Emigrant Partners today announced it has made an undisclosed investment in independent registered investment advisor Ulrich Investment Consultants, a firm with more than $1.7 billion in assets under management that includes a distinctive client niche.

Ulrich has offices in San Antonio, Albuquerque, N.M., and Spokane, Wash. Along with providing comprehensive wealth management to high-net-worth individuals and families, in addition to handling ERISA plans, the firm also serves Native American tribes. According to its website, Ulrich partners with specialized firms with expertise in areas such as casino management and financial and debt structuring to help Native American governments establish strong economic foundations.

The firm was founded in 2007 by current president and CEO John Ulrich. In a press release announcing the transaction, he noted that Emigrant Partners’ investment in his company will enable it to grow while maintaining its independence and creating future partnership opportunities for its next generation of employees.

Emigrant Partners is a subsidiary of New York Private Bank & Trust, which is led by billionaire Howard Milstein. Its operating bank, Emigrant Bank, is billed as the nation’s largest privately held, family owned and operated bank.

In addition to owning Emigrant Partners, the bank also owns Fiduciary Network, which was launched by Mark Hurley in 2006 to make sizable minority investments in wealth management firms and provide them with long-term financing to help facilitate succession planning. Hurley ran the show, while NYPB&T held a 75% ownership stake in the entity through a subsidiary.

After Hurley and Milstein began feuding over control of Fiduciary Network in 2016, Hurley exercised his contractual right to trigger a forced sale of Fiduciary Network. Two arbitrations and multiple lawsuits ensued, and after bids were received during the auction for the entity, NYPB&T exercised its contractual right of first refusal to match the highest bid, according to one of the lawsuits. It bought Fiduciary Network outright in 2018, bought out shareholders, paid Hurley a 10% breakup fee and fired him. Some legal actions between Milstein and Hurley remain unresolved.

Karl Heckenberg, a financial services industry veteran who previously worked for Merrill Lynch, A.G. Edwards & Sons, Wells Fargo and Charles Schwab, took over as CEO of Fiduciary Trust. He is also CEO of Emigrant Partners, which was created in late 2018 to essentially do the same thing that Fiduciary Network does; namely, to make minority investments in—and provide capital for—wealth management firms to enable succession planning and various growth and strategic initiatives.

But Heckenberg says having dueling entities under the same umbrella isn’t a redundancy.

“They’re similar in design in terms of being a non-voting capital partner,” he said. “I think the biggest difference is that firms with Emigrant Parters are electing to work more closely with Emigrant Bank and its affiliates, which entails a private trust company, personal risk management and other affiliates.”

Another difference between Emigrant Partners and Fiduciary Network is that the latter limits its investments to fee-only firms, while the former has a broader mandate that also includes non-fee-only firms and asset and alternative asset management firms, he added.

Heckenberg said deal structures haven’t changed much since the parent company gained full control of Fiduciary Network and created Emigrant Partners, though they’ve tweaked the agreements originally made between firms and Fiduciary Network and use that structure as a template for all of its investments. “The underlying security and philosophy we use has not changed,” he said. “I’d say the change we made for ourselves and our firms is making agreements that are more streamlined and less complicated,” though he didn’t elaborate on what exactly that entails.

Ulrich Investment Consultants is the seventh firm to receive a minority investment from Emigrant Partners, while Fiduciary Network has 13 companies in its stable, including noted wealth management firms RegentAtlantic, Evensky & Katz Wealth Management and Sand Hill Global Advisors.

Fiduciary Network hasn’t made a new investment in a while. Its most recent move occurred in November 2019 when it sold its position in Pathstone, a large RIA that at the time had more than $15 billion in assets under advisement. After Fiduciary Network's exit, private equity firm Lovell Minnick Partners made what was described as a significant investment in Pathstone.

The 20 firms currently affiliated with Emigrant Partners/Fiduciary Network oversee roughly $65 billion in aggregate assets under management and assets under advisement.

“We’re allowing firms to run their businesses as they have, but now they have a capital and advisory partner,” Heckenberg said.

Organic Growth
Heckenberg said Ulrich Investment Consultants’ geographic footprint is one reason why Emigrant Partners invested in the firm. He cited Ulrich’s toehold in Spokane and its aggressive expansion in San Antonio, and noted both are new markets for Emigrant.

“And John’s expertise in dealing with Native American tribes is unique,” he added. “One common denominator of a lot of the firms we’ve invested in is that while at their core they’re diversified wealth management companies, a lot of them have specialties within certain subsets. I thought that working with Native American tribes was an interesting part of the business, and it’s something they want to keep focusing on in addition to their high-net-worth practice.”

Most important, Heckenberg said, Emigrant seeks profitable firms with proven track records of organic growth not fueled by market gains. “The majority of wealth management firms during the past decade have been growing only because of growing equity markets,” Heckenberg offered. “And fixed-income markets have also been contributing a lot.

“Maybe we’re being conservative, but our view of the equity market is it’s unlikely you’ll get the same level of equity returns over the next 10 years,” he continued. “I think when you back out the market performance, most RIAs are shrinking. And because we firmly believe RIAs won’t get that market benefit over the next 10 years, we’re very focused on organic growth numbers net of market.”

As such, he said, he’s looking for firms that are adding clients and, equally important, adding clients who are young enough to propel future asset growth.

Value Proposition
Heckenberg noted that the financial backing provided by parent company NYPB&T is one of the value propositions offered by the two aggregator entities he leads.

“We’re a bank. There’s no other minority-capital partner in the space that’s an actual bank,” he said, adding that’s important in that it can make the loans directly to younger partners to buy equity in their firm. “It’s a much more streamlined process; they’re not putting the loans on their personal balance sheet by borrowing money [from another entity]” he said. “It’s part of our transaction. We’re helping structure those loans so those next-gen people can buy their equity.”

Besides providing cash, Heckenberg said, NYPB&T also offers services to help wealth management firms grow.

“We’re not just a capital business, we’re an advisory business where we can advise on best practices and technology, and can talk to them about delivering different services and offerings,” he said.

Ultimately, Heckenberg explained, NYPB&T’s backing of both Emigrant Partners and Fiduciary Network is designed to provide long-term capital for the wealth management firms it invests in. He said the company isn’t hung up with formulating exit strategies or generating growth for growth’s sake.

“I don’t think it’s about the number of firms; it’s about making sure we’re invested in the right firms and that they’re growing, which is a good return for them and for us,” he said.