Asset Management Consolidation - Simon Krinsky, Hall Capital and Tim McCusker, NEPC (EP.421)

26:09So Simon, I want to come back to this question of if you were fully integrating with PassStone, that quote unquote cultural alignment has to be super tight. So what was it that you learned in your diligence process that made PassStone the right cultural fit? there's some things that are super important and headline -y and some things that are just convenient that it's a little bit like pushing the easy button. So in the convenient category, Pass Bonus is a beautiful national business. They have no office in San Francisco or New York. Our offices are in San Francisco and New York only, which is great.

26:43They have built out a fabulous trust business in Jackson. We built a trust company that we own in Reno, Nevada. in the world of trusts, that's a flywheel effect. They don't cannibalize each other. So those things were convenient. I'd say they're little things like in -office time and lunch once a week in the office. Those kinds of things were convenient and useful and a nice validation of the way that they treat people is similar to the way we do. There's also some really important strategic alignment, starting with, for us, which was a threshold issue of not selling products. And Tim mentioned this too, but it's easy to say it's hard to execute having a pure fiduciary business, which they most certainly do.

27:28We also really like the leadership. Matt Fleissick, who's the CEO, is a super ambitious, super energetic guy who has built a leadership team around really terrific partners that they have picked up along the way through a series of combinations. And we just really enjoyed the leadership team. So as you both are going down this path, you're understanding their businesses and you're getting more excited about it. How do you get to know the people that will be your future partners? It probably boiled down to, at the end, almost weekly conversations. Started out, there were three months between the first meeting and the second meeting.

28:06Then it was monthly, then it was weekly and probably even daily towards the end. You're spending a lot of times with these folks. Some of it's in person, you do a dinner, you do some stuff outside of the office, and you just spend time getting to know each other. Similar to hiring someone, similar to working with a new client, you're trying to build a relationship and figure out, is there a connection here? Are we aligned in the things that we value? And those values drive through to culture. I don't know that there was a point where the light bulb went off and we said, oh, I like these people.

28:39It just happens that you realize, wow, we are really well aligned. We care about the same things. We want to do what's best for clients. It's not about making that very last dollar. It's about building for the long term and having great relationships with clients. It just happened very naturally over the period of over a year. Ours was the exact same of a whole bunch of meetings. Two quick points. One, my wife, Kim and I had dinner with Matt and his wife, Fawn. That was a very formative dinner. She's terrific. They have a great partnership. It says a lot, actually, including that they slept out to have dinner with us, which we were very grateful for.

29:16The challenge is what's to come. We haven't closed this transaction yet. And most of our firm has met very few members of the Pathstone team. And the vast majority of Pathstone employees have met zero people at our firm. So for the next six months to a year, that is going to be a major priority, just getting people in the same room, ideally in person, otherwise a bunch of Zooms. So Tim, you mentioned seven months where all 50 of your partners knew this was happening. Were there any surprises along the way that took this what sounds like a nice path where you thought this might derail? There were.

29:56It feels like a long time ago, given everything that's played out. There was a moment where there was a rumor out there that we were being bought by one of our competitors, which if you're going to have a rumor out there, having it be the wrong rumor is actually ideal because you can deny it and you don't have to give any more information. So I can say the idea that Mercer was buying us was not accurate at all. So we could just deny, deny and not worry about it. As it got close, the number of people that get involved, not within NEPC or within Hightower, but the different investment bankers, the law firms.

30:31It feels very confidential, but there's a lot of eyes that get on this thing. And it started to filter out again. And we were hearing from investment managers to our employees that there was something in the works. They didn't know exactly what. We were far enough along at that point that we could have sped things up to get things done, even though it felt like we were going as fast as we possibly could. Those were the external moments that we worried is something going to pop up here that really derails things or just gets us really distracted. I think there were a lot of internal moments too within the partnership, getting that buy -in.

31:02There were lots of points where partners wanted more information, wanted to be more involved. You just can't get everyone involved when it's something to that scale. So we had to spend some time. We had almost bi -weekly calls with our partners, just updating them, everything that was going on to keep them informed and help them feel like they were part of the process, even if they weren't in the meetings day to day. As you were building momentum towards getting to the finish line, were there any moments where you thought about breaking the deal? No, there were no moments where we thought about breaking the deal.

31:33There were moments when you get into the nitty gritty of a negotiation and you're getting down to details of various kinds and they're holding the line and you're holding the line and you think, oh, is this a partner I want to work with? If they're really this hung up on this, and they're probably thinking the same exact thing. And that was the point where it was incredibly helpful to have an external advisor because they could pat us on the shoulder and say, it's just the deal. These things happen all the time in these transactions, or this is getting slowed down by a week because of something they need to work on.

32:09And you're throwing your hands up saying, wow, we're there. Why are we worried about this? And they brought that external perspective of being involved in lots of deals and saying, it's going to be fine once you're working together. I think we've already seen that. There's just elements of getting through a transaction where you've got to hold your ground in different spots. And once it happens, everyone's on the same team. And that's the point where we are now. Simon, I remember there being a leak at some point in time. Walk me through what happened as you started to march down this process and word gets out.

32:40Yeah, that really stinks. I don't wish that on anyone. Obviously, the hindsight, it worked out okay, but we were really quite early in the process. We hadn't even narrowed it down to a handful of potential partners at that stage. And there was a leak, still don't know who leaked it, but it said all capital hires UBS to explore. They said a majority sale or something like that. And it was a proper, proper fire drill, starting with our employees. We had not shared the news, mostly because we weren't certain that we were going to do anything. We really didn't have a preferred partner lined up, and we knew it was going to be a big distraction to have the word out.

33:22So this had been a very, very tight group of internal partners who were aware even that we were having the conversation. So the first thing we had to do was tell all of our employees, partners on down, which we did in 24 hours, a little bit sequentially. And then we needed to reach out to all of our clients, which we did. And maybe with hindsight, that turned out to be a little bit of a blessing because we could say, look, we don't need to do anything. We're just exploring. There's nothing to deny because there was nothing super specific. We certainly said, yes, that is true. We hired UBS to help us explore, but we really don't know if, what, or with whom, where this process will take us.

33:57So when we did finally announce a deal, The clients had been warmed up to the idea, and we'd had months at that stage to talk to them about what it might look like. And it turns out to be the best version of that series of possibilities that we previewed with them. So after that initial fire drill, same question about your process. Points in time where you thought maybe it wasn't the right thing to do, maybe PassZone wasn't the right partner. Tim said it perfectly well. that tension that exists between what just feels like hills we're all going to die on. And in our case, they were the tiniest of hills, but they were important to us.

34:36It was never about economics or titles or things. It was little details that really mattered. Having bankers that have been through this before was very, very helpful. And in our case, Sarah, Eric, and I have worked together, Sarah and I for 23 years and Eric for 18 of those years. So having each other, we've got pretty different personalities, but we really know and trust each other well. And there were moments where one or two of us was at our breaking point and the second or third would step in and pull us back over the edge. We're going to take a quick break in the action to tell you about SRS Aquium.

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35:58Learn more at srsaquium .com. That's S -R -S -A -C -Q -U -I -O -M .com. And now, back to the show. So once you make this announcement, I'd love to walk through the reactions of various constituents. So Tim, why don't we start with your clients? Because unlike the leak that turned into a blessing, your clients probably didn't know anything at that point in time. That's right. So it was all hands on deck to call clients as close to at the same time as we could. We had a essentially two -hour window before it started going out through various channels. It was employees first, first thing in the morning, then clients, and then it started hitting the press and becoming public information.

36:44There's a wide range across our clients. You have those clients that you've been with a long time that have a lot of trust in you and take a lot of pride in the relationship they have with NEPC, the same way we take a lot of pride in the relationship we have with them. And some of them are excited for the new opportunity for NEPC. And that's great. Really happy for you guys. Let me know what I need to sign. You have other clients that are naturally more skeptical that want to dig in and ask a lot of questions and understand the rationale for it. There's a couple cohorts of clients that were unique in their reservations about it.

37:16One is any clients that we brought on in the last six to 12 months in any competitive situation where we didn't know if a deal would go through, we couldn't say it in that process. And you do feel terrible about that, that you can't be completely upfront and honest when you're trying to build a long -term trusting relationship and you're getting off a little bit on the wrong foot. Those clients appropriately were disappointed by that. But also many of them, whether it's folks on a committee or on an investment staff, they're professionals and they understand that you can't say anything. The other, and we're still trying to learn a lot from these clients, one of the places of really nice inorganic growth for us has been bringing on consultants from other organizations where maybe there was a merger that didn't go so well.

38:01So some of these clients have been told a set of promises by their consultants, by the consulting firm that they were working with, and have seen integrations not go well, have seen product pushed to them, or an aggressive push to get them to go to OCIO, even though upfront, they were told that that wouldn't happen. And they're working with some of the same people that they were working with then because it's people they trusted and they followed when they came to NEPC. But I can totally understand that, that if you've been through something that was pretty disappointing for a relationship that's really important to your long -term investment success, you're going to be skeptical when we're telling you, hey, we think this is going to be great.

38:37We do have a different setup where we're not going to be trying to sell products from a larger organization. We've tried to set up the structure of the transaction where we've still got ownership. We've still got all the things that keep our DNA in place, but it's on us to prove it to them now. How did you calibrate the expectations with Hightower of, say, what percentage of your clients were going to stay? Hightower has gone through a lot of acquisitions. they've acquired 140 advisor teams. So they understand that when you go through an event, you can press pause a little bit in the marketplace.

39:10So we had great conversations about that where they're willing to look past that six month period of maybe being in the penalty box. They also understand that churn is a natural part of any professional services business. You have a range of outcomes in all the clients that you work with, and you're going to have some where you just didn't make the best decisions for them. Maybe you went through the right process, but just bad investment outcome, even though it was well thought out, good decisions. So you're going to have clients at risk. This will accelerate some of those clients at risk. If we'd have natural churn of 3 % of our business every year or so, that probably accelerates a little bit quicker.

39:43Clients that were unhappy might go to a search a little bit faster. This is not a one -year relationship that we're engaging in. It's a lifetime relationship that we want to see be successful over the long term. So Simon, in theory, you're bringing your same investment chops with a whole bunch of added services. This is just even better for your clients. How did your clients respond in practice? Very similar to most are a version of, you know, if you're happy, we're happy. And they get the strategic rationale. And they importantly get that it's a way to keep the team together, hopefully for decades.

40:14The single criticism that keeps coming up is rarely well articulated. It's a version of they're backed by private equity and that's bad. And you're going to have some kid looking over your shoulder and you're going to have to learn about, they're called KPIs. And that it's just easy to hate, apparently, the private equity folks. Our experience, I must say, with Level Minic and Kelso, the private equity sponsors for Pathstone, has been great. There are much more traditional growth investors than PE. It is a growth story. I think that is, well, it's certainly clear to me when clients stop and think about maybe connecting the dots about how capital is required to innovate and add additional services, and that this really is a growth story and not a consolidation or a cost cutting story that come around to it.

41:03But that initial reaction of, I hate that there's private equity involved, runs pretty deep. So one of the things that neither of you said as a response from clients is a client just saying, great for you, what's in it for me? I think we've heard that a lot from clients. And Simon, it sounds like you're offering your clients some new services that you didn't have before. It's a little different for us where that institutional service of our business is, we hope, not going to be changed. But there's not a suite of tools that Hightower gives us that we're not already providing for those clients.

41:37So we don't have that easy answer for them to say, hey, here's this new thing you're going to get by us working with Hightower. So the answer is a little bit more nuanced. And what we've said is the reason why we're doing this is we think this can make us a more successful business over the long term. It can allow us to invest back into our business, to continue finding new great investment ideas, to pay our people well so they want to be here for the long term and you've got continuity with your team. The other thing is this is going to continue to happen. I don't think these are the last two firms that are going to tie up with RIA platforms.

42:13It is a growth story. There's a lot of tailwinds to the RIA marketplace that aren't in place for the institutional world where we're going to see more of these consolidations. And we know who our dance partner is when we're ahead on the race. And that's definitely a good thing for us. And we hope for our clients too. How about your internal teams? in both instances, by force, by design, there was some knowledge when the transactions actually got announced, had the teams respond? So we have 180 people, 125 clients, and we know our people really well. And I would say generally speaking, they responded exactly how their personalities would predict they would respond.

42:55There are some who just are wired to love a new challenge. All of them saw the industrial logic of the combination. But there's some who love a chance or some who are just wired to be afraid of change. Or we have a bunch of highly analytical partners who just wanted to go deep into the details of the deal immediately. As much out of curiosity as what's in it for me, there was a common, common thread of how are our clients going to take this? And is this going to be an easy story or a hard story to tell? And can I say it with high integrity and earnestly. They responded in a very, very human way.

43:30How did you navigate the trickier situations? The way we navigate everything at our firm. This is what happens when you have one and a half employees per client. You solve every problem as it comes. There were just a ton of one -on -one patient conversations with follow -up that our whole management committee basically put on their individual shoulders because that's what it took and talked to almost everybody at the firm. Tim, team reaction? Two points, because I think very similar, the full range of outcomes and in line with expectations down to the individual of how they would react. One funny thing that happens is our manager research team, they're dealing with things like this all the time.

44:11They're dealing with managers buying other managers, private equity, buying an investment manager or putting something onto a platform. So there was no BSing them. They went right to their playbook of questions that they would ask an investment manager. And appropriately, they had the natural skepticism that a manager researcher should have. And we didn't bother trying to bullshit them. Basically, we had to be honest and upfront as we would be anyway. But what it boiled down to for me, and it's something I've said to a lot of clients is we're on watch right now. We would put a manager on watch if they were going through a transaction like this.

44:43And we'd make sure over an extended period of time, we're monitoring them more closely. And what they said they would do is actually playing out. And if it starts to play out differently, then we've got to react to that and learn. Simon, I'm curious how you handle this with employees because I'm struggling with it. They're looking to us for all the answers. And there's a ton of stuff we don't have answers for right now. We're embarking on a journey and we're doing it all together. I don't know when we're going to roll out something to the RIAs. We're just getting to know some of these RIAs on the tower platform.

45:16So we're learning a lot and we're asking our employees for patience as we figure that out. And it's hard that we don't have all the answers, but that's the nature of this. Matt and Kelly said to us, we're going to figure this out together. And I don't believe that together was a throwaway comment. I think that is a true statement and I imagine it will be the case for you too. Tim, you mentioned that some of your manager research people who are used to dealing with this have these pointed questions. What are some of the most pointed questions they ask you? Simon made the point they got right to private equity ownership.

45:47So Hightower is owned by TH Lee. It's been a very successful investment for them. They've rolled it into a continuation fund. That continuation fund has a life on it and they'll have to figure out something. There will be another transaction a few years from now. We spent a lot of time with the TH Lee team, understanding how they view the Hightower investment, how they view the Hightower marketplace. It was part of what gave us a lot of energy and excitement about the RIA opportunity because they talked about how they still view it as really early innings and they want to be in this over the long term.

46:19So you don't know when that time comes. If they have end investors, they've got to realize goals for them, whether they will roll it or do something else with it. But look at it as just looking at the overall opportunity, regardless of what the ownership is, the fundamentals of the marketplace are really, really attractive. There'll be a lot of buyers for this that can work out well. Any other key questions? Wanting to get to know the Hightower management team and understand how they work and operate, how they work with advisors. And it's tricky because you want to give access. And we've had fireside chats between the CEO of Hightower's great, Bob Oros, and the head of our firm, Mike Manning, for everyone to listen in on and ask questions.

46:57So they've been great about giving us access. At the same time, the way we're setting this up, there's lots of folks at NEPC that shouldn't have to deal with Hightower at all, even post -transaction. They should be continuing to serve clients, continuing to work in operations, continuing to find investment ideas. So you want them to get comfort that Hightower is a great organization and they have great leadership, but you don't want them to get too distracted because it's not going to be part of their day job. Having gone through this deal process, I'd love to hear if your views of managers going through a similar process has changed and what you've learned that you would now use as a lens to look at managers?

47:38It's humbling. I hear the things that I'm saying and the things that I have a lot of conviction about in looking forward about this. And I hear managers having said that to me in the past. And I know the skepticism and the bullshit meter was running pretty high when I heard those things. Having lived it and experienced it now, I understand more of where they were coming from. But it's humbling because we don't know what the future holds. We're trying to get it right and we're trying to move forward in the best way we can. But things are going to be different than the perfect ideal of how we want this to play out.

48:10And I think that's where I hope our clients will give us the chance to prove to them that we're going to figure it out, that we're going to make decisions that are in their best interest, not just in our best interest. And I think when you have a really strong management team and a really strong partnership, you can make those decisions and hopefully drive it forward in the right way. Yeah, with our longest standing manager relationships, when they've done transactions of one stripe or another, they have basically said to us, give us a chance to show you that we're going to be able to deliver in the way that you expect.

48:40And it's easy to do that when you've got a 10 or 20 year relationship. And that is in effect what we're asking of our clients as well. And to Tim's point, somebody who hired you last Thursday, it's a tougher sell. And for clients that have been clients for a long time, I think their instinct is to hold us to a high standard, but let us show them that we can deliver. So the other interesting constituent in all this for both of you coming from the manager research side are your portfolio of managers who have seen this, but also they have a certain relationship that could bring some optimism if you're growing.

49:12So we'd love to hear what you heard from managers in your portfolio. Starting with when the leak occurred, we got a bunch of inbound calls from private equity funds saying, if this is true, we want in. So that was very flattering and validating. How'd you manage that, by the way? Don't call us, we'll call you. The part about hiring an investment bank is true. Let's let them. But anecdotally, as an aside, one of our private equity GPs that I won't name, but has been very, very active in the RIA space was extremely helpful to Sarah, Eric, and me. We sat down and he didn't tell us what to do. He asked all the right questions and just helped us think about the art of the possible.

50:01So that That was super, super helpful. Our managers have been happy, supportive, glad we're growing, happy nobody's cashing out. We can come back to that later. They've also had really terrific things to say about the people they've met over the years at Passed On, which was also quite validating. Tim, manager response? So I haven't had a manager say, I don't get it. What are you guys doing? Everyone thinks it's great. Managers are always flattering us and telling us how smart we are and how funny our jokes are. So that has continued through this process. Similar to what Simon was saying, managers are looking at the RIA marketplace and trying to engage.

50:40Some are already doing it. So in those cases, we got a lot of inbound calls saying we work with Hightower, happy to share who we've worked with. We think it's a great team, but happy to give you background on how to navigate the organization. And then those that haven't cracked the code yet on the RIA marketplace are super excited that we can be a channel for them to access that world. So consultants can be an access to scale for them. So they see this as a new channel for them and they're excited about it. So Simon, you opened the kimono by mentioning the words cashing out. You both have been working at your organizations for a long time, not being the original owner.

51:20How has the economics of this transaction impacted you personally? It requires a little bit of context at our firm. So we are about 80 % owned by 45 employees and 20 % owned effectively by our first handful of clients. And over the last 20 years, and truly great credit to Katie Hall, who founded our firm, the business has borrowed money back when you could borrow money for free and bought back the outside shareholders. Katie, her first partner, John Boymaster, and reissued equity in the form of these funky units that we have to employees. So we facilitated a full generational transition really eight years ago when Sarah and Eric and I took over managing the firm day -to -day from Katie.

52:11So fast forward to today, nobody owns 10 % of the business. It's really well distributed across a wide group of employees and some early clients. So the transaction itself, this is pretty unusual, although I've done now precisely well zero next week, hopefully one of these transactions. Every one of us signed the same deal. Now, there's earnouts and that stuff is different. But as far as the transaction next week, every single owner, including our clients and Katie and John and the three of us, all the way down to the vice president who was promoted last year and got her first units, are rolling the same percentage of our equity into Pathstone stock and receiving some cash.

52:53It is not solving a capital structure. So we're all taking some cash out, which I think is appropriate. And we've all worked at this firm for a long period of time, but nobody is using this as an exit, including Katie and John. And our clients are happy to be owners of PastOwn as they have been happy to be owners of Hall Capital for 20 plus years. So much is similar for us. We had a single founder, Dick Charlton, who made the decision very early on that he would share ownership, made the decision as he was stepping away to make sure that that ownership transitioned to a new generation. And in a very similar way, we've had that LLC model in place and didn't need to solve for an event.

53:35No one owns more than 6%, so it's very well spread out across 50 partners. What happens at least in our LLC structure is that longevity matters a lot. You build up that value as partners are retiring, the partnership collectively is buying that value back. So one challenge that we've faced in this is that you can have two partners with similar levels of contribution, one with 15 years in the partnership, another with five. They may own the same percentage of ownership going forward, but that 15 -year partner has built up a lot more value. So one of the things that we decided to do is to, in addition to make sure that every employee got a bonus, newer partners weren't participating in this to the same financial degree.

54:18So we carved out some of the proceeds and have put some longer -term retention bonuses in place to try to make them whole for not fully participating to the same degree that some of the longer -standing partners are. But that was part of why having that 20 % ownership, so we're still tied in, having high -tower equity, so we're tied into high -tower. We wanted to make sure that those incentives for long -term growth were still in place. So these transactions are very fresh in the process of closing. Simon, you mentioned earlier a lot of your current employees don't even know the people at Passstone yet.

54:51Walk me through your map for the first 100 days. The first 100 days for us starts on Monday. The president and CEO of Passstone will be in our office on Monday in San Francisco for a celebration, some swag, some meet and greet. This is not a, you know, let's spend an hour with your new boss kind of meeting, just fun and social. And then they live on an airplane. So this is common ground for them. They're going to jump on a plane and do the same thing in New York on Tuesday. And the flip days will be the integration team. So the head of human capital and the head of integration and the chief of staff, they'll be in New York on Monday and San Francisco on Tuesday.

55:32Then we're planning a boot camp for services in early January. So that'll be a few days. And then very conveniently, we have a wonderful cultural thing at our firm of every year getting the whole firm together in San Francisco. It's a proper, delightful, elegant dinner, and then it devolves into karaoke, which I tend to lead. And I don't love the iPhone era. But Pastone has a 15th anniversary party in Florida in May that coincides with when we would have done what we call our spring fling. So we're going to get the whole company together, 800 or so strong folks in Florida for that. And I think along the way, there'll just be other very intentional events.

56:13Pastone's done 15 acquisitions, not as many as Hightower, but it's not their first rodeo. And I think they're quite good at integration. Tim? A little different for us. We close in the new year. and where there's less integration. In a lot of ways, the Hightower advisors are NEPC's newest, biggest prospect. So we've got to figure out what their needs are and how we can take some of the strengths that we have and deliver on those needs. So we're starting on that now. We're having calls with those advisors to understand where they might have gaps in their portfolio, where they might have gaps in their investment process where we can help.

56:53There is an investment team at Hightower that's doing some of that work, but we can step in and play a different kind of role. So it's more of a early stage prospecting process for us with a mindset throughout that we want to do it right, not just do it fast. There is some need for speed here to show our employees and show Hightower, the advisors that we can deliver and that this was the right call to go down this path, but we don't want to make any suboptimal decisions just for speed of execution. So there's less integration for us. We're going to be our own operating entity. We'll still have the NEPC brand.

57:27So in some ways, January 2nd, nothing really changes for us for the vast majority of what we do. It's a learning process that will take place over, I think, multiple months before we're really ready to roll something out to the advisors. On the investment side, one of the aspects of any RIA roll -up is this large tail of manager relationships that every RIA comes in, might have a different manager than what it might have been on your platform. And I'm curious how you're thinking about your research platform going forward when you're attached to a long tail of investment relationships in place.

58:03That's something that Hightower has done a lot of work on already. Hightower has tilted towards, we'll leave you alone and let you be great at what you do. And there's really good things that come with that. And that attracts certain advisors because they can get new things from Hightower and get some structure and scale, but they don't have to change a lot, which means a very wide range of portfolios and managers to your point, Ted. Our goal on day one is not going to be to cover the world of Hightower's existing manager lineup. They've got resources and structure in place to cover that. Our goal is going to be to bring them new things that aren't in their portfolios.

58:41They are under allocated to private markets. There's a generational transfer happening within the RIA leadership where you have folks who led their RIAs from an investment perspective, and the next generation wants to be more planning oriented and wants to hand off some of the investment work. And that's where we come in. We do have to figure out when they want to look at new ideas, how we help them do that and how we direct them to what we think are the best ideas. But that's something we'll figure out over time. This is going to be a heavy lift for my partners, Eric and Jess and the passed on research team.

59:17But maybe starting with all firms are maybe particularly so already has a long tail of relationships. We have probably 100 relationships which are active and we're super, super engaged with, but we didn't feel the need to invent it here. And we have tax considerations and legacy private considerations. There are a thousand managers, at least, that we have some sort of relationship with. And we've got a pretty big research team. So that's doable. The art is going to be over probably a two or three year period integrating our research. The family clients that Pathstone works with, the client doesn't want a whole portfolio turnover.

59:57There is an expectation that they hired you for a reason and they're doing good research and the results are there. So it will take years to carefully integrate that process with a clear objective of having one research engine. So both of you alluded to private equity owners and that maybe this isn't the last transaction in your careers. How do you think about the future of your businesses now knowing there will be some other events down the road? It's super important to define what that event is. I have no interest in working at a different place. I've had the great fortune of working at one place for a long time.

1:00:35I'm really excited to join Pastone and I don't want to go and work somewhere else. And I think that is true with my partners. I absolutely expect that there will be more than one transaction at the private equity sponsor level. Somebody is going to come in and buy out the early private equity investors or just join as a third private equity sponsor of Pathstone to continue that growth. I think that is the likely next series of transactions. And that doesn't scare me at all. That's changing the capital base, hopefully adding strategic partners who believe in what we're doing and add value. Different story if Pathstone itself is bought by a different firm, becomes part of some gigantic investment management firm.

1:01:17I don't see that in the near future, if in the future at all. Very similar. I've learned a ton through this process, being deeply involved in a transaction. I hope all of these new skills and experiences that I've learned completely atrophy, and I don't have to apply them in any way going forward. There will be some kind of event for Hightower, the way that we've set up Hightower's ownership of NEPC, that should be a non -event for us at NEPC and our clients. And where the RIA world goes from here, who those potential buyers are, is it other larger PE players? Is it an IPO? Is it sovereign wealth funds looking at the recurring earnings and wanting to hold this as a strategic investment?

1:02:00Is it a strategic investor to scale up? I think that last one is probably the most daunting. And then the IPO is similar to being owned by private equity. Everyone just hates it and doesn't know why. So there's different layers to it. And I think predicting it right now is foolish because we just don't know how that world will evolve. But we'll look to do the things we've always done, serve our clients really well, work as a team to do it, and find great investment ideas. Having gone through this whole process with both of you in eerily similar paths in some ways with some very clear nuanced differences, I'm curious if you have any questions for each other.

1:02:35By the way, this is super reassuring. I feel like we've been going through this journey all alone. It's so nice to have a buddy. If I had known when you read our leak, couldn't you have just called me and be like, call a friend? I don't have a question, but it's more of a comment about you seem so confident in finding that right partner early on and just putting all of your eggs in that basket. I find that super admirable. Maybe just say a little bit more about how quickly you got comfortable there? We weren't sure we wanted to do something. So there was this process that went on where we were getting to know Hightower and figuring out if we really wanted to engage in a transaction.

1:03:18And they sort of crept along together at the same time. And by the time we figured out that this was the right strategic thing for us, we had gotten to know the folks at Hightower so well that it just felt wrong to bring in other players at that point. And we felt like having the external advisor validate that the financial terms were reasonable and at market just gave us some comfort that we were only going to screw things up if we brought other people into it and that we had found the right partner. But I'm curious for you the other way around. You looked at different players where there are moments where you thought, oh, well, that other girl at the dance was really pretty.

1:03:56Yes. I'm glad we started wide and narrowed because there were a bunch of really compelling opportunities out there that helped us make relative value decisions every step along the way. I agree completely. If we had to bring in somebody else near the end, it would have felt like we were cheating on a relationship. But being able to call rather than expand, I just found very helpful. My question is, what's your go -to karaoke song? Love Story, Taylor Swift. Nice. I'm a full -blown Swifty, so I love that. All right. I just want to close by asking you both what you see for the future of the industry.

1:04:33I think it'll be very hard to remain independent in the way that our firm was independent. No balance sheet, one revenue line, because the world is innovating really, really quickly. This space is innovating quickly. So I expect more combinations, more capital, more growth. the menu of investments and where that can go is going to continue broadening. So you go back five, 10 years and private markets were only for institutional investors and large family offices as well. But the high net worth marketplace had very little access to that. The retail marketplace had very little access to that. You think about where wealth is going, the number of high net worth individuals and families there are, the way wealth has tracked into defined contribution from defined benefit, you're going to have to be able to provide all possible investment solutions to all types of clients.

1:05:26And I would say 20 years from now, there's not many purely institutional or purely RIA or purely retail players. Everything is blended together, whether it's asset managers, advisors, or the end participants even. Tim, Simon, thanks so much for walking me through these fascinating deals and good luck to both of you on the success of these transactions. Thank you. This was great. Thank you for having us.

1:06:18Thank you.