Karl Heckenberg files with SEC to raise a staggering $1 billion, (presumably) to buy, buy, buy RIA stakes in a 'crowded' market

Karl Heckenberg is diving back into the RIA market, big time, with his very own ten-figure venture fund.

The Chicago executive has filed with the U.S. Securities and Exchange Commission (SEC) in a signal that he will solicit $1 billion in investment capital. 

The overwhelming presumption is that he will use the proceeds to pick up where he left off as CEO and president of Emigrant Partners – buying stakes in RIAs run by ambitious owners who seek growth capital.

“If he’s raising a billion dollars to buy RIAs, it’s a crowded trade," says Matt Crow, CEO of Mercer Capital, via email.  

"I’ve seen some very capable people attempt the same in the past couple of years and not succeed.  It’s a heavier lift than it was five years ago when debt was free and Focus was going public because everyone loved the consolidation narrative.”

“No doubt the wind is in the face [of Heckenberg [but] Karl's background… and incredible connections … should help here,” says John Furey, CEO of Advisor Growth Strategies in an email. “With other industries slowing M&A and raising money, the RIA space (and adjacent WM services) continue attracting interest.”

Furey adds that Heckenberg;s mandate is likely larger than he had at Emigrant.

“I would guess the venture will differ from Emigrant, focusing on a different model and mix of investments. This could include diversity across wealth management channels and geographies. I think financial technology and international markets are becoming more attractive in addition to the traditional US Wealth Management space.”

Heckenberg filed with the SEC on Aug. 11 as the sole member and general partner of Constellation Wealth Capital Fund LP, where he revealed plans to raise $1 billion for the new private equity fund.

Stiff competition

Heckenberg, 48 or 49, is among a handful of investors with serious experience buying and selling minority stakes in RIAs. But now is a different time than 2018 when he joined Emigrant Bank. See: Emigrant Bank 'doubles down' to send Mark Hurley packing and fire up Fiduciary Network, its RIA deal machine

Back then, Mark Hurley handed him the controls of Fiduciary Network, and billionaire investor Howard Milstein opened his deep pockets through Emigrant Bank. See: Karl Heckenberg ends phenomenal five-year run of reining in Mark Hurley, forming Emigrant Partners -- and selling high on long-held RIA stakes -- as bank boss hired gun

Now, banks are charging higher rates – if they lend at all -- valuations have risen, and the competition to buy stakes is everywhere, says Crow. 

“…We’ve been contacted by several new funds who are looking to develop a ‘third-mover’ advantage in the RIA space,” he adds.

Duran, Duran

Indeed, Merchant CEO Marc Spilker, seeking $250 million and United Capital Founder Joe Duran, an unspecified amount, may be part of that crowded field.  He is supposedly looking for backers to make the kind of minority investments that Emigrant and Hurley pioneered in the RIA market, according to Citywire. See:  Marc Spilker enters the RIA world with a mound of cash, a giant Fidelity testimonial and a kick-ass reputation as Goldman Sachs and private equity gunslinger

Duran told an RIABiz reporter in February that he would still be consulting for Goldman Sachs but wanted to try his hand as an outsider. See Joe Duran will co-develop Goldman Sachs unit aimed at outsourcing to non-Goldman RIAs after 'magic' never materialized for direct-to-consumer RIA

It's also possible he could join some of his former colleagues who are also trying to form their own firm. See:Three Joe Duran acolytes started 'not United Capital 2.0' without him, promise 'no bad blood' with their ex-leader and won't rule out his future involvement

Laying the groundwork

The newly-named LLP Constellation Wealth Capital Fund is not an RIA, according to the filing. The SEC filing doesn't explicitly state what the funds will be used for, and it doesn't list any other names. 

Heckenberg did not respond to emails or texts seeking comment for this story but signaled in April that he was not retiring and would like to return to the RIA realm.

Crow says he hasn't spoken to Heckenberg and isn't clear on his new venture. Heckenberg isn't new to the RIA landscape and will be armed with what it takes to try and replicate what he did at Emigrant - if that is his goal, he says. 

“He built an excellent team at Emigrant and he can do it again.” 

Heckenberg became an Emigrant employee in January 2018 and claimed 100% control of Fiduciary Network by Thanksgiving that year. 

He took on Hurley and helped Milstein oust him from the firm. See: Emigrant Bank 'doubles down' to send Mark Hurley packing and fire up Fiduciary Network, its RIA deal machine

Investing magic

Heckenberg re-staffed Fiduciary Network and invested fresh capital. 

He wisely followed Hurley's magic of investing in RIAs without being an RIA aggregator or a rollup and purchasing minority stakes to help the firms reach the next stage of growth. 

The approach now has many imitators, including rollups like Hightower Advisors.

He also used the hot RIA market to cash out of a number of holdings – Brouwer & Janachowski, Pathstone and Adviser Investments –  he'd purchased in colder markets.

When he spoke to an RIABiz reporter in April about his move, Heckenberg said he was deliberately laying the groundwork for a career shift. 

Heckenberg maintained that he likes the RIA business and had no intentions of retiring.

 Disciplined perspective

It's unclear if Heckenberg will work with his former colleagues at Emigrant Bank. A spokesperson at Emigrant declined to comment for this story. 

“One thing that sets Karl apart from many of the personas in the RIA investor community is that he brings a balanced and disciplined perspective to every decision," Crow says.  

"Some industry leaders talk about the RIA space like they’re auditioning for the lead role in 'Annie.'  That’s not Karl’s disposition; he’s realistic,” Crow adds. 

Despite the uphill battle, Crow suspects Heckenberg can make magic again in the RIA arena. 

“I wouldn’t bet against him.  And if it doesn’t work, he’ll be one of the most sought-after consultants in the industry.”