, how we help them do that, and how we direct them to what we think are the best ideas. But that's something we'll figure out over time.

• 59:54Speaker 04

  This is going to be a heavy lift for my partners, Eric and Jess, and the Pastone research team. But maybe starting with all firms, ours maybe particularly so, already has a long tail of relationships. And we have probably 100 relationships which are active and we're super, super engaged with, but we didn't feel the need to invent it here. And we have tax considerations and legacy private considerations. There are 1,000 managers, at least, that we have some sort of relationship with. And we've got a pretty big research team, so that's doable. The art is going to be over probably a two or three year period, integrating our research. The family clients that Pastone works with, the client doesn't

• 1:00:39Speaker 04

  want a whole portfolio turnover. There is an expectation that they hired you for a reason, and they're doing good research, and the results are there. So it will take years to carefully integrate that process with a clear objective of having one research engine.

• 1:00:54Ted Seides?

  So both of you alluded to private equity owners and that maybe this isn't the last transaction in your careers. How do you think about the future of your businesses now knowing there will be some other events down the road?

• 1:01:07Speaker 04

  It's super important to define what that event is. I have no interest in working at a different place. I've had the great fortune of working at one place for a long time. I'm really excited to join Pathstone and I don't want to go and work somewhere else. And I think that is true with my partners. I absolutely expect that there will be more than one transaction at the private equity sponsor level. Somebody's going to come in and buy out the early private equity investors or just join as a third private equity sponsor of Pathstone to continue that growth. I think that is the likely next series of transactions and that doesn't scare me at all. That's changing the capital base, hopefully adding strategic partners who believe in what

• 1:01:52Speaker 04

  we're doing and add value. Different story if Pathstone itself is bought by a different firm, becomes part of some gigantic investment management firm. I don't see that in the near future, if in the future at all.

• 1:02:04Speaker 03

  Very similar. I've learned a ton through this process, being deeply involved in a transaction. I hope all of these new skills and experiences that I've learned completely atrophy and I don't have to apply them in any way going forward. There will be some kind of event for Hightower. The way that we've set up Hightower's ownership of NEPC, that should be a non-event for us at NEPC and our clients. And where the RIA world goes from here, who those potential buyers are, is it other larger PE players? Is it an IPO? Is it sovereign wealth funds looking at the recurring earnings and wanting to hold this as a strategic investment?

• 1:02:45Speaker 03

  Is it a strategic investor to scale up? I think that last one is probably the most daunting and then the IPO is similar to being owned by private equity. Everyone just hates it and doesn't know why. So there's different layers to it and I think predicting it right now is foolish because we just don't know how that world will evolve. But we'll look to do the things we've always done, serve our clients really well, work as a team to do it and find great investment ideas.

• 1:03:08Ted Seides?

  Having gone through this whole process with both of you in eerily similar paths in some ways with some very clear nuanced differences, I'm curious if you have any questions for each other?

• 1:03:19Speaker 04

  By the way, this is super reassuring.

• 1:03:23Speaker 04

  I feel like we've been going through this journey all alone. It's so nice to have a buddy. If I had known when you read our leak, couldn't you have just called me?

• 1:03:32Speaker 04

  Be like, call a friend. I don't have a question, but it's more of a comment about you seem so confident in finding that right partner early on and just putting all of your eggs in that basket. I find that super admirable. Maybe just say a little bit more about how quickly you got comfortable there.

• 1:03:50Speaker 03

  We weren't sure we wanted to do something. So there was this process that went on where we were getting to know Hightower and figuring out if we really wanted to engage in a transaction. And this sort of crept along together at the same time. And by the time we figured out that this was the right strategic thing for us, we had gotten to know the folks at Hightower so well that it just felt wrong to bring in other players at that point. And we felt like having the external advisor validate that the financial terms were reasonable and at market just gave us some comfort that we were only going to screw things up if we brought other people into it and that we had found the right partner. But I'm curious for you, the other way around.

• 1:04:34Speaker 03

  You looked at different players. Were there moments where you thought, oh, well, that other girl at the dance was really pretty?

• 1:04:41Speaker 04

  Yes, I'm glad we started wide and narrowed because there were a bunch of really compelling opportunities out there. It helped us make relative value decisions every step along the way. I agree completely. If we had to bring in somebody else near the end, it would have felt like we were cheating on a relationship. But being able to cull rather than expand, I just found very helpful.

• 1:05:04Speaker 03

  My question is, what's your go to karaoke song?

• 1:05:07Speaker 04

  Love story, Taylor Swift.

• 1:05:09Speaker 03

  Nice. I'm a full blown Swifty, so I love that.

• 1:05:11Ted Seides?

  All right, I just want to close by asking you both what you see for the future of the industry.

• 1:05:17Speaker 04

  I think it'll be very hard to remain independent in the way that our firm was independent. No balance sheet, one revenue line, because the world is innovating really, really quickly. This space is innovating quickly. So I expect more combinations, more capital, more growth.

• 1:05:35Speaker 03

  The menu of investments and where that can go is going to continue broadening. So you go back five, 10 years and private markets were only for institutional investors and large family offices as well. But the high net worth marketplace had very little access to that. The retail marketplace had very little access to that. You think about where wealth is going, the number of high net worth individuals and families there are, the way wealth has tracked into defined contribution from defined benefit. You're going to have to be able to provide all possible investment solutions to all types of clients. And I would say 20 years from now, there's not many purely institutional or purely RIA or purely retail players.

• 1:06:18Speaker 03

  Everything is blended together, whether it's asset managers, advisors, or the end participants even.

• 1:06:25Ted Seides?

  Tim, Simon, thanks so much for walking me through these fascinating deals and good luck to both of you on the success of these transactions.

• 1:06:32Speaker 03

  Thank you. This was great.

• 1:06:33Speaker 04

  Thank you for having us.

• 1:06:36Ted Seides?

  Thanks for listening to the show. To learn more, hop on our website at capitalallocators.com where you can join our mailing list, access past shows, learn about our gatherings, and sign up for premium content, including podcast transcripts, my investment portfolio, and a lot more. Have a good one and see you next time.