Pagnato-Karp Views ML Break As 'Transformational'
The Pagnato-Karp Group has traded what its principals viewed as an outdated, captive wirehouse model they worked with for many years while providing family office services at Merrill Lynch, for an independent, open-source model at HighTower Advisors in Chicago. Not only did Pagnato-Karp's entire nine-member support team make the leap-of-faith transition on Friday, so have the vast majority of their clients-along with more than $1 billion in assets under management.
"We feel we've been reborn and I cannot tell you the enthusiasm our clients have expressed," said Principal David W. Karp, who runs the firm with Principal Paul A. Pagnato out of its new home in Reston, Va. Their clients are primarily entrepreneurs, many of whom are or were active in the Washington, D.C.-area intelligence and government contracting community, and who became rich as a result of a liquidity event such as the sale of a business. The client-investment minimum at Pagnato-Karp is $10 million, with $25 million the target average, according to Karp. They have nearly 70 client families.
The sudden breakaway-Karp called it "transformational"-may have surprised Pagnato-Karp Group clients and staff, but for the principals, leaving Merrill Lynch, where they had been 20 and 15 years respectively-Pagnato founded the Washington, D.C., branch of Merrill Lynch's Private Banking and Investment Group, and served on the Merrill Lynch Advisory Board; Karp was named a top advisor in the D.C. area by Barron's for 2010 and 2011, and served on the Merrill Lynch Investment Policy Committee-was no overnight decision. "I have nothing negative to say about our previous firm," said Karp. "It was by far the best platform in the industry, and that's why we were there."
As Mike Papedis, managing director of national business development at HighTower, explained, "Sophisticated wirehouse teams nationwide recognize the financial services landscape has changed and question the large integrated firm model." Having felt a moral obligation to have the best platform in the industry to best serve their clients, Pagnato and Karp had a lot of questions.
During the peak of the financial crisis, the partners began seriously to explore their options, performing much due diligence to "find a place to land in the event of the 'what-if' scenario" in regard to Merrill, said Karp. At the time, they found HighTower to be little more than a white-boarded concept, an upstart, but a very intriguing one. They studied HighTower as it evolved, and stayed in tune with other industry developments.
A few years later, the partners were convinced that HighTower, with its disruptive business model, had become to wealth management and advisory what the iPod had to music and Amazon to retail. "HighTower is changing the landscape-and has given us an optimal platform," said Karp. "It is based on objectivity, transparency, independence; it provides conflict-free advice, and access to the best of what Wall Street has to offer for our clients." Unlike a wirehouse, where advisors are limited to the proprietary offerings of the firm, HighTower uses an open-source platform that enables Pagnato-Karp Group to work with any custodian. While the partners favor Fidelity for their advanced technology, JPMorgan, Schwab Advisor Services and BNY Mellon are possibilities as well. "The decision is up to the clients," Karp said.
"We can essentially do everything we've been able to do in the past, and more, and do so in a competitive environment," said Karp, adding that the only thing lacking in the new relationship is the big brand name that Merrill Lynch provided-a moot point since Pagnato-Karp Group's client roster (they hope to add one or two new clients per quarter) is 100% referral based.
Pagnato and Karp believe a "wave of change" is coming, that the model adopted by HighTower will "transform the industry," and that HighTower is way ahead of its competitors. While the partners are still meeting face-to-face with some clients to discuss the transition from Merrill-70% agreed without hesitation to move with the team when contacted by phone-"so far we have not had a single client say no," Karp said. "The response has far exceeded our wildest expectations." Go to www.hightoweradvisors.com for further information.
In other news ...
The Aspen Family Business Group has published The Keys to Family Business Success, a best-practices book that brings together the collected wisdom, anecdotes, and solutions of authors and advisors in disciplines that include psychology, finance, and management. Go to www.aspenfamilybusiness.com for further information.
ECHELON Partners, a Los Angeles-based investment bank and consulting firm focused on the wealth and investment management industries, has released the July 2011 edition of The Seivert Report, a quarterly valuation analysis of ten different sub-sectors spanning the investment and wealth management industries. For more information, go to www.echelon-group.com.
The Multi-Family Office: A Solution for the Ultra High Net Worth Client, a new report offered by Dublin-based Research and Markets, says number of wealth management firms that either offer family office services or use the family office moniker has increased significantly since 2000, especially in the ultra-high-net-worth segment. Go to www.researchandmarkets.com for further information.
The Silicon Valley Venture Capitalist Confidence Index for the second quarter of 2011 registered 3.66 on a 5 point scale (with 5 indicating high confidence), according to Mark V. Cannice, professor at the University of San Francisco School of Management, the report's author. A companion study on confidence among venture capitalists in China showed confidence declining to a near six-year low due to concerns of bubble valuations, more difficult exits and a slowing economy. Go to www.usfca.edu for further information.
Portfolio managers in the event-driven hedge fund space believe that global M&A opportunities remain strong against a backdrop of improving business confidence, low interest rates combined with ample credit liquidity, strong corporate balance sheets and attractive target valuations, according to Credit Suisse Asset Management's Q3 2011 edition of Asset Management Alternatives Quarterly. Go to www.credit-suisse.com for further information.
A recent poll showed that 60% of survey respondents are pessimistic about the short-term outlook for the U.S. economy, with 21% being optimistic, compared to a similar poll in April showing 27% pessimistic and 53% optimistic. Forty percent said they wouldn't put money back into markets until the U.S. debt ceiling issue was resolved. Participating in the national poll, conducted by Research Now for UBS Wealth Management Americas, were 1,000 affluent investors with at least $250,000 in investable assets, with 50% having at least $1 million in investable assets. Go to www.ubs.com for further information.
The Credit Suisse Liquid Alternative Beta Index, which aims to reflect the performance of the overall hedge fund industry, generated negative performance in July, finishing down 0.95% for the month. The long/short equity sector saw the most significant declines, finishing down 1.69% as uncertainty regarding Greek debt and U.S. debt-ceiling negotiations overshadowed a generally positive Q2 earnings season. But despite July losses, the strategy remains up 3.43% year-to-date. Go to www.hedgeindex.com for further information.
The Young Entrepreneurs Unconvention, designed for investors and entrepreneurs, will be held August 6 in Melbourne. Go to the-entourage.com.au/what-we-do/events for further information.
The Raymond James Bank Investor Conference 2011 will be held August 9-10 at the Hilton Chicago in Chicago. The keynote speaker is Henry M. Paulson Jr. For further information, go to www.raymondjames.com or call 312-612-7785.
The Third Annual Steamboat Institute Freedom Conference will be held August 19-20 in Steamboat Springs, Colo. Speakers include Steve Moore, senior economics writer for the Wall Street Journal, Jonah Goldberg, editor of the National Review Online, and Florida U.S. Senator Marco Rubio. Go to www.steamboatinstitute.org for further information.
The Family Office Exchange workshop "Preparing for the New Era of Family Office Regulation," open to wealth owners, family office executives, and qualified multifamily office executives and advisors, will be held September 7-8 in New York City. Go to www.familyoffice.com for further information.
The Moscow International Financial Forum, a gathering of representatives of banks, asset management companies, family offices and high-net-worth individuals from Russia, the U.S., Germany, Italy, Switzerland and other countries, will be held September 13-15 at the Holiday Inn In Moscow. Go to www.mosfinexpo.com for further information.
The 10th Annual Tax Planning for the Wealthy Family Conference will be held September 14-15 in Toronto. Call 1-800-363-0722 for information.
On The Move
Rehmann, an accounting and consulting firm based in Troy, Mich., has hired Daniel D. Roberts as principal and director of governmental investigations and compliance for the firm's Corporate Investigative Services division. Roberts had been with the FBI since 1987, and most recently served as assistant director of the agency's Criminal Justice Information Services Division.
U.S. Bank, a San Francisco-based provider of wealth management and private banking services, has appointed Kurt Silberstein as managing director of alternative investments for Ascent Private Capital Management of U.S. Bank, a unit of U.S. Bank's Wealth Management Group that serves ultra-high-net worth clients. Previously, Silberstein was senior portfolio manager for global equities at CALPERS (California Public Employees Retirement System).
Bank of America Merrill Lynch has hired Peter Johnson, former head of global futures, options, and OTC clearing at JP Morgan, as managing director and head of global futures and OTC derivatives clearing. Johnson expects to join the company in October and will be based in Chicago.
San Francisco-based First Republic Bank, a private bank and wealth management company, has hired Dirk A. ten Grotenhuis as managing director. Previously ten Grotenhuis served as managing director at Stone & Youngberg LLC in San Francisco.
Blaylock Robert Van LLC, an Oakland, Calif.-based minority-owned investment bank and financial services company, has hired Alan Jones as a senior vice president. A fixed-income expert, Jones previously was co-founder and managing partner of A.R. Jones & Associates, LLC, a consultancy, and Rampant Venture Group, a venture capital firm.
McDonald Partners LLC, a Cleveland-based broker-dealer and RIA, has formed McDonald Trust Services, a division of New York Private Trust Company, a trust company and subsidiary of Emigrant Bancorp Inc. New York Private Trust will provide McDonald Trust with a comprehensive suite of personal trust and estate administration services.
The San Francisco-based investment consulting firm Callan Associates has hired four investment consultants: Jamie McAllister, a former consultant at Hewitt EnnisKnupp, as VP for Callan's defined contribution group in Chicago; Sherwood H. Yuen, former VP at Wells Fargo Alternative Asset Management group, as VP for the alternatives consulting group in San Francisco; Michael Swinney, a former investment consultant with Hewitt EnnisKnupp, as VP for the fund sponsor consulting group in Atlanta; and Brianne R. Weymouth, previously in the consultant relations group at PNC Capital Advisors, as VP for Callan's fund sponsor consulting group in Chicago.
Rothstein Kass in Roseland, N.J., has named Arthur Brown a principal. Brown provides audit and accounting advisory services to alternative investment industry and other financial services sector clients. Also promoted to principal were Kashif Hussain and Daniel O'Connor.
Threshold Group, which provides family office services for families and private family foundations, has hired Ronald G. Albahary as chief investment officer. Previously, Albahary was CIO at Convergent Wealth Advisors, and has held investment leadership roles at Schroder Investment Management, SEI, and Merrill Lynch. He will join Threshold's office in Philadelphia.