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What Will Lightyear Do With AIG Advisor Group?

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After weeks of speculation, Lightyear Capital has confirmed that it – along with one of Canada’s largest pension investment managers, the Public Sector Pension Investment Board – has agreed to acquire AIG Advisor Group.

The transaction is subject to customary regulatory and other approvals, and terms of the transaction were not disclosed.

Recruiter Jon Henschen had predicted Lightyear’s involvement weeks ago, but he called the involvement of the Canadian manager, known as PSP Investments, an “unknown element.”

“I don’t really know much about [PSP] or their track record,” he said in an interview with ThinkAdvisor. “Maybe the cost for buying the AIG broker-dealers was more than Lightyear could handle alone so they got someone else to invest with them.”

His guess is that PSP Investments will be more a “silent partner” while Lightyear, a New York-based private equity firm focused on financial services investing, “runs the show.”

“Lightyear has the background,” Henschen said. “Does a pension fund know the business? I think they’re more of a financial support role.”

As part of the deal, investment funds affiliated with Lightyear and PSP Investments will have the majority of the seats on Advisor Group’s Board of Directors.

In a statement, Guthrie Stewart, senior vice president and global head of private investments at PSP Investments, said: “We are pleased with this transaction, which is in line with PSP Investments’ private equity strategy of making sizable, direct investments in high-quality companies alongside experienced partners. We see multiple growth levers to drive Advisor Group’s future performance and look forward to collaborating with Lightyear and the Advisor Group management team to deliver on that plan.”

In addition to announcing the acquisition, Lightyear has also announced plans for Advisor Group’s upper management.

While Erica McGinnis will continue in her role as CEO of the AIG group, Valerie Brown, former CEO of Cetera Financial, will join AIG full time at the closing of the transaction to serve as executive chairman of the Board.

Henschen had heard rumors that Brown would be back in the picture.

“Valerie was good when she had her stint at Cetera. She has a good track record,” Henschen told ThinkAdvisor.  

Lightyear also has a history with Cetera. In 2010, Lightyear acquired the three independent broker-dealers that were rebranded as Cetera from ING. Under Lightyear’s ownership from 2010 to 2014, Cetera grew to approximately 6,600 advisors, up from 4,000 at the time of the acquisition, and Cetera’s client assets under administration grew to $148 billion, up from $75 billion at the time of acquisition.

In 2014, Lightyear sold Cetera to RCS Capital’s major stakeholder at the time, Nicholas Schorsch, who — after a series of scandals at the company and other firms he founded — is no longer involved in its management.

What’s next for AIG Advisor Group, which includes the independent broker-dealers FSC Securities, Royal Alliance, SagePoint Financial and Woodbury Financial?

“For now, the reps are going to be in a wait-and-see mode as far as what are they going to be offering in retention money?” Henschen told ThinkAdvisor. “That’ll be the first thing. The second thing is what are they going to do with the broker-dealers?”

Henschen says that when broker-dealers are bought by a private equity firm, it’s usually in the broker-dealers’ favor.

“It’s a big positive if a private equity firm is buying it because they’re largely hands-off,” he said. “They fund them, they support them, but they don’t micromanage them. That’s a positive for the broker-dealer.”

In an acquisition like this, Henschen said there are usually two options.

“It’s one of two avenues: either they’re going to flip it in four or five years, or they’re going to grow it and go public,” he told ThinkAdvisor. “I think the opportunities for flipping aren’t going to be what they were. Lightyear sold Cetera because Schorsch offered 100% of trailing revenue. I mean, who would turn that up? The days of firms like Schorsch offering unusually high yield, I think, will be pretty limited going forward.”

Henschen says Lightyear’s original intent with Cetera had been to grow it for six or seven years, build scale and then go public. With advisor group, he said, this is the most likely scenario.

“The only reason they veered from that course was because they were offered a really high price for the Cetera group by Schorsch,” he said.

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