City veterans plan ‘merchant bank for mega-rich millennials’
Ex-UBS and Lazard banker Ken Costa and Jonnie Goodwin join forces
Just two months into his new role as co-chairman of family office Alvarium, Ken Costa, the City grandee and former UBS and Lazard banker, has done what he does best: made a deal.
Rather than advising on client mergers and acquisitions, though, Mr Costa has persuaded another veteran dealmaker, media and internet specialist Jonnie Goodwin, to join forces as part of his attempt to build a “merchant bank for mega-rich millennials”.
Mr Costa joined Alvarium in July as the investment manager, which advises on about £11bn in assets for funds and was formerly known as LJ Partnership, relaunched with a promise to help private family wealth get more opportunities to invest in corporate finance deals.
Now the group, which has 200 staff across eight offices worldwide, has announced it has bought a 49 per cent stake in Mr Goodwin’s technology-focused merchant bank Lepe for an undisclosed price. Under the terms of the deal, Mr Costa is to become chairman of Lepe, while Mr Goodwin will remain chief executive of the boutique.
It is another line on the CV of the seasoned dealmaker, who was last year appointed by Prime Minister Theresa May to advise Saudi Arabia on its economic strategy as the UK sought to lure a potential Saudi Aramco float to London.
Mr Costa argues that rich millennials prefer to take a more active role in managing their money. This includes seeding smaller growth companies — many of which come from the technology sector — as well as co-investing with asset managers in bigger deals.
“Big banks have become discredited for their lack of ability [to cater] to the next generation,” said Mr Costa. “This generation wants to be more exposed and more involved . . . A flexible, more skilful and light-footed investment bank is going to emerge.”
Through the partnership, Alvarium and Lepe hope to work on such deals together and also deploy capital into deals involving each other’s clients. Set up in 2012, Lepe offers corporate advisory services focused on the media, technology and consumer sector. It also runs its own principal investment fund that has invested in nine venture growth investments and had two exits, Treatwell and Chemist Direct.
Mr Costa, 67, seems an unlikely champion of millennials and technology. Still, the new venture will provide “good old-fashioned corporate advice in the old-fashioned way”, he said. As Lazard chairman, he brokered the £1.5bn sale of Harrods to the Qataris in 2010.
This hands-on, “multi-boutique asset manager” model strikes a stark contrast to the move by others in the private banking industry towards offering cheaper, fast services online and areas such as “robo” management advice.
But it also comes as Europe’s tech sector, once dwarfed by Silicon Valley juggernauts, matures— prompting a wave of initial public offerings.
Data from Dealogic show the number of IPOs of European-headquartered tech companies outpaced those from the US in each of the past four years, and rose 34 per cent last year to 59. Notable flotations in 2018 include Dutch payment processor Adyen and Czech cyber security firm Avast, with UK peer-to-peer lender Funding Circle in the pipeline.
For Mr Goodwin, the Alvarium collaboration is a bet that London will continue to provide a steady flow of tech exits — despite the prospect of Brexit.
“These businesses want the skills, they want the backbone of the English language, they want the relationship with America and the rest of the world,” Mr Goodwin said. “London remains the number one hub [in Europe] by a long way and will continue to be so.”
The move into tech represents a change in direction for Alvarium, which was originally set up in 2009 after the financial crisis to take advantage of the shift by the wealthy towards real assets such as real estate. “We are . . . pivoting our core disciplines in financial and real estate assets to encompass new sectors and strategies,” Alexander de Meyer, Alvarium’s chief executive, said.
As part of the shake-up, Ali Bouzarif, the former head of investment execution at the Qatar Investment Authority, joined the group as a partner. New York-based family office Dilmun group, which was originally from the Gulf, took a 40 per cent stake in the company. Both Mr Bouzarif and Alvarium’s co-founder Edward Lawson Johnston will also join the board of Lepe.
To date, Alvarium has invested £2.2bn of equity, primarily in property, and says its net internal rate of return, a closely watched measure of performance, stands at 25 per cent. Revenues in 2018 will be more than £50m, Mr Costa said.
Lepe, by contrast, is petite. The 14-strong firm booked £1.8m in operating profit in 2016, according to its latest Companies House filing, on £6.3m in revenues. Mr Goodwin said the company reached double-digit revenues last year.
But teaming up will give Alvarium access to the Mr Goodwin’s bulging contact book. The 45-year-old has worked on about 150 transactions over the past 15 years, including for the BBC and the Telegraph. He built investment boutique Longacre Partners before it was sold to Jefferies in 2007, and set up the Founders Forum, a private network for tech entrepreneurs.
For inspiration, Mr Goodwin looks to Allen & Company, the US merchant bank that was among the 10 underwriters of the Google IPO in 2004, and advised Facebook on the WhatsApp acquisition and Time Warner on AT&T. “I like that it’s never sold and it’s a brilliant advisory practice that’s continued to help families and entrepreneurs,” he said.
But finding the right talent is one of the biggest challenges ahead. “Some banking is now more product driven. We are not looking for a big brand bank sort of person,” he said.