If Richard Manchester had his druthers he’d probably never leave the comfortable confines of Laguna Beach, California. It’s where he’s had his home for most of the last 25 years, a majority of his clients live in the general area, and, perhaps most importantly, it gives him easy access to the Pacific Ocean where he can practice his avocation–surfing. It also gives rise to the name of Manchester’s latest firm, which he launched in March of this year–Wave Wealth Management.
But catching a big wave isn’t the only way Manchester gets his kicks. He’s also a self-confessed “deal junkie,” who in addition to providing passive portfolio management for the clients of his firm also actively seeks out private equity deals to deliver premium returns.
Manchester’s approach is to place 70% to 75% of each client’s investable assets in marketable securities such as index-based ETFs and DFA mutual funds. For the remainder, he actively seeks out a variety of private equity ventures. “One of the key differentiators between Wave and other independent wealth management firms is that we syndicate private deals for our clientele,” he explains. “We’ve syndicated real estate transactions, healthcare transactions, oil & gas partnerships, drilling and production, venture capital.”
Manchester’s most recent syndication deal involves a mineral lease on a 750-acre site in south Texas, which had eight producing wells and three developmental drilling sites, and for which he raised $2 million in capital from 14 clients. “We had a reserve analysis done with petroleum engineers, assuring us, to the extent that can be assured, that there are sufficient reserves to make a return on investment at a minimum level of 10% over the next seven years,” he says of the due diligence. “Then with each of these three drilling sites we could make 25%, 45%, 70% inclusively if it all worked out.”
Another investment that a number of his clients are involved in is ownership of a nursing home in San Diego, which is structured as a limited liability corporation and is managed by an individual with an equity stake in the business. Manchester says this particular investment is generating a consistent return in excess of 15%.
Warren Buffett in the Making
Manchester estimates that he puts together an average one big deal a year and likes the private equity investments because they are not correlated to the performance of the capital markets. “It’s business risk,” he says. “I like to fashion it as a mini-BerkshireHathaway approach. We try to buy good businesses that are well-run and generate good, safe cash flow.” Although he limits the number of deals that actually go through, Manchester says he spends a great deal of “uncompensated time” doing the research and due diligence to find those few deals worth executing.
“The business models [of the different private equity placements] I have found are not so different, as long as you know how to surround yourself with the right consultants in each industry when it comes to an acquisition,” he says of his approach. “I’m a good businessperson, but I would make no claim to say I know all there is to know about nursing homes, nor do I know nearly all there is to know about oil and gas investing, but I know where to go to get the right advice, so I can make solid business decisions. I think that’s the key.”
Although Wave Wealth Management is less than a year old, a number of Manchester’s “favorite clients” have been with him for 10, 15, or 20 years. Like many advisors, Manchester began his career in the insurance side of the business.
“I was hired as a financial planner, which was a new term in the early ’80s,” he recalls. “I realized very early on that their [the insurance company's] definition of financial planning was the systematic conversion of investment dollars to life insurance premiums.”
Dissatisfied with simply selling insurance, he started his own firm, Manchester Financial, and went to law school at night and on weekends, because he was uncertain as to which professional certification to pursue and it was something he had always wanted to do. Although he’s never practiced as an attorney, Manchester firmly believes that his training in the law has been an invaluable asset.
“Law school is all about reason and research and those skills are invaluable in this business,” he explains. “I love taking things apart and if they go back together the way I think they should, I may invest.”
Wealth Management, and Passive Investing