Merchant Investment Management, a New York-based private partnership that provides growth capital and other support to independent financial services firms, is in the process of completing a recapitalization. According to Tim Bello, co-founder and managing partner of Merchant, the firm expects to double its balance sheet. As a result, the partners will not sell any of their equity.
Merchant, which takes minority and non-controlling stakes in registered investment advisers, has been quietly built over the years and has partnered with just 100 firms since it launched six and a half years ago. Once its roundup is complete, the management team expects to double the community they are currently invested in over the next two to three years.
“The business feels that it will create as much impact and partnership in the market as it has done in the previous 6 and a half years since its establishment,” Bello said.
He also hopes to take Merchant public in a few years.
Bello declined to say which equity partners or types of equity partners the firm is considering.
“We think about the culture, the reputation, the energy of those future equity partners, and that matters to us,” he said.
Citywire.com was the first to report in August 2023 that Merchant was pursuing a capital raise.
The dealer hasn't been in the public eye much over the past few years, but has been quietly making deals. Bello said the firm was more active in 2023 than in 2022 and he expects to deploy more capital in 2024 than in 2021 and 2022 combined.
Part of the capital raised will be used to finance new partnerships, as well as for subsequent injections in existing partnerships.
“Because we are an operating company and not a short-duration private equity fund, we are not in a position where our capital structure is dictating our results,” Bello said. “Instead, because we're an operating company, we have the ability to be creatively accountable with an institutional framework to deliver more money to our partners so they can deploy it with our knowledge related to them.”
The retailer will also use the capital to continue its global expansion. So far, the firm has invested in five international firms in Brazil, Australia and Switzerland. Bello said the firm expects to move into Hong Kong, Tokyo and Singapore in the next 12 to 18 months. The firm is close to announcing its first partnership in Canada.
“Merchant sees itself as an enabler of, you name it, a good amount of financial services companies around the world,” Bello said. “The plan is to diversify geographically and be the processor in all these institutional wealth management firms that were created at one point in time by a group of individuals who had an entrepreneurial spirit.”
He also sees that the independent wealth management movement that has excelled in the US is spreading to other parts of the world, and Merchant wants to take part in that.
To be sure, 75-80% of the invested dollars will remain concentrated in the US, the firm's largest market.
Bello said he founded the company in a spare bedroom of a rented house while his wife was pregnant with his 8-year-old daughter. Until then, few, if any, firms were taking minority stakes in wealth management firms, and this was being done in the hedge fund space.
“We invented the minority model in the independent wealth space,” Bello said.
Several others have emerged in recent months with minority investment models, including Capital of the constellation wealthlaunched by former Emigrant Partners CEO Karl Heckenberg, and Rise Growth Partnerscreated by former United Capital CEO Joe Duran.
In addition to its equity partnership business, Merchant also has a lending operation, which lends to the wider market. It has also built several core services for the in-house wealth management space, including its CFO Services, but has also invested in companies that already offer services, such as Succession Links and Assistant Counselor. The management team is also in the process of building a cohesive services division. These services are available not only to Trading partners, but to the wider industry.
“What we've done now is, we've partnered, through buying parts or building, all the scaffolding that's needed to build these RIAs.”