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, Merchant co-founder and managing partner, the firm expects to double its balance sheet. The partners will not sell any of their equity as a result.
Merchant, which takes minority, non-controlling stakes in registered investment advisors, has been quietly building over the years, and has partnered with just shy of 100 firms since it was launched six and half years ago. Once its recap is complete, the management team expects to double the community they’re currently invested in over the next two to three years.
“Merchant thinks it will create as much impact and partnership in the market as it did in the prior 6 1/2 years since its founding,” Bello said.
He also hopes to take Merchant public in a few years.
Bello declined to say which capital partners nor the types of capital partners the firm is considering.
“We think about the culture, the reputation, the energy of those prospective capital 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.
Merchant has not been in the public eye much over the last several years, but it has been quietly doing 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.
Some of the capital raised will be used to fund new partnerships, as well as follow-on injections into existing partnerships.
“Because we’re an operating company and not a private equity fund with short duration, we are not in a position where our capital structure is dictating our outcomes,” Bello said. “Instead, because we’re an operating company, we have the ability to be responsibly creative with an institutional framework to give more money to our partners so they can then go deploy it with our know-how attached to them.”
Merchant 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, Toyko and Singapore in the next 12 to 18 months. The firm is close to announcing its first partnership in Canada.
“Merchant sees itself as being a driver of, call it, a good amount of financial services companies all throughout the world,” Bello said. “The plan is to be geographically diversified and be the processor in all these institutional wealth management firms that were started at some point in time by a set of individuals who had an entrepreneurial spirit.”
He also sees that the independent wealth management movement that has excelled in the U.S. is boiling over into other parts of the world, and Merchant wants to participate in that.
To be sure, 75-80% of dollars invested will remain concentrated in the U.S., the firm’s largest market.
Bello said he founded the company in a spare bedroom of a rental home while his wife was pregnant with his 8-year-old daughter. Up until then, few firms, if not none, 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.
A few others have cropped up in recent months with minority investment models, including Constellation Wealth Capital, launched by former Emigrant Partners CEO Karl Heckenberg, and Rise Growth Partners, created by former United Capital CEO Joe Duran.
In addition to its equity partnership business, Merchant also has a credit operation, which lends to the broader marketplace. It has also built some essential services for the wealth management space in-house, including its CFO Services, but also invested in companies that already provide services, such as Succession Link and Advisor Assist. The management team is also in the process of building out a cohesive services division. These services are available not just to Merchant partners, but to the broader industry.
“What we’ve done now is, we’ve partnered with, through purchasing pieces of or building, all the scaffolding that's required to build these RIAs.”