The $24 million purchase means FundQuest advisors will have direct access to PMC funds and avoids 'customer inducement costs'

August 8, 2011 — 4:57 AM UTC by Brooke Southall


Envestnet Inc. will acquire FundQuest Inc. from BNP Paribas in its first major post-IPO move, which furthers its goal of creating an enveloping technology solution of technology and investments. See: 10 reasons why the Envestnet IPO filing is for real.

FundQuest had approximately $15 billion in assets under administration as of June 30.

Envestnet of Chicago is purchasing the Boston-based firm for $24 million. In a deal sweetener, the purchase erases an $18 million liability from Envestnet’s balance sheet that it took on when the firm made a de facto acquisition of FundQuest’s distribution.

In 2010, Envestnet and FundQuest entered into a Platform Services Agreement under which Envestnet provided its manager platform to FundQuest clients, which has been fully implemented. This acquisition will enable the combined firm to build upon this platform and offer more efficient and integrated wealth management solutions.

Upon closing of the deal, approximately $6 billion of FundQuest’s assets will be reclassified to assets under management for Envestnet.

What Morgan Stanley thinks

Envestnet will reap many advantages from this buy, according to Morgan Stanley analyst, Thomas Allen.

“The FundQuest acquisition appears an attractive use of capital as it expands Envestnet’s wealth management capabilities, allows the company to more efficiently serve clients and removes complexity from [its] financial statements as it does away with customer inducement costs that Envestnet was previously required to pay FundQuest,” he says In a research note regarding the deal. See: Morgan Stanley report: Big deals will propel Envestnet’s growth much faster than investors realize.

The deal will combine the two firms’ investment management and research teams, sales teams and result in tighter integration between the sales and product development teams.

Platform news

Another reason Envestnet made a push for the deal is because the original arrangement did not afford FundQuest’s 200 advisory clients with access to Envestnet’s PMC platform of managers.

This was bad for FundQuest advisors because it denied them access. It was bad for Envestnet because it couldn’t leverage the FundQuest relationships.

“The vast majority [of FundQuest’s clients] had no access to PMC or [other managers on the Envestnet platform],” says Jud Bergman, chairman, founder and chief executive of Envestnet.

He believes that FundQuest advisors will be particularly eager to use PMC’s Portfolio Solutions, the company’s managed ETF funds.

Growth track

At the time of its IPO in July 2010, Envestnet announced that it would likely make two to four acquisitions over the course of its first two years as a public company, and Bergman expects to stay that course. See:How Envestnet may use its IPO to speed growth.

“Our biggest engine is organic growth but we’ve also identified growth-accelerating opportunities like FundQuest,” he says.

Bergman says his company is looking at two types of acquisitions and plans to make deals of both varieties. Some deals will be for fellow TAMPs like FundQuest. Others are what he calls “point” solutions thata will allow it to serve advisors more broadly. Examples of a point deal would include acquiring a compliance company of a financial planning firm, he says. See: Envestnet buys a company to gain an edge with Schwab RIAs.

One point solution it provides on an unbundled basis is performance reporting capabilities. See: Envestnet unbundles portfolio management software for RIAs and it won’t be a sideshow.

Mentioned in this article:

Envestnet Inc.
Top Executive: Jud Bergman

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