David La Placa and Jay Casey are bringing the Silicon Valley start-up sensibility to the often slow-moving world of wealth management.
The San Francisco-based pair had been eager to go independent for years. They finally made it happen in 2015, leaving senior roles at Deutsche Bank’s private wealth management business to launch Intellectus Partners, an independent RIA that now manages $763 million in client assets, backed by Dynasty Financial Partners.
Not only have they cut ties with the banking and brokerage industry, they are also trying to distance themselves from the nomenclature that goes with it. Rather than calling themselves wealth managers, they prefer to say that they work in ‘wealth creation and preservation.’
‘“Wealth management” comes with a certain connotation, which isn’t always accurate. It’s unfortunate because of the broker-dealer and banking world that it came from,’ says La Placa, the firm’s chief executive officer. ‘We’re trying to redefine it a bit so we can have a more open discussion with the client.’
Breaking away was about more than just a name change though. It was also about independence.
La Placa had been anxious to start his own firm since the day he arrived in California as a vice president in the West Coast venture capital services division at Lehman Brothers. It was there that he spotted Casey, the top candidate in Lehman’s MBA program, who went on to work at his side after graduating from Duke University’s Fuqua School of Business.
‘The day I arrived in California was the day the Nasdaq peaked [in March 2000],’ La Placa recalls. ‘It was a seminal moment in my life because everybody had been making money in the ’90s. We would spend our time trying to get clients to do the right thing, but the wrong thing was what was working.’
La Placa and Casey were based in Menlo Park – now home to Facebook – between 2000 and 2004. As La Placa recalls, they were the designated ‘team for the internet’ and were given a long leash to figure out what was going on as they built wealth management services for executives at the top tech firms. La Placa and Casey also worked closely with venture funds, which wanted business from their clients.
Working with both groups gave La Placa and Casey a unique perspective. ‘Over time, we realized that they were each spending all their time trying to find each other. The venture capital firms (VCs) needed to know these entrepreneurs that were starting and IPO-ing companies, and when they didn’t want to be public executives anymore, they would leave and start a new company. We were working with those guys on a daily basis. The VCs, of course, would try to find these guys to fund the next Facebook or Google,’ La Placa recalls. ‘We sat in between those two cohorts.’
Under DB’s thumb
In 2004, La Placa and Casey left Lehman to join Deutsche Bank, this time as partners. They transported their VC-executive middleman model over, just as Deutsche Bank started to build up its technology investment banking division in California. However, the firm’s executives weren’t quite as keen on giving La Placa and Casey the freedom to enter as many new markets as they wanted, La Placa explains.
‘The market for secondary pre-IPO shares started to develop. We would go to management and say, “Here’s a new market that’s opening up. It’s an interesting opportunity that creates liquidity for executives and investment opportunities for other investors. Can we get involved? Can we build something within the firm?” [They’d say], “No, no, no, no, no,”’ he recalls.
‘We saw all these new opportunities. Today, we look back at them and go, “Wow, these are massive businesses.” We were seeing all of those develop while we were entrenched in Silicon Valley, but we couldn’t get traction from the firm.’
When La Placa and Casey left Deutsche Bank in June 2015, it was the conclusion of a breakaway process that had been on their minds since the financial crisis.
‘We probably spent 18 months to two years trying to figure out the right way to launch,’ La Placa recalls. He and Casey ultimately chose Dynasty, thanks to both a longstanding relationship with its chief executive, Shirl Penney, and the fact that they wouldn’t need to give away equity to raise capital.
‘We wanted to build it along the lines of the ethos of Silicon Valley,’ La Placa says. ‘We wanted to hire in a similar manner, to incentivize people in a similar manner and to build a high-growth organization and disrupt the industry.’
The personal touch
That ethos is reflected in the firm’s investment proposition and client base, which largely consists of entrepreneurs.
‘We construct the portfolios on a per-client basis. We figure out what their individual situation is in terms of cash flow needs, the risk parameters that they want to live within and the volatility ranges that they’re comfortable with,’ says Casey, the firm’s president. ‘We construct the cash flow portion of the portfolio and then we build out the growth components on top of that.’
The firm uses a series of SMAs to give clients exposure to equity and fixed income strategies, as well as a third-party platform to offer clients access to hedge funds, private equity funds and other alternatives from the likes of Millennium Management, Alkeon Capital Management and Third Point Management.
‘I would argue that Third Point founder Dan Loeb has become a bit more widely known as an instigator of late, but frankly he’s a great stock picker,’ La Placa says. ‘It’s difficult to find really good stock pickers in the equity market, given the advent of passive indexing. [Third Point] also tends to create alpha on the short side, so they often do well in periods of volatility.’
In a typical portfolio, clients get access to two or three SMAs and five or six hedge funds, along with some mutual funds and ETFs.
‘One of the themes that we look for, no matter what category it’s in, is a strategy that can participate when the markets are good and also protect assets on the downside. We’re always making sure that we have relatively small drawdowns compared with the general market,’ Casey says.
‘These strategies tend not to give up a whole lot of upside in an up market, but they do really well protecting on the downside. If you’re going to invest in a hedge fund, that’s what you need.’
The best of old and new
For Intellectus’ clients, it’s perhaps for the best that not everything in the portfolios is brand new. The firm’s relationships with some of its SMA managers extend back more than a decade. La Placa has invested with one manager, Florida-based equity boutique Polen Capital, for 20 years. ‘It’s a very tax-efficient, low turnover portfolio,’ La Placa says.
‘We’re typically looking for investment managers with very long track records,’ adds Casey, who notes that the firm usually meets with its external managers at least once a quarter, but rarely moves money around between managers.
‘We try to do a lot of work upfront and make sure that the internal processes within the money managers that we’re doing due diligence on are strong and that they have good risk management infrastructure.’
True to their roots, La Placa and Casey also invest directly in start-ups on behalf of their clients. ‘At a high level, it’s an area we know well. We’ve been around for a long time,’ says La Placa, who declined to name some of the specific venture investments that the firm has made. ‘For the past 10 to 20 years, the greatest amount of alpha has happened in the private market.’
The firm has invested in technology in another way too, building out a significant back-end architecture bolstered by alternative data to help the team make better risk/return assessments for clients.
‘Most of the people that I’ve talked to in the industry are afraid of [technology]. They’re afraid it’s gonna take their jobs and create price compression,’ La Placa says. ‘But I’ve never been so excited about this industry in my entire career.’