Thomas H. Lee Partners was founded in 1974 by the late Thomas H. Lee, one of the early pioneers in private equity. Lee (who took his own life earlier this year) left THL many years ago to launch his second private equity firm, Lee Equity Partners. THL holds to the founder’s strategy of bringing deep focus to what the firm calls “Identified Sector Opportunities,” or ISOs, within high growth, vertically integrating industries.

The ISO around wealth management started in 2016 when THL hired Gurinder Ahluwalia, the former president and CEO of AssetMark and co-founder of 280 CapMarkets, as an executive partner. The private equity firm landscaped the entire market of the large platform RIAs; at that time, there were only a handful to choose from, unlike today, when there are more than a dozen platforms backed by private equity investors.

At the time, one of the few scaled RIA platforms was Hightower, and in 2018, THL acquired a “significant” stake in the Chicago-based firm.

“Unlike probably the other private equity-backed players, they had a more unified approach and consolidated approach; it’s not just buying (a firm) and leaving everyone alone,” said Ganesh Rao, managing director at THL and head of its financial technology and services investment team.

But there was work to be done. Hightower was founded as a wirehouse-type partnership model but had grown the business quickly, with some of the earlier partners feeling the strain. There grew to be a lack of trust between many of the advisors on the platform and the management team.

“We knew it wasn’t a perfect company, and we’d need to use our investment as a catalyst to really optimize the business. We became very involved,” Rao said.

To re-establish trust with Hightower’s advisors, THL successfully negotiated transactions with each of the firm’s advisors to make them fully affiliated with Hightower. When THL closed on their investment in early 2018, Hightower owned 23% of the revenue of the advisors on the platform; today, it owns 98% of the revenue of its advisory businesses.

While a hands-on approach to the day-to-day business may be unusual for some private equity firms, THL knew it would need to be active to gain the credibility and trust of the advisors.

“We don’t think of ourselves as just deployers of capital,” Rao said. “We’re very active partners and helpful members of a company, not just people that go to board meetings and ask questions.”

The next step in THL’s strategy was to shift away from Hightower’s “rental” model of providing back-office services for a fee, to acquiring advisory practices themselves. In April 2018, with THL’s help, Hightower acquired Houston-based Salient Private Client, the wealth management business of Salient Partners, in its largest single RIA office acquisition.

THL also brought in tenured wealth management executive Bob Oros to succeed Elliot Weissbluth as CEO; since then, Oros has led what he calls a “strategic shift,” building out and unifying Hightower’s management team, the firm’s infrastructure, and its acquisition strategy. Since THL’s investment, Hightower’s EBITDA has grown from about $30 million to $300 million.

While Hightower has been a big focus, Rao says THL is open to making other investments in the wealth management space, including independent broker/dealers or RIAs. The firm targets companies with between $300 million and $5 billion of enterprise value, and it averages a five-year time horizon on its investments.

THL would also like to make an investment in the wealthtech space, and the firm is spending a lot of time looking at opportunities, Rao says. There are not many tech companies for advisors that have the scale and trajectory that fit THL’s ideal investment profile, he says—though the search will continue.

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