- In 2017, two private equity veterans started Cresset because they didn’t like their wealth managers.
- 4 years later, the Chicago RIA manages $27 billion thanks to aggressive recruiting and M&A.
- Cofounder Avy Stein shared the firm’s key to growth and its appeal to elite advisors with Insider.
In his own words, Avy Stein flunked retirement.
In 2010, the then-chief executive of a private equity firm was diagnosed with Stage 4 lymphoma. He decided to step back from Willis Stein & Partners in order to focus on his health, but he didn’t rest for long.
Two years later, an acquaintance and fellow private equity executive Eric Becker reached out to Stein. Becker’s daughter had died of leukemia, and he wanted retirement advice. The two became friends as well as co-investors in a few companies and real estate developments.
By 2016, they knew they wanted to start a company together. Both were dissatisifed clients of multifamily offices and wealth managers. Their chief complaint was lack of access to direct private investments. They decided to start their own firm, and after a year of research, they launched Cresset Asset Management in November 2017.
“Eric and I had life events that forced us to step back a little bit,” Stein, 67, told Insider. “Neither of us had planned to do that, and when we did, I think we gained clarity on what we really wanted to do, and that was to build something great.”
Less than five years later, the Chicago-based RIA has $27 billion in assets under management and a headcount topping 300. Cresset’s growth has been fueled by luring top advisors from household-name private banks and making five acquisitions, most recently buying the $5.4 billion wealth advisory firm Meristem in May. The firm is also expanding its private investment offerings, such as a new private credit fund.
Co-chairmen Stein and Becker were Cresset’s first investors and clients. The firm launched its family office arm a year after its founding, and making two acquisitions when Cresset was two years old.
“We wanted to build a firm that was built by clients for clients, unlike groups that spin out of a bank or wirehouse with a few clients. They’re concerned about profitability from the get-go,” Stein told Insider. “We weren’t concerned about building something – like any other startup – that wasn’t going to necessarily make money for a period of years. It was going to be built the way we wanted to build it.
Cresset uses creative compensation deals and equity to recruit top private bankers
When Cresset first launched, the firm initially sought higher-end wirehouse teams to build its advisory base, according to recruiter Louis Diamond, who has worked with Cresset. Since then the firm’s focus has switched to private bankers and acquiring RIAs. Cresset has hired top advisors from household-name firms including Bank of America Private Bank and Goldman Sachs.
“Even though their headcount is not as high as the private banks, the teams they are attracting are the top groups within those private banks,” Diamond said.
The firm can offer attractive custom deals, Diamond said. Enticements range from upfront cash payments, a bonus based on how much of their assets are brought over to Cresset, or a percentage of revenue.
Advisors also receive equity in Cresset, which is a big draw. Cresset’s ownership is divided 70-30 between employees, including Stein and Becker, and clients.
Cresset’s recruiting success has drawn attention. Last year, JPMorgan sued Cresset for hiring away at least 10 private bank advisors, including a $1 billion (AUM) team in Minneapolis. The suit was settled this past February. Cresset declined to comment other than acknowledging the settlement, and JPMorgan declined to comment.
Stein said that Cresset leans towards private bankers because they are used to working in teams with specialists such as tax planners and family governance experts while wirehouse advisors come from an “eat what you kill” culture. Cresset is still hiring, but Stein does not have a specific headcount goal.
Cresset’s calling card is greater access to private investments
Cresset does not have an asset minimum for clients. Stein considers Cresset’s main competitors to be multifamily offices such as Pathstone and Iconiq, which have asset minimums of $10 million and $25 million respectively.
Cresset’s clients are divided into three groups. Family office clients get all the bells and whistles from estate planning and bill pay to concierge healthcare. (One of Cresset’s security consultants extracted a client from Ukraine, Stein said.) Another group of less wealthy individuals only use Cresset’s asset management services. A third unit named “Cresset Catalyst” gives advice to young entrepreneurs who are cash-poor but equity-rich get advice before their liquidity event.
As Stein and Becker envisioned from the beginning, Cresset’s specialty is private investments, including private equity secondaries and primaries. It launched FlowStone, a private equity secondaries fund, in 2019, which now has $450 million in assets. Last month, Cresset raised $655 million for an opportunity zone fund.
The firm recently brought on Kevin O’Donnell, former head of private equity for Saudi Arabia’s sovereign wealth fund, to lead its private funds group. New funds in private equity, private credit, and venture capital are on the way, according to Stein.
“As we’ve grown the business, we’ve realized there is a limit to the amount of direct investing we can do,” he said.
Cresset has made five acquisitions without any private equity funding, unheard of in the RIA space
Cresset’s acquisition of Meristem comes with a South Dakota trust company, a wealth-planning gamechanger as the state doesn’t charge capital gains tax for assets held in trust. Meristem also has a strong presence in Minneapolis, Phoenix, and Naples, Florida. Cresset is open to more acquisitions, Stein said.
Despite Stein and Becker having worked in private equity for six decades combined, Cresset has no private equity funding. This is highly unusual for fast-growing RIAs. Firms such as $38 billion Mercer Advisors, which is majority-owned by Oak Hill Capital and Genstar Capital, have used investments to fund acquisitions and accelerate growth.
Cresset’s funding comes from the two cofounders and their personal capital, he said, but it has no “shot-clock capital,” referring to the countdown timer used in basketball and other sports.
Stein told Insider that Cresset might take private equity funding in the future, but that it will never sell a majority stake to a private equity firm.
“I think it’s really a problem in this industry to have capital that needs an exit periodically,” he said.
Stein and Becker have divided duties since CEO Michael Cole departed Cresset in July 2020 to start a networking club for the uber-rich. Originally, their plan was to serve as co-chairman, focusing on private investments, with a CEO managing the asset management business. With the departure of Cole and the onset of the COVID pandemic, they decided to would be best to take the helm.
The retirement flunkees will eventually step down, but Stein doesn’t know when.
“We feel that we still have a ways to go,” he said.