Fortigent™

High-End Turnkey Platform Gains from Turmoil

by Tom Stabile

The volatile financial markets have spurred opportunistic high-end wealth managers to grow their businesses –and helped Fortigent of Rockville, Md., expand its roster this year by nearly a dozen client firms and about $3 billion in assets serviced. The turnkey asset management outsourcer now tallies $22 billion in assets serviced for 48 client firms, and it has two more pegged to sign on this week, says Gary Carrai, senior managing director for consulting and sales at Fortigent.

The firm, which supplies a mix of investment due diligence consulting and back-office technology systems to wealth managers, is adding on client firms that see poor-performing markets as an opening to snap up wealthy investors who are souring on big Wall Street investment firms. They need an outsourcer’s help to enable them to “play offense” while rivals are on the defensive, Carrai says.

The movement of financial advisors out of wirehouses to form their own independent advisory firms is also creating new clients that need investment platform and due diligence services, Carrai says.

That opportunistic take isn’t Fortigent’s alone, says Scott Smith, senior analyst at Boston-based Cerulli Associates. Most turnkey asset management program providers are rising with that tide. “Other [turnkey providers] are winning business from the advisors leaving the wirehouses or [from other independent] firms adding clients who leave on their own,” he says.

But Fortigent is an unusual player in the due diligence consulting market because it tailors its services to wealth managers that focus on the higher-end wealthy investor. That gives Fortigent’s research efforts a heavier tilt to alternative investment managers, which distinguishes it from most turnkey platform providers, which typically serve both the mass affluent and high-net-worth market segments and therefore deliver a broader range of investment tools.

And Fortigent also is distinct from investment consulting firms that cater to institutional investors but are now entering the high-net-worth market as providers of money manager due diligence. Those firms – such as Callan Associates, Mercer, and Wilshire Associates – limit their focus to investment advice, whereas Fortigent also has a core technology offering, including account aggregation and reporting tools, says Robert Testa, research analyst at Cerulli.

“That’s [Fortigent’s] sweet spot,” Testa adds. “They’re not going after the mass affluent, and they definitely want to offer the manager selection and research side as well as the account aggregation and reporting side. It doesn’t fit into a neat little box.”

Testa says the odd model owes to the firm’s origins as the back office for the former Lydian Trust business, which spun out the technology and due diligence unit as Fortigent in 2006. The Lydian unit itself was acquired by City National Bank of Los Angeles last year and took on the bank’s Convergent Wealth Advisors brand.

Testa says that while there are no standard models among the outsourcing market’s many turnkey asset management or technology providers, no other prominent players echo Fortigent’s mix of services and high-end market focus.  "It's kind of wide open what they can chase," he says, pointing to an abundance of high-end independent advisors, multi-family offices, and other wealth managers that lack mature account management tools or due diligence resources.

Fortigent is on track to have its best quarter ever for adding new client firms, Carrai says. The two clients it will announce in the coming week include a “good-sized” multi-family office. “We’re continuing to grow pretty aggressively,” he says.

Client signings for Fortigent in the third quarter included Apogee Family Office of Atlanta and New York-based iPro One, a firm that buys stakes or shares of revenue in wealth management affiliates of accounting firms while providing them with investment advisory and best practices resources.

Another was Denver’s Syntrinsic Investment Counsel, a wealth manager running $550 million for nonprofit institutions and high-net-worth investors that was formed by Benjamin Valore-Caplan and his team after they left UBSFinancial Services in August. And earlier this year, Fortigent added First Interstate Bank of Billings, Mont., and Davidson Trust Co. of Devon, Pa., an affiliate of Boston Private Financial Holdings of Boston.

Syntrinsic chose Fortigent mainly as a due diligence consultant, helping the new firm access research and high-end investments, Valore-Caplan says. The outfit already had a lineup of money managers, so it largely wanted to keep on top of new investment opportunities and expand access to boutique SMA and alternative managers not available on wirehouse platforms. “We have access to a much wider investment universe than before, because we’re buying third party research more relevant to the needs of our clients,” he adds.

Syntrinsic reviewed more than a dozen research firms before picking Fortigent for several reasons, including the way its research “is directed toward investors with a more sophisticated understanding of the markets, Valore-Caplan says, citing its focus on global investing and alternative investments as examples. Fortigent also offered a flexible approach that let Syntrinsic add on the services around its own research model, unlike other firms that were willing to explore such flexibility but had not offered it before.

Flexibility was also critical to Apogee, which has arrived at its multi-family office model on an uncommon path, says Taylor Fairman, the firm’s managing director of investments. Fairman left Hirtle, Callaghan of West Conshohocken, Pa., earlier this year to join Apogee and launch its investment services unit, building on its roots as a firm providing family administrative services and outsourced CFO functions for entrepreneurs.

Most of Apogee’s clients are entrepreneurs who have wealth tied up in their businesses and don’t expect to cash out for several years. It now hopes to build an investment platform to keep those assets in house when client liquidity events occur, while also giving the ability to attract new wealthy investors. The firm now has nearly $100 million in assets under management, often tapping into smaller private equity deals.

Fortigent’s moldable approach fits around Apogee’s current model, Fairman says. “So we have the buying power, infrastructure, compliance, and technology resources aspect, but it still lets us maintain our small company boutique approach and nimbleness,” he adds.

November 6, 2008

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