Dealmakers see wealth of opportunity in other people’s money

What should private equity partners do with their millions? Or, more specifically, their spare millions — the ones they are not reinvesting into further value-enhancing opportunities or large properties with intolerably small basements?

For Palamon Capital Partners, and their investors, this is now arguably something of a quandary: because they have just made £600m, or 13 times their invested capital, from realising that managing other people’s money can be a licence to print your own.

On Monday, Palamon sealed a deal to sell its acquisitive Towry wealth management business to Tilney Bestinvest, another fast-growing investment manager. But Tilney Bestinvest is owned by private equity giant Permira, which rather suggests there might be even more scope to profit from people with more money than . . . well, let’s say time (Towry doubled its earnings in two years and client satisfaction rose).

It also revives the question of whether anyone would want to be a customer of a business owned by private equity. So strong is the belief that private equity owners will wring out every last ounce of profit that PizzaExpress diners convinced themselves that a buyout firm had shrunk their pizzas — several months before the takeover had actually taken place.

In wealth management, takeovers — and the resulting consolidation — can mean that everyone gains, as greater scale brings cost synergies and investment in expertise. Permira says that deals help to deliver a broader range of services.

However, they also seem to broaden revenue streams. Permira notes that, when it bought Bestinvest in 2014, the firm made £39m in revenue from £5bn of assets under management. After the Towry deal, it says it will make £200m in revenue from £20bn of assets.

That suggests a richer mix of offerings, one that now costs clients an average of 1 per cent rather than 0.78 per cent two years before. Palamon recounts how 16 deals in 13 years took Towry from a single office in Marlow to a network with £120m in revenue from £9bn of assets. That is an average cost to the client of 1.33 per cent.

Of course, this reflects a sensible shift towards higher-value services. Post takeover, 80 per cent of Tilney-Towry assets will be in discretionary investment management services. These can charge even more. A Citywire-Numis study last year found some firms’ discretionary management fees were above 2 per cent.

And that might indicate where the future value-enhancing opportunities lie. Indeed, Permira’s choice of Towry could prove telling: it is one of the firms used by the National Lottery to advise players who hit the jackpot.

Don’t scare the horses

Racehorses clearly do not understand probability. There is supposed to be a chance that, every now and again, the most heavily-backed favourites get spooked, fall or have a bad day at the paddock.

But for four straight days at the Cheltenham festival last month, none of them obliged — delivering millions in losses for bookie William Hill, and the biggest one-day fall in its share price since the financial crisis.

It is little wonder, then, that the UK company has now taken to backing Las Vegas-based NYX Gaming Group — a technology business that provides a lot of its fixed-payout virtual slot machines and casino games. At least when playing these, punters cannot get that lucky.

But it appears to be doing so in an oddly roundabout way: providing £80m in the form of a loan note, with only £10m of equity investment. Why not take a proper stake, and put it all on the nose?

Because William Hill wants to support NYX in its £270m acquisition of OpenBet, a provider of online gaming ‘back-end’ systems — including Hill’s own — in need of investment.

However, the UK company cannot be seen to have too much influence over OpenBet, for fear of creating a conflict of interest that deters other customers. Unlike many bookmakers before the last day at Cheltenham, it does not want to scare the horses. If only Annie Power had taken such a circuitous route in the Champion Hurdle.

Millennial perennial

In digital journalism, the name of the game is ‘audience engagement’. And, at the FT, it seems the most engaged audience — as measured in angry comments about articles — is ‘millennial’ and resentful of its stretched finances.

One FT article suggesting that “Generation Rent” should stop moaning about house prices and save for a pension became a BuzzFeed and Twitter sensation.

So it is with no little opportunism that the Lombard column informs millennials that their lot is about to get worse: listed lettings agency Belvoir has just reported a 25 per cent increase in full-year profits and suggested that half the population may never be homeowners. It said: “The flexibility and ease of renting is greatly to [your] advantage.” Just sayin’.

matthew.vincent@ft.com