Episode 115: Karl Heckenberg, Founder of $1B platform Constellation Wealth Capital, on Billion Dollar Partnerships, Founder-Led Firms, and Why People Matter More Than Performance

Written By Stacy Havener

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People matter more than performance. Yes, even in a numbers-obsessed industry. 

Take it from Karl Heckenberg, founder of Constellation Wealth Capital, a $1B platform that takes minority, non-controlling stakes in large RIAs and wealth management firms.

Yes, he understands the numbers and mechanics behind investing. But what actually sets him (and his fund) apart is the fact that he builds real partnerships. 

In this episode, he sits down with Stacy to talk about:

  • His backstory: from investment banker to CEO, and how he built a $1B platform by betting on people

  • Why founder-led firms outperform (and how Constellation supports them)

  • What makes a capital partner “friendly” (and what doesn’t)

  • Ownership and succession blind spots in wealth and asset management

  • Lessons from 40+ deals that apply to any founder looking to grow

  • The real ROI of relationships, connection, and shared values


More about Karl:
Karl serves as the President and Managing Partner of Constellation Wealth Capital. Before founding CWC, Karl was the CEO of Emigrant Partners and its affiliated company, Fiduciary Network. His career in the financial services has taken him to renowned institutions like Merrill Lynch, A.G. Edwards & Sons, Wells Fargo, and Charles Schwab. Karl has also contributed his expertise to several boards, including Sarasota Private Trust Company, New York Private Trust Company, and Cleveland Private Trust Company, and is currently on the board at Alternative Fund Advisors. He also held the position of Vice Chairman at Emigrant Bank and chairs the CWC Investment Committee.

 A Washington, D.C. native, Karl is an alumnus of Saint Joseph’s University in Philadelphia.


Books Mentioned in This Episode:

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TRANSCRIPT

Below is an AI-generated transcript and therefore it may contain errors.

[00:00:00] Stacy Havener : The wealth management and investment industry is about numbers and math. Okay? But the funny thing is, when you talk to the most successful leaders in the space about their story, numbers don't really have a starring role. People do. The Art of Connection does. Carl Hackenberg is the founder of Constellation Wealth Capital, which has raised a billion dollar fund to take stakes in large RIA and wealth management firms.

[00:00:31] Stacy Havener : Minority non-controlling stakes partnerships between people. That theme of people doing business with people runs deep in today's episode because building something special. Does require numbers in math and operational excellence, but more than anything, it requires people and partnership and founder inspired passion.

[00:00:57] Stacy Havener : Carl has been in many different parts of the wealth [00:01:00] and investment ecosystem. He understands the math and numbers side at a deep level, but he also knows that any of the best business partnerships start with connection and friendship. He's not only investing in businesses, he's building one, and it's pretty darn special.

[00:01:17] Stacy Havener : Today's conversation on the challenges and opportunities of scaling a successful business will resonate with wealth management and asset management friends alike. Let's go meet my friend Carl. Hey, my name is Stacey Er. I'm obsessed with startups, stories, and sales. Storytelling has fueled my success as a female founder in the Toughest Boys Club, wall Street.

[00:01:44] Stacy Havener : I've raised over 8 billion that has led to 30 billion in follow-on assets for investment boutiques, you could say, against the odds. Yeah, understatement. I share stories of the people behind the portfolios while teaching you how to [00:02:00] use story to shape outcomes. It's real talk here, money, authenticity, growth, setbacks, sales and marketing are all topics we discuss.

[00:02:10] Stacy Havener : Think of this as the capital raising class you wish you had in college mixed with happy hour. Pull up a seat, grab your notebook, and get ready to be inspired and challenged while you learn. This is. The Billion dollar Backstory podcast.

[00:02:30] Stacy Havener : Let's be real. No one wakes up and says, I can't wait to build some operational infrastructure today, you are here to manage money to build something that lights you up, not chase down reports across five systems and 15 service providers. That's where Ultima's Fund solutions comes in. They're your ops dream team, consolidating all your middle and back office chaos into one clean, scalable setup.

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[00:03:52] Stacy Havener : That's U-L-T-I-M-U-S. You've got the investment strategy, the vision, the [00:04:00] track record. Now it's time to upgrade the engine behind it all with Ultimas.

[00:04:07] Stacy Havener : Carl, thank you so much for being here. This is a real joy for me because I have heard so much about you from people in the industry, from your team, yet we've never met. So we're inviting podcast listeners in on like the initial coffee chat of Carl and Stacy, which is happening right now.

[00:04:26] Karl Heckenberg: That's right.

[00:04:27] Karl Heckenberg: Excited. Thank you.

[00:04:28] Stacy Havener : Yes. So since this is a podcast about backstory, that's where I'd love to start. I'm gonna let you take it where you wanna take it, but for me, I always find it interesting to ask this question. Did you always know that you were going to be an aggregator of registered investment advisory firms?

[00:04:50] Stacy Havener : Like when you were a kid, was this like your life?

[00:04:54] Karl Heckenberg: I'd love it if somebody said yes to that. Um, and to be clear, I'm not an aggregator. [00:05:00]

[00:05:00] Stacy Havener : Oh, okay. So good. This is already getting interesting. Go Carl. Correct me. What do you call yourselves? Look,

[00:05:07] Karl Heckenberg: we're a specialty investor in wealth management firms. Okay. I mean, that, that is what we are, we don't consolidate or aggregate anything.

[00:05:14] Karl Heckenberg: Um, look, I always joke, I was a fine student. I was an exceptional student. Mm-hmm. I went to a nice college. I didn't go to a great college, and I think my father wisely suggested that, you know, I, I have the broad range of. Choice of majors, either, you know, accounting or finance. Uh, so practical,

[00:05:34] Stacy Havener : something practical.

[00:05:35] Stacy Havener : Yeah. Yeah, yeah.

[00:05:35] Karl Heckenberg: Yeah. And, and I think he knew I wasn't gonna be a philosophy major, um, or at least be able to make a good living as one. Yeah. So I graduated with a degree in finance. I got an internship for Merrill Lynch. I ended up turning that into a job when I got outta college and I, I, it really started as a lender in this space.

[00:05:54] Karl Heckenberg: I joked to you when we were chatting earlier, like, you know, at the time this was like [00:06:00] 97. Okay. And I would say back then, you know, investment banks had multi-year kind of rotation programs. They really don't have those anymore to the degree, but it was, it was multiple years. I was starting out on the credit side, so I, I started on the kind of leverage finance side and you know, you really got to learn every part of the chain, right?

[00:06:21] Karl Heckenberg: So obviously origination is part of it, but then you learn servicing, you learn the workout. Like you just learn what happens when things don't go well, which, ooh,

[00:06:30] Stacy Havener : ooh, yeah.

[00:06:31] Karl Heckenberg: Helpful. And as far as industry, I, I joke, you know, in in the late nineties, the least sexy thing that you could be involved in was financing financial institutions.

[00:06:41] Karl Heckenberg: And it was, everybody wanted to focus on tech, of course, and Merrill Lynch's. Pretty much largest relationship at the time was Yahoo. So, like I said, I think being that kind of average student, I ended up in kind of the least sexy space. But, you know, it was, it's interesting starting as [00:07:00] a lender, because I got to know, you know, back then really wealth management was regional broker dealers.

[00:07:05] Karl Heckenberg: Mm-hmm. And our house banks a little bit. RIAs weren't really a thing. They certainly weren't convincible, um,

[00:07:12] Stacy Havener : right. They were small.

[00:07:14] Karl Heckenberg: You know, and, and really through my career, I, I eventually kind of moved over to the equity side, but I spent about 13 years as a lender. Like, it's interesting because I think that's part of what's worked for me over the course of my career as an equity investor is.

[00:07:29] Karl Heckenberg: I remember the space from the nineties, right? Yeah. Like I remember, you know, when everybody was sliding tickets into the cage and you know, you were getting your commission runs and I remember LPL being Linco Private Ledger. Me too. Yeah. Just all of these businesses, you know, Merrill Lynch was, you know, where he bought, you know, Warberg Perry, Bob Becker, you know, there's just all these iterations and changes Yeah.

[00:07:55] Karl Heckenberg: In the industry and. I'm one of the few people that comes [00:08:00] in when, when we meet with management team, particularly when these guys have been around themselves for, you know, 30 years, which generally most of 'em have been, there's just a lot of shared experience. Yeah. Right. Like it's, you know, being able to talk about the change from American Express to Ameriprise or you know, all these different things.

[00:08:18] Karl Heckenberg: But yeah, that's really how I started where I ended up. Yeah. It's been a lot of fun. It's been three decades now, so it's, um, you were saying, you know, it's such a hot space. It really wasn't until, I mean, honestly, I like draw a line in the sand around 20 18, 17, like it's only been the past five, six years.

[00:08:39] Stacy Havener : Yeah.

[00:08:40] Karl Heckenberg: It really hasn't been much longer than that.

[00:08:42] Stacy Havener : So. When did you make the leap? You were doing lending, you're on the credit side. I remember these times. Well, which is sort of a pull from like Seth Godin, who's marketing, you know, guru has this quote, which is about like when you have a tribe, when you have like a group of people who [00:09:00] have shared experience and it's like, people like us do things like this or people like us say things like this.

[00:09:05] Stacy Havener : And we remember those times. I mean. In the green room, I was saying like, oh, I've gotta turn my Polycom on do not disturb. And like if you were of that time, you wouldn't even know what the heck I was talking about.

[00:09:16] Karl Heckenberg: Right.

[00:09:17] Stacy Havener : So talk about the transition from Merrill as lender and kind of in that credit space into equity, because I know there's stuff in between.

[00:09:29] Karl Heckenberg: Yeah. So I ended up at Charles Schwab for five years, and that was really my first kind of exposure to the RIA space. Okay. And, and at the time, Schwab was, I think it was 2 trillion. Uh, you know, now I think it's 10. I may be wrong, but like, you know, and, and a lot of that was RIA custody, right? Mm-hmm. And you know, this is at a time when you're talking about.

[00:09:54] Karl Heckenberg: Post GFC, but early days Iow focus. Mm-hmm.

[00:09:59] Stacy Havener : Okay. [00:10:00]

[00:10:00] Karl Heckenberg: I ended up stepping into the fiduciary network, United Capital, you know, all of those kind of pioneers. And you know, through that I got exposure to a family in the Midwest and they had bought a large regional broker dealer from a bank. Okay. I was just talking to 'em through an introduction over a period of about a year, about what to do with this asset.

[00:10:22] Karl Heckenberg: They eventually asked me if I wanted to come work for them. I think a lot of families. Cool. It's interesting because I ended up working, obviously for the Milstein family. Mm-hmm. Great. New York owns immigrant bank, but they're very similar. I think a lot of families, they don't like the equity pitch. What they like is, are you gonna lose the money?

[00:10:41] Karl Heckenberg: And if you can answer, you're not gonna lose the money then anything on the upside is great. That's fine. Yeah. And I think speaking that language as a lender was very helpful. Ah, with this family thinking about A how not to lose the money. Yep. And really then generated return. [00:11:00] Strangely how I met Howard was while I was working at this family office, this other, um, Howard had a trust company and you know, he was looking to buy a trust company that we had and we got introduced and it was kind of the same conversation.

[00:11:14] Karl Heckenberg: I mean, Howard is a very good banker. He is a very good lender, and I think we just kind of connected on that. And then it was really, you know, what's the opportunity? But I think a lot of these things just come about organically. Yeah. I've always been a believer anytime somebody wants to talk, whether I know him or not, and you know, this is such a small space.

[00:11:36] Karl Heckenberg: Yeah. Right. Like it's amazing the relationship that led me to Howard, which was transformational for me. Was a very random relationship through a trust company years earlier, and this guy and I stay in touch and I'm talking to him again next week. He's, he's long since left immigrant. But it is a small business and I think being helpful where people are at different stages is really what has led [00:12:00] to a lot of constellation success.

[00:12:01] Karl Heckenberg: But you know, just even me personally.

[00:12:04] Stacy Havener : It's such a great point and I wanna put a pin in this for people listening because I think especially, and we were talking a little bit about what the world has become, sort of post COVID and zooms and all that stuff, and being in finance and investing, this is like a numbers biz, right?

[00:12:20] Stacy Havener : That's what everybody says. But my challenge to that is always actually it's a people business. 'cause every business is a people business. Yeah. And that art of like. Just meeting and having a cup of coffee and staying in touch with people, not just over Zoom or like on LinkedIn or whatever, but like actually sitting down and as two people that is feeling like it's getting lost.

[00:12:48] Karl Heckenberg: Yeah, I mean so much of this industry, it's kind of either people my age or older or people kind of in the thirties and I think everything happened so fast, it's viewed as very transactional. Yeah. [00:13:00] Relationships priority and I would actually, I would go as far to say, I think that's a lot of our success in this business is, that was my

[00:13:08] Stacy Havener : question.

[00:13:09] Stacy Havener : Mm-hmm. You know,

[00:13:11] Karl Heckenberg: it's generally when we meet a team, it's not the first time we've met 'em. Mm-hmm. Like through a process. There's probably, whether it's myself, pat, who leads our investment team, or Lisa who leads our advisory team, like there's probably some level of connectivity. We probably worked with somebody, help somebody out, place somebody, uh, just giving them advice.

[00:13:33] Karl Heckenberg: But I think that's the big thing, like when we're meeting with an RIA, I always joke if we're like the 20th management meeting they've taken in their process. The good news is we don't have to spend 45 minutes talking about their business. Right? Like we know their business. That's right. We, we know where they started.

[00:13:51] Karl Heckenberg: We know how they built it with who they built it. We know where partnerships didn't work out. Like so when we sit down, we actually can have a really productive conversation. [00:14:00] And I think going back to that transactional, I think a lot of my peers on the capital side come in and I think they really just try and say, here's how much money we're gonna make and here's how we're gonna do it.

[00:14:11] Karl Heckenberg: And that's fine. But there were 18 guys through the door that had that exact same pitch.

[00:14:18] Stacy Havener : Exactly.

[00:14:19] Karl Heckenberg: It's like, well I don't know if you rolling up insurance brokers, you know, 10 years ago is really relevant. But, but I mean, you laugh, but like that is the pitch. That's, you know, we had a lot of success rolling up insurance brokers and you know, I'm fortunate enough to say between my work at Immigrant and Constellation.

[00:14:38] Karl Heckenberg: I've been investor in over 40 different RIAs, you know, just in the last six or seven years a lot of those firms have gone on to be firms like Pass Stone and Ity and you know, so on and some great

[00:14:48] Stacy Havener : names.

[00:14:49] Karl Heckenberg: Yeah. But, but also just like great people. Yeah. Like I still absolutely Steve and you know, we still talk to those people and I think that's where that level of look, [00:15:00] I always say, you know, the numbers are pretty efficient in this business, right?

[00:15:04] Karl Heckenberg: Mm-hmm. Like the valuation. Good or bad is going to be the valuation. We don't get a discount. I think what we do is we get the deal, right? Because we can add beyond the m and a side. It's, hey, you know, and this came out with the merit press release last week. You know, they were talking about, look, they were the first investor to talk to us about organic growth.

[00:15:25] Karl Heckenberg: Like how do we make the business better, right? Yeah. 'cause m and a is inconsistent at best, right? Like there'll be times where buying

[00:15:32] Stacy Havener : growth. Yep.

[00:15:34] Karl Heckenberg: Yeah.

[00:15:34] Stacy Havener : But there's

[00:15:35] Karl Heckenberg: gonna be boundary. You just wanna sit it out. And you know, frankly, the platforms that command the best multiples are the ones that are growing the best organically.

[00:15:44] Karl Heckenberg: And I think you, the only way to be additive to those organizations is to really, truly understand them. I don't think you can do that if you've made one or two investments previously. You know, you have to be able to sit down and talk about what are you doing on digital? What are you doing on equity comp [00:16:00] planning?

[00:16:00] Karl Heckenberg: Yeah. What recruiters are you talking to? What m and a advisors, and it's all these things, but it's also like, do you have the right management team? Right. Do you have the right people in place for the next five years? Like if you don't, let's be honest about it. So I think particularly with Lisa's team and Pat, his team, like the ability to just.

[00:16:18] Karl Heckenberg: I think we talk to every firm, some part of that organization every day, which is extremely rare. But also, you know what, we're pitching ourselves as the only value add investor. So you, you know, I always love that one from, you know, your, your mouse right. And checks your body can't cash. Like we have to be able to cash them.

[00:16:37] Karl Heckenberg: Yeah. And, and we. Be able to add value, whether it's the largest businesses, like a Al Alter, your Crescent, or Alito, or you know, the businesses that are really kind of these emerging amazing businesses that are three to 5 billion, like Yeah. Have to be because they, they want help, right? Yeah. And that's what we're there to do is to help make those better businesses.[00:17:00]

[00:17:00] Stacy Havener : So well said. And I, and I think it's true that, you know, every business, regardless of the size route, wants to grow. And if you can help them do that, that is an incredible value add. I think the challenge is to your point on organic growth versus, you know, acquisitive growth, et cetera, it's how you're gonna get there and is there a certain type of growth?

[00:17:23] Stacy Havener : We'd maybe say is better than another, but let's say different. There's different ways to grow and your expertise and your team's expertise in organic growth. Organic growth. I think for an advisor, incredibly difficult. I mean, it's difficult for asset managers. I think it's actually more difficult for advisors because the service is very same.

[00:17:46] Stacy Havener : Like here, you know, we're gonna help you like. Prepare for retirement, grow, you know, whatever. Here's a financial plan. Like how? How different can you make it? But there's such opportunity in that to [00:18:00] specialize. Wouldn't it be cool if you could diversify your investor base and add some non-US investors?

[00:18:06] Stacy Havener : Europe could be fun, or Latin America, maybe Antarctica. Hey, icebergs aren't really my jam, but you never know. You've only got one problem. How the heck do you do that? Fair question, but maybe this is a who not how thing. Meet my friends at Gem Cap. Not only do they handle all the back office stuff, the how, they'll also solve the who in your distribution conundrum.

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[00:19:31] Karl Heckenberg: Yeah,

[00:19:31] Stacy Havener : so I'm curious. You mentioned some of the groups that you've done deals with, and I love that it's a people business, which I would so agree with, but how do you decide, because I think there's also what we forget is that you know, they're ding you, your diligencing them, so it's both ways. And so what are some of the things that you look for in an advisor that you value in that?

[00:19:58] Stacy Havener : In that partner? [00:20:00]

[00:20:00] Karl Heckenberg: Yeah. Even before I get to that, I would say. Firms actually need to get better at diligence saying who they're partnering with. Oh, great point. 'cause I would say they, they spend 95% of the time thinking about their own transaction and their own deal. And you know, and we've seen this with a couple of private equity firms where the original deal teams are all gone.

[00:20:19] Karl Heckenberg: Um, you know, because to your point, it's a very hard time to be a mid-tier. Private equity firm. Oh, you know, you're either Apollo, Aries, blue Wild, Blackstone, or you're a specialist. Yeah. Um, and I think you gotta kind of pick your, you gotta pick, but I think, you know, for firms, I mean, look, I would say there's the quantitative, which is we have see firms growing.

[00:20:43] Karl Heckenberg: I would say at least seven to. 12% organically. So net of market contribution, net of m and a. Okay. That's a high bar. And there's not a lot of firms that honestly, when you really get into the numbers, meet that so that that knocks most people out.

[00:20:57] Stacy Havener : Mm-hmm.

[00:20:57] Karl Heckenberg: The other things that we look for, like, is there [00:21:00] concentration around, not clients, but like advisors.

[00:21:03] Karl Heckenberg: We look at how, how diversified is the equity ownership? What is the intent of the equity ownership? Because I'm not interested in investing in a business with two shareholders outside of ourselves, right? Like that's not the point. I don't think you get good outcomes, and I think a lot of these big platforms that have a controlling investor call it 70, 80, 90% of the equity.

[00:21:25] Karl Heckenberg: To your point around people, businesses, and this is why we always say we're only minority investor. You have to. Your best form of downside protection is them having 90% of their net worth in the equity. And then you have to make sure the people that are contributing the revenue with the business are tied into the equity.

[00:21:42] Stacy Havener : Yeah.

[00:21:43] Karl Heckenberg: And if they're not, I think that's where, you know, we've started to see it with some of these really big platforms. Teams are breaking off. They've recreated these large organizations where essentially all the advisors are just employees. And we've seen how that played out. I mean, again, going [00:22:00] back to working in the wirehouse space in the nineties, oh three thousands, you get too big.

[00:22:04] Karl Heckenberg: People start doing the math and they go, well, I can just take my 2 billion, start my own firm and you know, screw this, like I don't need it. And they don't do that if they're a partner in the business. Right. And I think that's a point that is broadly missed by a lot of other capital providers is it is a people person.

[00:22:22] Karl Heckenberg: There really are no assets in the business other than the people. And you have to create these really good incentives and alignments. And I think we're pretty candid about that in the meetings. If somebody says, Hey look, we're gonna sell this thing in five years and I wanna own all the equity. You know, I would say where we're a little bit different is we'll say, look.

[00:22:41] Karl Heckenberg: You're not gonna get a good price if you own all the equity in five years outside of us. Like if it's you and us and we're exiting and you're gonna be 60 at that time, nobody's buying that business, right? Like you could have a heart attack at 61. Like, you know, what they wanna see is 20, [00:23:00] 30% of the business.

[00:23:01] Karl Heckenberg: I would say almost minimum. Is owned by the younger advisor base, right? Yeah. So it's not even just diversified among a bunch of, you know, guys and girls that are, you know, 55, like they wanna see something the next

[00:23:13] Stacy Havener : gen too. And yeah,

[00:23:15] Karl Heckenberg: it's many generational firms that think about equity, but I think when you can put in that high organic growth, good equity, ownership, I do think you get to a place where.

[00:23:26] Karl Heckenberg: This is something we pound on a lot, and I don't think anybody else talks about like, this space is growing so fast because of a lot of tailwinds that it has, right? Mm-hmm. Retiring, you know, aging advisor base. You know, if you just look at the story of creative planning, which is probably the best success story in this industry.

[00:23:43] Karl Heckenberg: Like that just goes to show the velocity of growth in this space. The thing that I always remind the firms and the CEOs of is that higher growth is a bit of a curse because it almost ensures nobody can stay independent for forever. You know, there, well, you unpack

[00:23:58] Stacy Havener : that a little bit. [00:24:00]

[00:24:00] Karl Heckenberg: Well, so you know, I mean, this happened a lot.

[00:24:02] Karl Heckenberg: This is why a lot of the investment banks went public when they were partnerships years ago, which is the average advisory firm probably has three to five owners. They're probably within five years of age. Most of 'em don't think about taking on a capital partner. Most of 'em don't think about really equitizing other people.

[00:24:23] Karl Heckenberg: But also if you're growing at 30, 40% a year, which a lot of our firms are, or more. It's very hard to equitize enough people because the valuation of the business is growing at 30 to

[00:24:34] Stacy Havener : 4%. Ah.

[00:24:35] Karl Heckenberg: And so you end up with these highly concentrated ship base with these assets that are suddenly worth 3, 4, 500, a billion dollars, and.

[00:24:46] Karl Heckenberg: Look, eventually people need to get their money out.

[00:24:48] Stacy Havener : That's, that's it. And, and the younger, the gen two is like, I can't afford to buy into this thing. Is, is that part of it I'm imagining? Yeah. Yeah. Okay.

[00:24:59] Karl Heckenberg: I would say, you know, [00:25:00] so when you look at like internal valuations, those are based on kind of real numbers at call it a seven to 10 times multiple.

[00:25:08] Karl Heckenberg: Okay. External multiples are double that, if not triple in some cases. You also then have large shareholders inside these firms that are just saying, look, I'm not selling my firm at a 60% discount. Right. Like, and so I, I think just sitting down with the firms and we do it across the generations, I think we do a really good job, even pre-deal of talking to Next Gen about what the next five to seven years.

[00:25:33] Karl Heckenberg: Yeah. And just being candid about it, right? Like if the firm keeps growing, like what do you want to do? What do you wanna own? I mean, all those things. But then putting in some type of incentive plan for them, whether it's real equity, it's shadow equity, it's profits, interest, whatever that gives them some of the upside growth, keeps them incentives.

[00:25:55] Karl Heckenberg: But I mean, that is one of the downsides of this space is it is growing so [00:26:00] fast. It's very hard in a people based business because then you get into these weird dynamics where, you know. If people don't retire, you have 70-year-old partners that own 80 90% of the equity that aren't contributing any of the revenue.

[00:26:15] Karl Heckenberg: And then the younger people are pissed, you know, and, and it's like, I'm gonna leave. So I always say half of what we do is therapy. Right.

[00:26:22] Stacy Havener : I, I see that on the asset management side too. I'm like, yes, Carl. And you know, actually as you're talking, there's so many parallels. Oh yeah, between the asset management side and the advisor side, especially when you're talking about, you know, boutiques and specialists where the founder owns all of the equity.

[00:26:42] Stacy Havener : And I often say like the phenomenon of that growth, when you think back to like your story from Merrill and people are like, well, I could just spin out and do my own thing. You know, the bigs, their success actually creates the next round of entrepreneurs because. They usually don't do a [00:27:00] great job, as you're saying, of figuring out how to keep those people happy.

[00:27:04] Karl Heckenberg: Yeah. I mean, it's interesting when you raise capital as an asset management business, the diligence process that investors put you through. You know, if RAs were subject to that by their clients, it'd look very different. Right. You know, I, I mean, if I think about all the, I'm 50 years old. Yeah. If I have to answer another question, you know, if not weekly.

[00:27:26] Karl Heckenberg: You know, who's my successor? What happens if I get hit by a pie truck? Like, how's the equity ownership work? Like how, how does this work? How does that work? And you have to have like real answers. You can't just it up in a questionnaire. You have to say, here's what happens. And. I think that's some of the discipline.

[00:27:43] Karl Heckenberg: I mean, I have to deal with it in my own business and you know, we try and impart on 'em, and I think a lot of that discipline is never enforced upon the owners of these businesses. Because again, going back up until seven years ago, these weren't highly valuable businesses. No. [00:28:00] Right.

[00:28:00] Stacy Havener : They were, you know, it was like, remember when it was like, oh, it's a lifestyle business.

[00:28:04] Stacy Havener : Like that was the first iteration of like, wait, some of these firms are actually growing. And it was like, oh yeah, back

[00:28:09] Karl Heckenberg: to like 17, 18. Yeah. The most expensive businesses were worth maybe $200 million. The average businesses were worth 30. You know, now we have businesses that are worth five to 12 billion and a lot of businesses that are worth north of a billion.

[00:28:25] Karl Heckenberg: It's a very different, it's different space than it was six, seven years ago.

[00:28:28] Stacy Havener : It's kind of crazy to me because, again, similar parallel with asset management. So I'm curious to your thoughts on this. So like on the asset management side, if that spin happened, right, if the fund manager left, guess what would happen?

[00:28:44] Stacy Havener : The assets would follow them, or some portion not all right. But the clients are gonna be like, well, that's my guy or gal, like I'm going with them. People business.

[00:28:52] Karl Heckenberg: Yeah.

[00:28:53] Stacy Havener : So on the advisor side, I sort of scratch my head on this because I'm like, the multiples are bonkers. [00:29:00]

[00:29:00] Karl Heckenberg: Yeah.

[00:29:00] Stacy Havener : And yet, to your point, if the team that those clients are used to working with is leaving.

[00:29:08] Stacy Havener : The assets, how are they stickier than like any other business? So it's very interesting to me what's going on there.

[00:29:16] Karl Heckenberg: I mean, I think the way to navigate it is to think about kind of Gen one to Gen two, to Gen 30, right? Gen one, which is used to owning the equity and really driving most of their income through distributions on the equity ownership.

[00:29:30] Karl Heckenberg: Next gen is probably more. Taking, you know, most of their W2 income, they kind of take it through profitability. I would say the difference between the wirehouse and the RA model is, and not all RIAs are created equal. This is, we're talking about like the top 5%. Right. I think firms that have figured it out.

[00:29:50] Karl Heckenberg: One have said, we're making gen two and gen three equity owners. Mm-hmm. We're figuring out a compensation model that is more sustainable for the firm, which means, you know, average [00:30:00] wirehouse payouts in the forties. Right. Of revenue. When you look at wealth management businesses, RIAs, I think if you can find that balance between kind of advisor comp and equity distribution and, and equity comp, because these businesses are getting bigger and they're more valuable.

[00:30:15] Karl Heckenberg: Yeah. Yeah. You can kind of do this arbitrage between current income and long term gains in the, so even if you say, Hey, look, I'm gonna give you. 50 basis points on business, it's worth a billion dollars. Like to somebody in their thirties, that's a lot of money, right? Yeah. And if that is paying a distribution of, you know, a couple hundred thousand dollars a year, they're making this and, and that it's meaningful.

[00:30:38] Karl Heckenberg: It's, we're kind of seeing in the wirehouses where they pivoted off of this model where I think the next 10 years it's more base and bonus. But they are attracting a different advisor base, right? Yeah. So the advisors that now are joining these organizations don't wanna hunt and kill their own food, right?

[00:30:56] Karl Heckenberg: Like they're more farmers than hunters. They're fine with base and bonus. [00:31:00] They like being employees. They like that consistency. Yeah. So I think the biggest challenge that you have is how do you turn a hunter into a farmer? Right? And I think the answer is you really can't.

[00:31:10] Stacy Havener : You can't. I was gonna say that might be not

[00:31:14] Karl Heckenberg: generations.

[00:31:16] Karl Heckenberg: I always say the good news is founding partners, their gen two almost is 180 degrees from them personality wise. Right? It's true. 'cause you're never gonna find a founding partner that hires his clone. He's gonna hire somebody that wants to do all the crap that he doesn't want to do. Right. And there is some positivity to that.

[00:31:34] Karl Heckenberg: Right. Totally unique

[00:31:36] Stacy Havener : ability, teamwork.

[00:31:38] Karl Heckenberg: But I think the biggest thing is, you know, you need to have these conversations around the equity early. You have to be transparent on them. I think you have to listen to how you're solving this problem, and I think if you do, that's why these businesses have 98, 90 9% client retention, and very few advisors do lead if they're in the equity.

[00:31:57] Stacy Havener : Yeah.

[00:31:58] Karl Heckenberg: You're recreating a wirehouse [00:32:00] and and that's not a good outcome.

[00:32:02] Stacy Havener : So that is a great lesson that I want boutique asset managers to hear. I mean, there are some great lessons on the fund side for them to hear. It's a model that, you know, just because it's an advisory business, it, it actually really, it's not about that.

[00:32:18] Stacy Havener : It's about building a business that has longevity.

[00:32:22] Karl Heckenberg: I, I mean, look, I even, I think about it weekly. Like, you know, when my role change, like Yeah. When the ownership change, because again, you have to get proactive, otherwise you're just putting out fires at, at some point in the future. And I think we are seeing this in asset management where.

[00:32:38] Karl Heckenberg: We have a bunch of zombie firms that are 20 billion that won't raise successor vehicles. Right. And largely because the younger people are leaving, the older partners don't wanna share, the younger partners don't have enough money to put up for the GP commit and their like. And I think that's where, you know, look, the black zones and the blue owls and so on are gonna have a field day kind of [00:33:00] consolidating a lot of these businesses into their own because they can make the Gen two guys partners of the public company.

[00:33:08] Karl Heckenberg: Right. And, and they can give them more carry, they can give them equity that they can actually transact on in the future. Like, so I, I do think the future is very bright for either the specialist or the bulge bracket guys. And I think a lot of the bul and then there's a mid-tier of really good firms that know that they're gonna go public in the next five to 10 years.

[00:33:28] Karl Heckenberg: Yeah. And they're going to consolidate more people that will. Kind of like us and mm-hmm. Other people that are additive. But if you're not thinking about as a RA owner, as an asset management owner, if you're not thinking about succession and the risk to your business, I mean, the biggest risk is people leave.

[00:33:45] Stacy Havener : That is the biggest risk

[00:33:47] Karl Heckenberg: if you're in asset management. It's not like your fund one or your fund two investors are gonna leave. It's, there's no fund three. Like nobody's committing to a fund for 10 years if people are leaving. Right, right. There's too many good [00:34:00] choices out there.

[00:34:01] Stacy Havener : I agree with you. I wanna come back as I have a question, as something weird I'm seeing on asset management, but you've done some really cool differentiation bits throughout the conversation so far.

[00:34:13] Stacy Havener : But I wanna sort of. Camp out on it because right at the start you corrected me when I called you an aggregator. So break that down for us because I mean, as somebody who's like tangentially near to what you're doing, but not in it, like there's a lot of people throwing a lot of money around and it all feels very same to me.

[00:34:36] Stacy Havener : Yeah. Like it looks like you're all rolling up RIAs and like how do you differentiate against those peers?

[00:34:45] Karl Heckenberg: I think it comes down to two things. I mean, one, I think it's that first thing that we talked about where we can actually sit down and help them think through on a very granular basis how to work with them to improve the business, right?

[00:34:56] Karl Heckenberg: Because I would say the capital, it's everywhere. [00:35:00] They've got plenty of choices. I think. Then it comes down to are these people that AI can work with? Do they have a good reputation? You know, I don't like talking about ourselves much, but like I will say, I think we have a very good reputation in space. I think you do too, with those 40 firms, and it's, I always joke, it's a bit of a crapshoot, but like when we have an investor or a firm that we're talking to investing, we actually give 'em the list of everybody to talk to and we say, talk to everybody.

[00:35:26] Stacy Havener : Yeah. Right.

[00:35:27] Karl Heckenberg: How are these guys, once the deal closed. What were they like to work with? Did they actually help you grow your business? You know, were they rational? Were they reasonable? I think we get an A plus in that area, and I think we're probably the only, well, I can say this because we're the only specialist investor in the space that's looking at like the kind of that mid to larger tier size, right?

[00:35:47] Karl Heckenberg: I mean, obviously there's a lot of other great firms like merchant and immigrant and so on. I think in the white space that we kind of occupy. Right? Yeah. So I, I think some of it is just that we're a specialist. This is all we do. It's all we're ever gonna do. Yeah. [00:36:00] Some of it is just leaning into what the future holds in this business.

[00:36:06] Karl Heckenberg: So it's kind of that conversation that we just had like. And I've, I had this conversation with one of our portfolio firms a few weeks back and I was like, I think they thought they'd be able to stay independent a lot longer than they thought they'd be able to. Mm-hmm. And my advice was, the good news is you're growing at 40% a year.

[00:36:22] Karl Heckenberg: The bad news is you're growing at 40% a year and you know, none of us are getting any younger, so. Let's think about what's good for your clients, what's good for your employees, and then what's good for you and, and what's good for holders. And I think it's just having an honest conversation, right? 'cause I think a lot of times investors come in and they go, oh, you know, there's this big M and ar.

[00:36:44] Karl Heckenberg: We're gonna consolidate and then we're gonna make a bunch of money. Right? Yeah. And I think your point. Look, there are a lot of, there's 17,000 RIAs, right? There's probably, you know, in the legitimate kind of aggregator buyer camp, there's probably less than a hundred. You know, those are [00:37:00] the firms that we tend to back.

[00:37:02] Karl Heckenberg: But there are firms that we invest in that will never do any m and a, right? Mm-hmm. Like that's not part of their DNA. Oh, that's interesting. But there's, it's 30% a year and they're building a phenomenal business, right? So why would you not be an investor in that? So some of it can look almost like GP stakes for some of those businesses.

[00:37:20] Karl Heckenberg: Some of it can look more like traditional growth equity and hey, you know, let's do buy some other businesses. Yeah. But you know, maybe half of the growth is organic, half of it is inorganic. But I think it's just kind of leaning into these different levers. But also just, you know, one of the firms, I think it was the second firm invested in, I got introduced through another private equity firm, strangely, and they said, we can't crack this nut.

[00:37:42] Karl Heckenberg: Like they're not gonna do a deal with us. Maybe they'll do something with you. He is a big personality. We, we spent an hour and a half on the phone the first time we talked and we kind of gave me the lay of land in the first 20 minutes about his business. He said, what do you think? And I said, I don't think you're ever gonna [00:38:00] do any m and a ever.

[00:38:01] Karl Heckenberg: And he said, you're the first person to say that. And we ended up closing a deal two months later, and it was kind of that acknowledgement of like, look, I'm not gonna try and change you. I'm not gonna try and change your firm. You don't need to. Right? Like, why? Why would you do this? And yeah, I think some of it is just like problem solving because yeah.

[00:38:23] Karl Heckenberg: A lot of the advisors do also want to solve for what do they do with their clients? 'cause they're not gonna live forever. Right? Yeah. And, and some of these relationships are generational and yeah, we wanna make sure their clients are taken care of. And I think it's, you know, I always kind of joke, you know, look, you know, even before we close, we're talking about, look, we are a fund, like we are gonna exit.

[00:38:44] Karl Heckenberg: What does that look like? What does the bio universe look like? Who's gonna pay the most? Like, what do you want to do with your clients? How do we build something that is authentic to your firm, but then also creates a premium for a buyer in the future that you would wanna be a part of that organization?

[00:38:59] Karl Heckenberg: And [00:39:00] you have to start thinking about that immediately. And I think it's true for asset management. I mean, you should be thinking about where your business fits in. Yeah. To box one or Blue Owl or to an Aries or an Apollo, or do you have a plan to keep it independent forever? Some people can, and but that means candidly sacrificing some things, you know, which is, you know, top dollar and, and you know, all these different other things.

[00:39:24] Karl Heckenberg: Right. Um, it's not easy. So

[00:39:27] Stacy Havener : Interesting. So that was one of my questions. So. Differentiation. When you specialize, like you said, it's baked in, which is a nice thing to have. 'cause you are different just by virtue that you do something different. On the exit side though, is that an area where differentiation can come in as well?

[00:39:45] Stacy Havener : Because I would imagine, I mean, so for you, you do wanna get bought out because otherwise how do you have a, a liquidity event for your investors? But is there some nuance to that between the groups that are providing [00:40:00] capital?

[00:40:01] Karl Heckenberg: What I generally find is almost none of the other investors going in are having the conversation, what the next stage looks like.

[00:40:09] Karl Heckenberg: And I think it's kind of like, here's what we think we're building and here's the exit price and then it, it's good for everybody. You know, I think going back to this conversation that we were having a moment ago about one of the firms and them thinking that they'd stay independent loan, yeah. Part of it was, Hey, look, when you sell this next slug of equity, whether it's to us, which it wouldn't be because it'd be a controlling interest at that point or to another party, you're going to lose control of the business.

[00:40:36] Karl Heckenberg: So if you're gonna lose control of the business in five years because you wanna sell, the partnership wants to sell another 25% and somebody's gonna own 51%, let's be real. Do you wanna work in a business where you've just rolled half of your equity into a business that you don't control? And he was like, well no.

[00:40:53] Karl Heckenberg: And I'm like, okay, so you know, I agree with that. I don't want to get a little bit pregnant on this. So [00:41:00] like, why don't you just sell 50%, you've already sold 25, and why don't we start thinking about what that buyer universe in five to seven years looks like? Because the one thing that ever comes up with these sellers, and I guess they just don't really think about it, is when they sell control of the business, they still have to keep working.

[00:41:17] Karl Heckenberg: Which is, you're still gonna have to work there for like three to five years, right? At least contractually, you can stay longer. So who do you wanna work with, right? Yeah. The firm. Is it somebody? And look, we've seen this with a lot of success, some aggregators, uh, not us or the firms that we back. Some do go into market and say, Hey, look, you know, this was focus pitch, right?

[00:41:41] Karl Heckenberg: Like, leave your name. You just do whatever the hell you want, right? Like, we're, we're not gonna bother you. And it's not really a firm, like, and that wasn't their approach. They were more of a financing vehicle. But I think some people have leaned into, leave your name, leave your investment operations. Like we're just buying it and getting kind of the art and, and we'll move on.[00:42:00]

[00:42:00] Karl Heckenberg: I think other people kind of lean in and say, Hey, look, you know, I wanna go to a single technology solution. I'd like to centralize more the asset. Mm-hmm. And then the compliance and all this. But I would like to find a group of people that I wanna partner with. Some people go the other direction and they say, and we see this on the investing side, even on the Nordic, there are a very few people that say, I actually want an investor that knows nothing about my business.

[00:42:23] Karl Heckenberg: I want somebody that's gonna sit quietly, just gimme the capital. And leave me alone. And that's not for us. We, we don't do those. But, you know, look it, we see that on the control side where they're like, Hey, the biggest thing was they let us keep our name and they weren't gonna make us consolidate anything.

[00:42:40] Karl Heckenberg: To me, that's not a business. But, you know, for some sellers, we start talking to 'em very early on, like, what does the exit mean? Yeah. And also like you are gonna have to roll some equity in this deal, right? Like on the next trade. And so what does it look like for you to get fully liquid? Like what does it look like for your family?

[00:42:57] Karl Heckenberg: I mean, these are not, and look, [00:43:00] things are constantly moving, right? Like nothing. I joke, you know, at immigrant we used to do a lot of employee financing for them to buy their equity. We're a bank so we could make loans. I always joke, every year we do these patch of loans, you know, 40 whatever loans to different younger partners.

[00:43:16] Karl Heckenberg: Every year there was always last minute maneuver and people dropping out, people trying to jump in and some of it is just, life happens. Yeah. He needs to buy a second home, they needs to send a kid, parent got sick, whatever. So you know, the long-term planning is great, but you also have to keep your eye on the short, intermediate term stuff.

[00:43:34] Stacy Havener : This is so fascinating to me. So I keep seeing this unfortunate, weird. It's kind of BS to me, and I'm gonna ask you about it because it pisses me off. I have a B in my bonnet over it. So, and it's a little bit different because these are boutiques or spins. So if we use the vernacular of where you are, it's more like VC probably than, than where you are in the evolution.[00:44:00]

[00:44:00] Stacy Havener : But in the asset management side, we talked about similarities and you have these talented fund managers maybe do wanna leave, right? Yeah. But they can't do it on their own. They need help, they need resources, they need expertise, all the things you're describing. And so in the old days. It'd be like, yeah, you know, you could get a C or someone to back you and they'd take 20% of the firm, Carl, and I mean, I'm talking about till like three years ago, that was the deal.

[00:44:27] Stacy Havener : The stuff I'm seeing now is so egregious. It's like. We'll give you barely anything and take majority stake of the business. And I'm like, how did we get here? And also it's like a choke hold on entrepreneurship because now you know, a healthy ecosystem should have the bigs and the consolidation and the scale-ups and the new, but we're not getting the new entrance because nobody can figure out how to do it.

[00:44:59] Karl Heckenberg: I [00:45:00] mean, I get that. The only thing that I would say that yeah, I think is an offset is, you know, so like when we launched the business, I think we looked at average check size. I think if you'd said, Hey look, I'm gonna do this a normal way. You would've raised maybe a hundred, $150 million for a first fund, right?

[00:45:18] Karl Heckenberg: Mm-hmm. I think on the asset management side, you can do that, but you know, then maybe fund two is 300 million fund threes. Mm-hmm. You know, I mean, look, I think this is very true on wealth management. There is a bit of a decision where you have to make, where it's like. You really have to be scale the matter, right?

[00:45:35] Karl Heckenberg: And so what is the trade off in in that? Now I think to your point, if you're getting nothing, that sucks, right? If you're getting something, I think it's fine. But some of it goes back to that ownership, right? So, and that's

[00:45:48] Stacy Havener : where I'm struggling. It's like then you're just an employee really.

[00:45:53] Karl Heckenberg: Yeah, but you know, it's, it, it is interesting.

[00:45:55] Karl Heckenberg: So we saw a private equity firm, uh, stay kind of [00:46:00] a, a large breakaway, call it 10 plus billion, still not public, I would say. They needed a decent amount of capital. They needed to be able to really, you know, provide transition and so on. You know, they sold a, a controlling interest, but, you know, 99% of the revenue came over.

[00:46:17] Karl Heckenberg: They got offices, they got stood up. I mean, look, I think for them the math was how long are they gonna do this? The answer's probably five or seven years, which fits within the fun life. The equity even at half is gonna be worth more than what it would've been. Just taking another seven year note at a wirehouse.

[00:46:35] Stacy Havener : This is a good point

[00:46:36] Karl Heckenberg: and I totally get it, but I mean, I do think, you know, it's one of those things I always joke, nobody cares what's fair. You know, so I think the reality is, yeah, you, you can say, well, you know, you should do it this way and you should grow it that way. I think whether we like it or not, the Blackstones and the Apollos and the Aries, you know, we're talking about firms that are either a trillion or 300 billion going to a trillion [00:47:00] fast.

[00:47:00] Karl Heckenberg: And when you talk about it on the fundraising side, if you look at the resources of some of these firms, I mean, a lot of those firms that we just talked about, if you're talking about just. Capital formation in the RAA space, they have like 150 people each. And if you're a $20 billion manager, you have no business trying to raise capital in the retail market because you've got maybe a half a resource and they've got 150 still banging their heads.

[00:47:24] Karl Heckenberg: Right?

[00:47:25] Stacy Havener : But you can't beat them at that game.

[00:47:26] Karl Heckenberg: And I mean, we kind of see that, like we deal with, we have a couple of large asset managers that are LPs in our fund. It's interesting talking to them because they're willing to manage a lot of assets for state plans and other people for no fee. Because they can.

[00:47:42] Karl Heckenberg: It's crazy. Right? I know. And, and I think that, look, from their standpoint, it makes all the sense, and obviously they're very profitable. I think the RIA space is, you know, scale will matter, right? I think it's, it's the same thing as asset management. Same thing.

[00:47:56] Stacy Havener : Yeah.

[00:47:57] Karl Heckenberg: So, yes, you dentists, you know, there's a [00:48:00] great business in saying Louis, they really focus on physicians.

[00:48:03] Karl Heckenberg: So they'll consult on. Real estate, you know, student loans, like all these things, but they go super deep. We, we were invested immigrant in a great firm in Memphis that, um, their history was FedEx Pilots.

[00:48:15] Stacy Havener : Right. I was just gonna say, there was a business in Dallas that did the American Airlines pilots, which was a great RIA.

[00:48:21] Stacy Havener : Yeah. It's

[00:48:21] Karl Heckenberg: funny because the FedEx used to call them with questions about the plan 'cause they've been doing it for like 30 years, longer than anybody at FedEx. And so I think you're either hyper specialized or you have to be at scale. Right. And I think we've got the same conundrum in the asset management space, which is, I don't think you're gonna be able to plot along at, you know, a billion of capital, because on the capital side it's just, it's way too competitive and people are willing to give away, you know, co-invest for other things, essentially for free.

[00:48:52] Karl Heckenberg: And, you know, it, it does make the economics challenging. I don't know. I wish I had an answer to it and

[00:48:58] Stacy Havener : I, I mean, it's just good to hear [00:49:00] you talk about it because, and also from a slightly nuanced perspective, but with similar dynamics.

[00:49:07] Karl Heckenberg: Yeah.

[00:49:07] Stacy Havener : Fascinating. This has been a wonderful conversation. Carl. Thank you so much for coming in and talking with us.

[00:49:13] Stacy Havener : I'd love to end with a couple, they're not fast fire, but they're sort of fast ish. They're designed after Pro's questionnaire to help us get to know you a little bit better. I always say this is an easy one, but if you like to read it can sometimes not be an easy question. So my first question is, what book inspires you?

[00:49:34] Stacy Havener : And it does not have to be a business book. It can, but it doesn't have to be.

[00:49:37] Karl Heckenberg: I'd love to say I'm a bigger reader than I am. You know, I love Michael Lewis's stuff. Oh

[00:49:43] Stacy Havener : yes.

[00:49:43] Karl Heckenberg: It's, I think he has such a keen interest in people. You know, if you look at like Moneyball or the Big Short, the commonality, of course is people that, it's kind of like that Peter Thiel question, what do you believe that nobody else believes?

[00:49:55] Karl Heckenberg: Like, yes.

[00:49:56] Stacy Havener : Love,

[00:49:57] Karl Heckenberg: you know, historical stories of people, particularly in [00:50:00] our industry, because I find it interesting that they took the other side of the trade, right? Mm-hmm. Like they, they took the, the complete, I wish I. I had the balls to kind of do that, but I think it, yeah. It is interesting when you read about this, particularly something like Moneyball, where you know you're just doing something that nobody had done before and it worked because most of the time it does not.

[00:50:20] Stacy Havener : I know he's a great storyteller and his character development is really where it's at for me too. Like it's just so good. Great one. Have you ever read the Undoing Project?

[00:50:32] Karl Heckenberg: No. Mm-hmm.

[00:50:33] Stacy Havener : Okay. I'm gonna buy you one. I'm sending you one. Okay. All right. Here we go. Next one. We're going from books to places.

[00:50:40] Karl Heckenberg: Okay.

[00:50:41] Stacy Havener : What place inspires you? What's your happy place?

[00:50:45] Karl Heckenberg: I love the mountains. I mean, we spent COVID in the mountains. Uh, I love Wilson, Wyoming, that area. Anything like that? Any, anywhere where you just see nature. I mean, Malibu, California is the same way, like anywhere. You just see it like that [00:51:00] because living in the Midwest, you don't see a lot of that.

[00:51:03] Karl Heckenberg: Uh, so when, when you see it, but it's also just, it's quiet, it's peaceful, it's,

[00:51:08] Stacy Havener : yeah. There's something too about. Like how far the eye can see on the horizon. Like I feel like when you're in the city and the buildings are smashed up against you, it's actually, I think, I don't know. No, no, no research on this, but like anecdotally, it feels like it's difficult to have like big, long-term strategic thinking when stuff's just, you know, up in your face all the time.

[00:51:32] Karl Heckenberg: That's right, that's right.

[00:51:35] Stacy Havener : Like gimme some space, you know. Okay. From places. Songs, are you ready for this one? This is my favorite. Alright. Okay. All right. So you are going to give a talk in a stadium thousand of your adoring fans who can't wait to hear what you're gonna tell us. And as you're about to take the stage, we're gonna play a [00:52:00] walkout anthem.

[00:52:02] Stacy Havener : What's it gonna be?

[00:52:05] Karl Heckenberg: I'm a bit of a nihilist. Uh, I'd, I'd probably pick something bizarre. I, I love the song, uh, spitting Off the Edge of the World by the Yeah, yeah. Yes. So, okay.

[00:52:15] Stacy Havener : You can't say no this song, but I will be listening to it. Posthaste.

[00:52:18] Karl Heckenberg: No, you, um, anything like that, that's probably a bit of a head scratcher for people.

[00:52:24] Karl Heckenberg: Uh, you know, does he wanna be here? Does he not wanna be here? Like,

[00:52:29] Stacy Havener : well, you know, so here's an interesting nuance to this question. I think some people pick songs because of the lyrics.

[00:52:37] Karl Heckenberg: Right.

[00:52:38] Stacy Havener : And some people pick songs because of the beat.

[00:52:41] Karl Heckenberg: Yeah. Yeah.

[00:52:42] Stacy Havener : And so are you picking that song 'cause of the beat or the lyrics?

[00:52:45] Karl Heckenberg: This actually checks both boxes for,

[00:52:47] Stacy Havener : okay. All right. This is good. I can't wait to listen.

[00:52:51] Karl Heckenberg: There you go.

[00:52:51] Stacy Havener : Um, okay, next one. What profession, other than your own, would you like to attempt?

[00:52:59] Karl Heckenberg: Oh man, [00:53:00] I don't think I'd be good at anything else. Um, my, my daughter's fairly certain of that. Uh, I have a fondness for cars.

[00:53:10] Karl Heckenberg: I love, there's a couple of guys around the country that just have these amazing kind of brokerage collections of vintage Porsches and stuff like that. I would find that interesting mainly because I would just want to go into work every day. Right. Oh,

[00:53:23] Stacy Havener : right.

[00:53:25] Karl Heckenberg: You know, so it'd probably be something like that where I feel like it's pretty low stakes.

[00:53:30] Karl Heckenberg: I'd be okay with that. I'm carrying some inventory and trying to make a small margin I'd, I'd be okay. I've been doing this for so long, I don't think I'm fit to do anything else. Uh, good, bad, or indifferent. So

[00:53:42] Stacy Havener : well also, once you're an entrepreneur, you're basically unemployable after that. So there's that problem on top of

[00:53:47] Karl Heckenberg: it.

[00:53:47] Karl Heckenberg: Hey, that, that's exactly it. The worst case, I got a bunch of cars in my garage that I like, and if nobody wants to, yeah.

[00:53:53] Stacy Havener : Do you have, do you collect cars?

[00:53:56] Karl Heckenberg: Uh, yeah. I, I do.

[00:53:57] Stacy Havener : So. And are you Porsche guy?

[00:53:59] Karl Heckenberg: [00:54:00] Yeah.

[00:54:00] Stacy Havener : Okay. Fascinating. So I grew up in a family of, as they say in the UK Petrolhead, um, and in fact I also caught that bug.

[00:54:09] Stacy Havener : So I actually have a 1946 Chevy pickup. Oh yeah,

[00:54:14] Karl Heckenberg: yeah, yeah. And

[00:54:15] Stacy Havener : uh, my dad was the one who was like, sort of buying and restoring cars, but um, he's had some really rare ones.

[00:54:20] Karl Heckenberg: So when I was, when I first was able to start buying cars, the cheapest cars were kind of American muscle. If you think about like in the nineties and cared about 'em.

[00:54:29] Karl Heckenberg: So I had a 65 Corvette and then ended up with a 56th Thunderbird. And what I realized is they're beautiful cars and they sound great. They drive like crap. Uh oh. Yeah.

[00:54:40] Stacy Havener : So I,

[00:54:41] Karl Heckenberg: when I actually had a little bit of money, I started buying, uh, Porsches that nobody cared about, uh, tour, kind of the first water, cool cars, and uh, I just stuck with it.

[00:54:51] Karl Heckenberg: So, yeah. That's

[00:54:52] Stacy Havener : so fun. I love that you shared that.

[00:54:54] Karl Heckenberg: Yeah. 10-year-old daughter. Uh, so it's, it's worked out well. So she [00:55:00] That's great now.

[00:55:03] Stacy Havener : Awesome, Carl. I love that. Okay. Flip side, what profession would you not like to do?

[00:55:09] Karl Heckenberg: Oh, God. Uh, plenty. I don't, I don't think I'd have the stomach to be a vet or a doctor. Uh, it's just, that's not in the tea leaves for me.

[00:55:18] Karl Heckenberg: Uh, I don't think I'd line up well with that.

[00:55:21] Stacy Havener : You know, it's interesting about the vet because this has come up in other conversations and some people who actually started out wanting to be veterinarians, and then what they realized is actually the animals are not happy to see you.

[00:55:34] Karl Heckenberg: Yeah, no.

[00:55:34] Stacy Havener : And I was like, gosh, who thinks about that?

[00:55:38] Karl Heckenberg: I, you know, it's like being a doctor. Nobody's thrilled. No, it's

[00:55:40] Stacy Havener : happy to be there.

[00:55:41] Karl Heckenberg: Right? Like you're seeing things at, at the worst. Uh, so yeah. I always joke, I like wiring people money, like, you know. Yeah. It's good to make friends.

[00:55:51] Stacy Havener : Yeah. Yeah. People like you a lot, right? Um, I'm, yeah. It, it's good. Okay. Last but not least, and hopefully not anytime [00:56:00] soon, what do you want people to say about you after you've retired or left the industry?

[00:56:07] Karl Heckenberg: I mean, the honest part of me is like, I'm not. Really gonna worry about that or think about it because, you know, I'm gone. Um, think

[00:56:15] Stacy Havener : like, actually I don't care.

[00:56:18] Karl Heckenberg: It's a little bit of that. Uh, I, I think it's, uh, there's a little too much ego if you're thinking that people are talking about once you, once you're gone.

[00:56:27] Karl Heckenberg: I don't, I don't, you know, I don't think there's gonna be a memorial service for, for all my years of service. Uh. You know, I, I think if I was asking, you know, or answering it on an LP questionnaire, I would say, and, and it is sincere. Look, I like it when everybody wins. Like, I don't view this as a. You know, I, I like our partners to do well.

[00:56:49] Karl Heckenberg: I don't view it as a competition. I think if their clients win, if their next gen wins, the partners win, and, and our investors win, and our employees win. I, I think all that's [00:57:00] attainable. I, I think we have a great track record of doing that, uh, over a number of exits and investments. So. I think that's fine.

[00:57:07] Karl Heckenberg: But yeah, I think the honest part of me is nobody's gonna be talking about it.

[00:57:10] Stacy Havener : No one's gonna care. It's so true though, but it's also very freeing, isn't it? When you realize no one actually gives a shit about you. You're like, I can do whatever I want.

[00:57:18] Karl Heckenberg: Yeah. I'm gone. Yeah.

[00:57:22] Stacy Havener : I love this, but actually, you know, he helped everybody win. That's a pretty good vibe, isn't it?

[00:57:28] Karl Heckenberg: You know, but, but all the people that I helped win are probably on the beach themselves too. They're not, yeah, totally.

[00:57:33] Stacy Havener : Yeah, that's fine. But listen, I, I think that's a great place to end because this industry especially is very zero sum game.

[00:57:43] Stacy Havener : Yeah, right. Like in order for me to win, everybody else has to lose. Even if they're not my, in my asset class or in my peer even. Like, just everyone must lose. That's how I win and I think it's very refreshing to talk to somebody who sees it differently because I do [00:58:00] too, and, and you're one of the good ones.

[00:58:02] Karl Heckenberg: Thank you.

[00:58:03] Stacy Havener : This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. The information is not an offer, solicitation, or recommendation of any of the funds, services, or products, or to adopt any investment strategy. Investment values may fluctuate and past performance is not a guide to future performance.

[00:58:22] Stacy Havener : All opinions expressed by guests on the show are solely their own opinion and do not necessarily reflect those at their firm. Manager's appearance on the show does not constitute an endorsement by Stacey Haven or Haven or Capital Partners.

[00:58:35] Stacy Havener : The wealth management and investment industry is about numbers and math. Okay? But the funny thing is, when you talk to the most successful leaders in the space about their story, numbers don't really have a starring role. People do. The Art of Connection does. Carl Hackenberg is the founder of Constellation Wealth [00:59:00] Capital, which has raised a billion dollar fund to take stakes in large RIA and wealth management firms.

[00:59:06] Stacy Havener : Minority non-controlling stakes partnerships between people. That theme of people doing business with people runs deep in today's episode because building something special. Does require numbers in math and operational excellence, but more than anything, it requires people and partnership and founder inspired passion.

[00:59:32] Stacy Havener : Carl has been in many different parts of the wealth and investment ecosystem. He understands the math and numbers side at a deep level, but he also knows that any of the best business partnerships start with connection and friendship. He's not only investing in businesses, he's building one, and it's pretty darn special.

[00:59:52] Stacy Havener : Today's conversation on the challenges and opportunities of scaling a successful business will resonate with wealth management [01:00:00] and asset management friends alike. Let's go meet my friend Carl. Hey, my name is Stacey Er. I'm obsessed with startups, stories, and sales. Storytelling has fueled my success as a female founder in the Toughest Boys Club, wall Street.

[01:00:19] Stacy Havener : I've raised over 8 billion that has led to 30 billion in follow-on assets for investment boutiques, you could say, against the odds. Yeah, understatement. I share stories of the people behind the portfolios while teaching you how to use story to shape outcomes. It's real talk here, money, authenticity, growth, setbacks, sales and marketing are all topics we discuss.

[01:00:45] Stacy Havener : Think of this as the capital raising class you wish you had in college mixed with happy hour. Pull up a seat, grab your notebook, and get ready to be inspired and challenged while you learn. This is. The Billion dollar [01:01:00] Backstory podcast.

[01:01:05] Stacy Havener : Let's be real. No one wakes up and says, I can't wait to build some operational infrastructure today, you are here to manage money to build something that lights you up, not chase down reports across five systems and 15 service providers. That's where Ultima's Fund solutions comes in. They're your ops dream team, consolidating all your middle and back office chaos into one clean, scalable setup.

[01:01:32] Stacy Havener : Registered funds, private funds, sma, all integrated. One team, one tech platform, one rock solid source of data. But here's the real differentiator service. I know that fund in a box sounds convenient. It's also a box. Know what? You can't put in a box? A human who picks up the phone when you call and need help.

[01:01:58] Stacy Havener : Real life people who know [01:02:00] your name and your fund, and they care about getting it right. Ultimas was built on people doing business with people. You get institutional strength combined with boutique level service without getting stuck in a phone tree of doom. If you're ready to simplify scale and start working with a team that feels like an extension of yours, check out billion dollar backstory.com/ultimas.

[01:02:27] Stacy Havener : That's U-L-T-I-M-U-S. You've got the investment strategy, the vision, the track record. Now it's time to upgrade the engine behind it all with Ultimas.

[01:02:42] Stacy Havener : Carl, thank you so much for being here. This is a real joy for me because I have heard so much about you from people in the industry, from your team, yet we've never met. So we're inviting podcast listeners in on like the initial coffee chat of Carl and [01:03:00] Stacy, which is happening right now. That's right.

[01:03:02] Karl Heckenberg: Excited. Thank you. Yes. So since this is a podcast about backstory, that's where I'd love to start. I'm gonna let you take it where you wanna take it, but for me, I always find it interesting to ask this question. Did you always know that you were going to be an aggregator of registered investment advisory firms?

[01:03:25] Stacy Havener : Like when you were a kid, was this like your life? I'd love it if somebody said yes to that. Um, and to be clear, I'm not an aggregator. Oh, okay. So good. This is already getting interesting. Go Carl. Correct me. What do you call yourselves? Look, we're a specialty investor in wealth management firms. Okay. I mean, that, that is what we are, we don't consolidate or aggregate anything.

[01:03:49] Karl Heckenberg: Um, look, I always joke, I was a fine student. I was an exceptional student. Mm-hmm. I went to a nice college. I didn't go to a great college, and I think my father [01:04:00] wisely suggested that, you know, I, I have the broad range of. Choice of majors, either, you know, accounting or finance. Uh, so practical, something practical.

[01:04:10] Stacy Havener : Yeah. Yeah, yeah. Yeah. And, and I think he knew I wasn't gonna be a philosophy major, um, or at least be able to make a good living as one. Yeah. So I graduated with a degree in finance. I got an internship for Merrill Lynch. I ended up turning that into a job when I got outta college and I, I, it really started as a lender in this space.

[01:04:29] Karl Heckenberg: I joked to you when we were chatting earlier, like, you know, at the time this was like 97. Okay. And I would say back then, you know, investment banks had multi-year kind of rotation programs. They really don't have those anymore to the degree, but it was, it was multiple years. I was starting out on the credit side, so I, I started on the kind of leverage finance side and you know, you really got to learn every part of the chain, right?

[01:04:56] Karl Heckenberg: So obviously origination is part of it, [01:05:00] but then you learn servicing, you learn the workout. Like you just learn what happens when things don't go well, which, ooh, ooh, yeah. Helpful. And as far as industry, I, I joke, you know, in in the late nineties, the least sexy thing that you could be involved in was financing financial institutions.

[01:05:16] Karl Heckenberg: And it was, everybody wanted to focus on tech, of course, and Merrill Lynch's. Pretty much largest relationship at the time was Yahoo. So, like I said, I think being that kind of average student, I ended up in kind of the least sexy space. But, you know, it was, it's interesting starting as a lender, because I got to know, you know, back then really wealth management was regional broker dealers.

[01:05:40] Karl Heckenberg: Mm-hmm. And our house banks a little bit. RIAs weren't really a thing. They certainly weren't convincible, um, right. They were small. You know, and, and really through my career, I, I eventually kind of moved over to the equity side, but I spent about 13 years as a lender. Like, it's interesting because I think that's part of [01:06:00] what's worked for me over the course of my career as an equity investor is.

[01:06:04] Karl Heckenberg: I remember the space from the nineties, right? Yeah. Like I remember, you know, when everybody was sliding tickets into the cage and you know, you were getting your commission runs and I remember LPL being Linco Private Ledger. Me too. Yeah. Just all of these businesses, you know, Merrill Lynch was, you know, where he bought, you know, Warberg Perry, Bob Becker, you know, there's just all these iterations and changes Yeah.

[01:06:30] Karl Heckenberg: In the industry and. I'm one of the few people that comes in when, when we meet with management team, particularly when these guys have been around themselves for, you know, 30 years, which generally most of 'em have been, there's just a lot of shared experience. Yeah. Right. Like it's, you know, being able to talk about the change from American Express to Ameriprise or you know, all these different things.

[01:06:53] Karl Heckenberg: But yeah, that's really how I started where I ended up. Yeah. It's been a lot of fun. It's been three [01:07:00] decades now, so it's, um, you were saying, you know, it's such a hot space. It really wasn't until, I mean, honestly, I like draw a line in the sand around 20 18, 17, like it's only been the past five, six years.

[01:07:14] Stacy Havener : Yeah. It really hasn't been much longer than that. So. When did you make the leap? You were doing lending, you're on the credit side. I remember these times. Well, which is sort of a pull from like Seth Godin, who's marketing, you know, guru has this quote, which is about like when you have a tribe, when you have like a group of people who have shared experience and it's like, people like us do things like this or people like us say things like this.

[01:07:40] Stacy Havener : And we remember those times. I mean. In the green room, I was saying like, oh, I've gotta turn my Polycom on do not disturb. And like if you were of that time, you wouldn't even know what the heck I was talking about. Right. So talk about the transition from Merrill as lender and kind of in that credit space [01:08:00] into equity, because I know there's stuff in between.

[01:08:04] Karl Heckenberg: Yeah. So I ended up at Charles Schwab for five years, and that was really my first kind of exposure to the RIA space. Okay. And, and at the time, Schwab was, I think it was 2 trillion. Uh, you know, now I think it's 10. I may be wrong, but like, you know, and, and a lot of that was RIA custody, right? Mm-hmm. And you know, this is at a time when you're talking about.

[01:08:29] Karl Heckenberg: Post GFC, but early days Iow focus. Mm-hmm. Okay. I ended up stepping into the fiduciary network, United Capital, you know, all of those kind of pioneers. And you know, through that I got exposure to a family in the Midwest and they had bought a large regional broker dealer from a bank. Okay. I was just talking to 'em through an introduction over a period of about a year, about what to do with this asset.

[01:08:57] Karl Heckenberg: They eventually asked me if I wanted to come [01:09:00] work for them. I think a lot of families. Cool. It's interesting because I ended up working, obviously for the Milstein family. Mm-hmm. Great. New York owns immigrant bank, but they're very similar. I think a lot of families, they don't like the equity pitch. What they like is, are you gonna lose the money?

[01:09:16] Karl Heckenberg: And if you can answer, you're not gonna lose the money then anything on the upside is great. That's fine. Yeah. And I think speaking that language as a lender was very helpful. Ah, with this family thinking about A how not to lose the money. Yep. And really then generated return. Strangely how I met Howard was while I was working at this family office, this other, um, Howard had a trust company and you know, he was looking to buy a trust company that we had and we got introduced and it was kind of the same conversation.

[01:09:49] Karl Heckenberg: I mean, Howard is a very good banker. He is a very good lender, and I think we just kind of connected on that. And then it was really, you know, what's the opportunity? But [01:10:00] I think a lot of these things just come about organically. Yeah. I've always been a believer anytime somebody wants to talk, whether I know him or not, and you know, this is such a small space.

[01:10:11] Karl Heckenberg: Yeah. Right. Like it's amazing the relationship that led me to Howard, which was transformational for me. Was a very random relationship through a trust company years earlier, and this guy and I stay in touch and I'm talking to him again next week. He's, he's long since left immigrant. But it is a small business and I think being helpful where people are at different stages is really what has led to a lot of constellation success.

[01:10:36] Karl Heckenberg: But you know, just even me personally. It's such a great point and I wanna put a pin in this for people listening because I think especially, and we were talking a little bit about what the world has become, sort of post COVID and zooms and all that stuff, and being in finance and investing, this is like a numbers biz, right?

[01:10:55] Stacy Havener : That's what everybody says. But my challenge to that is always actually it's a people [01:11:00] business. 'cause every business is a people business. Yeah. And that art of like. Just meeting and having a cup of coffee and staying in touch with people, not just over Zoom or like on LinkedIn or whatever, but like actually sitting down and as two people that is feeling like it's getting lost.

[01:11:23] Karl Heckenberg: Yeah, I mean so much of this industry, it's kind of either people my age or older or people kind of in the thirties and I think everything happened so fast, it's viewed as very transactional. Yeah. Relationships priority and I would actually, I would go as far to say, I think that's a lot of our success in this business is, that was my question.

[01:11:44] Stacy Havener : Mm-hmm. You know, it's generally when we meet a team, it's not the first time we've met 'em. Mm-hmm. Like through a process. There's probably, whether it's myself, pat, who leads our investment team, or Lisa who leads our advisory team, like there's [01:12:00] probably some level of connectivity. We probably worked with somebody, help somebody out, place somebody, uh, just giving them advice.

[01:12:08] Karl Heckenberg: But I think that's the big thing, like when we're meeting with an RIA, I always joke if we're like the 20th management meeting they've taken in their process. The good news is we don't have to spend 45 minutes talking about their business. Right? Like we know their business. That's right. We, we know where they started.

[01:12:26] Karl Heckenberg: We know how they built it with who they built it. We know where partnerships didn't work out. Like so when we sit down, we actually can have a really productive conversation. And I think going back to that transactional, I think a lot of my peers on the capital side come in and I think they really just try and say, here's how much money we're gonna make and here's how we're gonna do it.

[01:12:46] Karl Heckenberg: And that's fine. But there were 18 guys through the door that had that exact same pitch. Exactly. It's like, well I don't know if you rolling up insurance brokers, you know, 10 years ago is [01:13:00] really relevant. But, but I mean, you laugh, but like that is the pitch. That's, you know, we had a lot of success rolling up insurance brokers and you know, I'm fortunate enough to say between my work at Immigrant and Constellation.

[01:13:13] Karl Heckenberg: I've been investor in over 40 different RIAs, you know, just in the last six or seven years a lot of those firms have gone on to be firms like Pass Stone and Ity and you know, so on and some great names. Yeah. But, but also just like great people. Yeah. Like I still absolutely Steve and you know, we still talk to those people and I think that's where that level of look, I always say, you know, the numbers are pretty efficient in this business, right?

[01:13:39] Karl Heckenberg: Mm-hmm. Like the valuation. Good or bad is going to be the valuation. We don't get a discount. I think what we do is we get the deal, right? Because we can add beyond the m and a side. It's, hey, you know, and this came out with the merit press release last week. You know, they were talking about, look, they were the first investor to talk to us about organic growth.[01:14:00]

[01:14:00] Karl Heckenberg: Like how do we make the business better, right? Yeah. 'cause m and a is inconsistent at best, right? Like there'll be times where buying growth. Yep. Yeah. But there's gonna be boundary. You just wanna sit it out. And you know, frankly, the platforms that command the best multiples are the ones that are growing the best organically.

[01:14:19] Karl Heckenberg: And I think you, the only way to be additive to those organizations is to really, truly understand them. I don't think you can do that if you've made one or two investments previously. You know, you have to be able to sit down and talk about what are you doing on digital? What are you doing on equity comp planning?

[01:14:35] Karl Heckenberg: Yeah. What recruiters are you talking to? What m and a advisors, and it's all these things, but it's also like, do you have the right management team? Right. Do you have the right people in place for the next five years? Like if you don't, let's be honest about it. So I think particularly with Lisa's team and Pat, his team, like the ability to just.

[01:14:53] Karl Heckenberg: I think we talk to every firm, some part of that organization every day, which is extremely rare. But [01:15:00] also, you know what, we're pitching ourselves as the only value add investor. So you, you know, I always love that one from, you know, your, your mouse right. And checks your body can't cash. Like we have to be able to cash them.

[01:15:12] Karl Heckenberg: Yeah. And, and we. Be able to add value, whether it's the largest businesses, like a Al Alter, your Crescent, or Alito, or you know, the businesses that are really kind of these emerging amazing businesses that are three to 5 billion, like Yeah. Have to be because they, they want help, right? Yeah. And that's what we're there to do is to help make those better businesses.

[01:15:35] Stacy Havener : So well said. And I, and I think it's true that, you know, every business, regardless of the size route, wants to grow. And if you can help them do that, that is an incredible value add. I think the challenge is to your point on organic growth versus, you know, acquisitive growth, et cetera, it's how you're gonna get there and is there a certain type of growth?

[01:15:58] Stacy Havener : We'd maybe say is better than [01:16:00] another, but let's say different. There's different ways to grow and your expertise and your team's expertise in organic growth. Organic growth. I think for an advisor, incredibly difficult. I mean, it's difficult for asset managers. I think it's actually more difficult for advisors because the service is very same.

[01:16:21] Stacy Havener : Like here, you know, we're gonna help you like. Prepare for retirement, grow, you know, whatever. Here's a financial plan. Like how? How different can you make it? But there's such opportunity in that to specialize. Wouldn't it be cool if you could diversify your investor base and add some non-US investors?

[01:16:41] Stacy Havener : Europe could be fun, or Latin America, maybe Antarctica. Hey, icebergs aren't really my jam, but you never know. You've only got one problem. How the heck do you do that? Fair question, but maybe this is a who not how thing. Meet my friends at [01:17:00] Gem Cap. Not only do they handle all the back office stuff, the how, they'll also solve the who in your distribution conundrum.

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[01:18:06] Karl Heckenberg: Yeah, so I'm curious. You mentioned some of the groups that you've done deals with, and I love that it's a people business, which I would so agree with, but how do you decide, because I think there's also what we forget is that you know, they're ding you, your diligencing them, so it's both ways. And so what are some of the things that you look for in an advisor that you value in that?

[01:18:33] Stacy Havener : In that partner? Yeah. Even before I get to that, I would say. Firms actually need to get better at diligence saying who they're partnering with. Oh, great point. 'cause I would say they, they spend 95% of the time thinking about their own transaction and their own deal. And you know, and we've seen this with a couple of private equity firms where the original deal teams are all gone.

[01:18:54] Karl Heckenberg: Um, you know, because to your point, it's a very hard time to be a mid-tier. Private equity [01:19:00] firm. Oh, you know, you're either Apollo, Aries, blue Wild, Blackstone, or you're a specialist. Yeah. Um, and I think you gotta kind of pick your, you gotta pick, but I think, you know, for firms, I mean, look, I would say there's the quantitative, which is we have see firms growing.

[01:19:18] Karl Heckenberg: I would say at least seven to. 12% organically. So net of market contribution, net of m and a. Okay. That's a high bar. And there's not a lot of firms that honestly, when you really get into the numbers, meet that so that that knocks most people out. Mm-hmm. The other things that we look for, like, is there concentration around, not clients, but like advisors.

[01:19:38] Karl Heckenberg: We look at how, how diversified is the equity ownership? What is the intent of the equity ownership? Because I'm not interested in investing in a business with two shareholders outside of ourselves, right? Like that's not the point. I don't think you get good outcomes, and I think a lot of these big platforms that have a controlling investor call it 70, 80, 90% of the equity.[01:20:00]

[01:20:00] Karl Heckenberg: To your point around people, businesses, and this is why we always say we're only minority investor. You have to. Your best form of downside protection is them having 90% of their net worth in the equity. And then you have to make sure the people that are contributing the revenue with the business are tied into the equity.

[01:20:17] Stacy Havener : Yeah. And if they're not, I think that's where, you know, we've started to see it with some of these really big platforms. Teams are breaking off. They've recreated these large organizations where essentially all the advisors are just employees. And we've seen how that played out. I mean, again, going back to working in the wirehouse space in the nineties, oh three thousands, you get too big.

[01:20:39] Karl Heckenberg: People start doing the math and they go, well, I can just take my 2 billion, start my own firm and you know, screw this, like I don't need it. And they don't do that if they're a partner in the business. Right. And I think that's a point that is broadly missed by a lot of other capital providers is it is a people person.

[01:20:57] Karl Heckenberg: There really are no assets in the business other than the [01:21:00] people. And you have to create these really good incentives and alignments. And I think we're pretty candid about that in the meetings. If somebody says, Hey look, we're gonna sell this thing in five years and I wanna own all the equity. You know, I would say where we're a little bit different is we'll say, look.

[01:21:16] Karl Heckenberg: You're not gonna get a good price if you own all the equity in five years outside of us. Like if it's you and us and we're exiting and you're gonna be 60 at that time, nobody's buying that business, right? Like you could have a heart attack at 61. Like, you know, what they wanna see is 20, 30% of the business.

[01:21:36] Karl Heckenberg: I would say almost minimum. Is owned by the younger advisor base, right? Yeah. So it's not even just diversified among a bunch of, you know, guys and girls that are, you know, 55, like they wanna see something the next gen too. And yeah, it's many generational firms that think about equity, but I think when you can put in that high organic growth, good equity, ownership, I do think [01:22:00] you get to a place where.

[01:22:01] Karl Heckenberg: This is something we pound on a lot, and I don't think anybody else talks about like, this space is growing so fast because of a lot of tailwinds that it has, right? Mm-hmm. Retiring, you know, aging advisor base. You know, if you just look at the story of creative planning, which is probably the best success story in this industry.

[01:22:18] Karl Heckenberg: Like that just goes to show the velocity of growth in this space. The thing that I always remind the firms and the CEOs of is that higher growth is a bit of a curse because it almost ensures nobody can stay independent for forever. You know, there, well, you unpack that a little bit. Well, so you know, I mean, this happened a lot.

[01:22:37] Karl Heckenberg: This is why a lot of the investment banks went public when they were partnerships years ago, which is the average advisory firm probably has three to five owners. They're probably within five years of age. Most of 'em don't think about taking on a capital partner. Most of 'em don't think about really equitizing other people.

[01:22:58] Karl Heckenberg: But also if you're growing at 30, [01:23:00] 40% a year, which a lot of our firms are, or more. It's very hard to equitize enough people because the valuation of the business is growing at 30 to 4%. Ah. And so you end up with these highly concentrated ship base with these assets that are suddenly worth 3, 4, 500, a billion dollars, and.

[01:23:21] Karl Heckenberg: Look, eventually people need to get their money out. That's, that's it. And, and the younger, the gen two is like, I can't afford to buy into this thing. Is, is that part of it I'm imagining? Yeah. Yeah. Okay. I would say, you know, so when you look at like internal valuations, those are based on kind of real numbers at call it a seven to 10 times multiple.

[01:23:43] Karl Heckenberg: Okay. External multiples are double that, if not triple in some cases. You also then have large shareholders inside these firms that are just saying, look, I'm not selling my firm at a 60% discount. Right. Like, and so I, I think [01:24:00] just sitting down with the firms and we do it across the generations, I think we do a really good job, even pre-deal of talking to Next Gen about what the next five to seven years.

[01:24:08] Karl Heckenberg: Yeah. And just being candid about it, right? Like if the firm keeps growing, like what do you want to do? What do you wanna own? I mean, all those things. But then putting in some type of incentive plan for them, whether it's real equity, it's shadow equity, it's profits, interest, whatever that gives them some of the upside growth, keeps them incentives.

[01:24:30] Karl Heckenberg: But I mean, that is one of the downsides of this space is it is growing so fast. It's very hard in a people based business because then you get into these weird dynamics where, you know. If people don't retire, you have 70-year-old partners that own 80 90% of the equity that aren't contributing any of the revenue.

[01:24:50] Karl Heckenberg: And then the younger people are pissed, you know, and, and it's like, I'm gonna leave. So I always say half of what we do is therapy. Right. I, I see that on the asset [01:25:00] management side too. I'm like, yes, Carl. And you know, actually as you're talking, there's so many parallels. Oh yeah, between the asset management side and the advisor side, especially when you're talking about, you know, boutiques and specialists where the founder owns all of the equity.

[01:25:17] Stacy Havener : And I often say like the phenomenon of that growth, when you think back to like your story from Merrill and people are like, well, I could just spin out and do my own thing. You know, the bigs, their success actually creates the next round of entrepreneurs because. They usually don't do a great job, as you're saying, of figuring out how to keep those people happy.

[01:25:39] Karl Heckenberg: Yeah. I mean, it's interesting when you raise capital as an asset management business, the diligence process that investors put you through. You know, if RAs were subject to that by their clients, it'd look very different. Right. You know, I, I mean, if I think about all the, I'm 50 years old. Yeah. If I have to answer another [01:26:00] question, you know, if not weekly.

[01:26:01] Karl Heckenberg: You know, who's my successor? What happens if I get hit by a pie truck? Like, how's the equity ownership work? Like how, how does this work? How does that work? And you have to have like real answers. You can't just it up in a questionnaire. You have to say, here's what happens. And. I think that's some of the discipline.

[01:26:18] Karl Heckenberg: I mean, I have to deal with it in my own business and you know, we try and impart on 'em, and I think a lot of that discipline is never enforced upon the owners of these businesses. Because again, going back up until seven years ago, these weren't highly valuable businesses. No. Right. They were, you know, it was like, remember when it was like, oh, it's a lifestyle business.

[01:26:39] Stacy Havener : Like that was the first iteration of like, wait, some of these firms are actually growing. And it was like, oh yeah, back to like 17, 18. Yeah. The most expensive businesses were worth maybe $200 million. The average businesses were worth 30. You know, now we have businesses that are worth five to 12 billion and a lot of businesses that are worth north of a billion.[01:27:00]

[01:27:00] Karl Heckenberg: It's a very different, it's different space than it was six, seven years ago. It's kind of crazy to me because, again, similar parallel with asset management. So I'm curious to your thoughts on this. So like on the asset management side, if that spin happened, right, if the fund manager left, guess what would happen?

[01:27:19] Stacy Havener : The assets would follow them, or some portion not all right. But the clients are gonna be like, well, that's my guy or gal, like I'm going with them. People business. Yeah. So on the advisor side, I sort of scratch my head on this because I'm like, the multiples are bonkers. Yeah. And yet, to your point, if the team that those clients are used to working with is leaving.

[01:27:43] Stacy Havener : The assets, how are they stickier than like any other business? So it's very interesting to me what's going on there. I mean, I think the way to navigate it is to think about kind of Gen one to Gen two, to Gen 30, right? Gen one, which is used to owning the [01:28:00] equity and really driving most of their income through distributions on the equity ownership.

[01:28:05] Karl Heckenberg: Next gen is probably more. Taking, you know, most of their W2 income, they kind of take it through profitability. I would say the difference between the wirehouse and the RA model is, and not all RIAs are created equal. This is, we're talking about like the top 5%. Right. I think firms that have figured it out.

[01:28:25] Karl Heckenberg: One have said, we're making gen two and gen three equity owners. Mm-hmm. We're figuring out a compensation model that is more sustainable for the firm, which means, you know, average wirehouse payouts in the forties. Right. Of revenue. When you look at wealth management businesses, RIAs, I think if you can find that balance between kind of advisor comp and equity distribution and, and equity comp, because these businesses are getting bigger and they're more valuable.

[01:28:50] Karl Heckenberg: Yeah. Yeah. You can kind of do this arbitrage between current income and long term gains in the, so even if you say, Hey, look, I'm gonna give you. [01:29:00] 50 basis points on business, it's worth a billion dollars. Like to somebody in their thirties, that's a lot of money, right? Yeah. And if that is paying a distribution of, you know, a couple hundred thousand dollars a year, they're making this and, and that it's meaningful.

[01:29:13] Karl Heckenberg: It's, we're kind of seeing in the wirehouses where they pivoted off of this model where I think the next 10 years it's more base and bonus. But they are attracting a different advisor base, right? Yeah. So the advisors that now are joining these organizations don't wanna hunt and kill their own food, right?

[01:29:31] Karl Heckenberg: Like they're more farmers than hunters. They're fine with base and bonus. They like being employees. They like that consistency. Yeah. So I think the biggest challenge that you have is how do you turn a hunter into a farmer? Right? And I think the answer is you really can't. You can't. I was gonna say that might be not generations.

[01:29:51] Karl Heckenberg: I always say the good news is founding partners, their gen two almost is 180 degrees from them personality wise. Right? [01:30:00] It's true. 'cause you're never gonna find a founding partner that hires his clone. He's gonna hire somebody that wants to do all the crap that he doesn't want to do. Right. And there is some positivity to that.

[01:30:10] Karl Heckenberg: Right. Totally unique ability, teamwork. But I think the biggest thing is, you know, you need to have these conversations around the equity early. You have to be transparent on them. I think you have to listen to how you're solving this problem, and I think if you do, that's why these businesses have 98, 90 9% client retention, and very few advisors do lead if they're in the equity.

[01:30:32] Stacy Havener : Yeah. You're recreating a wirehouse and and that's not a good outcome. So that is a great lesson that I want boutique asset managers to hear. I mean, there are some great lessons on the fund side for them to hear. It's a model that, you know, just because it's an advisory business, it, it actually really, it's not about that.

[01:30:53] Stacy Havener : It's about building a business that has longevity. I, I mean, look, I even, I think about it [01:31:00] weekly. Like, you know, when my role change, like Yeah. When the ownership change, because again, you have to get proactive, otherwise you're just putting out fires at, at some point in the future. And I think we are seeing this in asset management where.

[01:31:13] Karl Heckenberg: We have a bunch of zombie firms that are 20 billion that won't raise successor vehicles. Right. And largely because the younger people are leaving, the older partners don't wanna share, the younger partners don't have enough money to put up for the GP commit and their like. And I think that's where, you know, look, the black zones and the blue owls and so on are gonna have a field day kind of consolidating a lot of these businesses into their own because they can make the Gen two guys partners of the public company.

[01:31:44] Karl Heckenberg: Right. And, and they can give them more carry, they can give them equity that they can actually transact on in the future. Like, so I, I do think the future is very bright for either the specialist or the bulge bracket guys. And I think a lot of the bul and then there's a mid-tier of [01:32:00] really good firms that know that they're gonna go public in the next five to 10 years.

[01:32:03] Karl Heckenberg: Yeah. And they're going to consolidate more people that will. Kind of like us and mm-hmm. Other people that are additive. But if you're not thinking about as a RA owner, as an asset management owner, if you're not thinking about succession and the risk to your business, I mean, the biggest risk is people leave.

[01:32:20] Stacy Havener : That is the biggest risk if you're in asset management. It's not like your fund one or your fund two investors are gonna leave. It's, there's no fund three. Like nobody's committing to a fund for 10 years if people are leaving. Right, right. There's too many good choices out there. I agree with you. I wanna come back as I have a question, as something weird I'm seeing on asset management, but you've done some really cool differentiation bits throughout the conversation so far.

[01:32:48] Stacy Havener : But I wanna sort of. Camp out on it because right at the start you corrected me when I called you an aggregator. So break that down for us because I mean, [01:33:00] as somebody who's like tangentially near to what you're doing, but not in it, like there's a lot of people throwing a lot of money around and it all feels very same to me.

[01:33:11] Stacy Havener : Yeah. Like it looks like you're all rolling up RIAs and like how do you differentiate against those peers? I think it comes down to two things. I mean, one, I think it's that first thing that we talked about where we can actually sit down and help them think through on a very granular basis how to work with them to improve the business, right?

[01:33:31] Karl Heckenberg: Because I would say the capital, it's everywhere. They've got plenty of choices. I think. Then it comes down to are these people that AI can work with? Do they have a good reputation? You know, I don't like talking about ourselves much, but like I will say, I think we have a very good reputation in space. I think you do too, with those 40 firms, and it's, I always joke, it's a bit of a crapshoot, but like when we have an investor or a firm that we're talking to investing, we actually give 'em the list of everybody to talk to [01:34:00] and we say, talk to everybody.

[01:34:01] Stacy Havener : Yeah. Right. How are these guys, once the deal closed. What were they like to work with? Did they actually help you grow your business? You know, were they rational? Were they reasonable? I think we get an A plus in that area, and I think we're probably the only, well, I can say this because we're the only specialist investor in the space that's looking at like the kind of that mid to larger tier size, right?

[01:34:22] Karl Heckenberg: I mean, obviously there's a lot of other great firms like merchant and immigrant and so on. I think in the white space that we kind of occupy. Right? Yeah. So I, I think some of it is just that we're a specialist. This is all we do. It's all we're ever gonna do. Yeah. Some of it is just leaning into what the future holds in this business.

[01:34:41] Karl Heckenberg: So it's kind of that conversation that we just had like. And I've, I had this conversation with one of our portfolio firms a few weeks back and I was like, I think they thought they'd be able to stay independent a lot longer than they thought they'd be able to. Mm-hmm. And my advice was, the good news is you're growing at 40% a year.

[01:34:57] Karl Heckenberg: The bad news is you're growing at 40% a year [01:35:00] and you know, none of us are getting any younger, so. Let's think about what's good for your clients, what's good for your employees, and then what's good for you and, and what's good for holders. And I think it's just having an honest conversation, right? 'cause I think a lot of times investors come in and they go, oh, you know, there's this big M and ar.

[01:35:19] Karl Heckenberg: We're gonna consolidate and then we're gonna make a bunch of money. Right? Yeah. And I think your point. Look, there are a lot of, there's 17,000 RIAs, right? There's probably, you know, in the legitimate kind of aggregator buyer camp, there's probably less than a hundred. You know, those are the firms that we tend to back.

[01:35:37] Karl Heckenberg: But there are firms that we invest in that will never do any m and a, right? Mm-hmm. Like that's not part of their DNA. Oh, that's interesting. But there's, it's 30% a year and they're building a phenomenal business, right? So why would you not be an investor in that? So some of it can look almost like GP stakes for some of those businesses.

[01:35:55] Karl Heckenberg: Some of it can look more like traditional growth equity and hey, you know, let's do [01:36:00] buy some other businesses. Yeah. But you know, maybe half of the growth is organic, half of it is inorganic. But I think it's just kind of leaning into these different levers. But also just, you know, one of the firms, I think it was the second firm invested in, I got introduced through another private equity firm, strangely, and they said, we can't crack this nut.

[01:36:18] Karl Heckenberg: Like they're not gonna do a deal with us. Maybe they'll do something with you. He is a big personality. We, we spent an hour and a half on the phone the first time we talked and we kind of gave me the lay of land in the first 20 minutes about his business. He said, what do you think? And I said, I don't think you're ever gonna do any m and a ever.

[01:36:36] Karl Heckenberg: And he said, you're the first person to say that. And we ended up closing a deal two months later, and it was kind of that acknowledgement of like, look, I'm not gonna try and change you. I'm not gonna try and change your firm. You don't need to. Right? Like, why? Why would you do this? And yeah, I think some of it is just like problem solving because yeah.

[01:36:58] Karl Heckenberg: A lot of the advisors [01:37:00] do also want to solve for what do they do with their clients? 'cause they're not gonna live forever. Right? Yeah. And, and some of these relationships are generational and yeah, we wanna make sure their clients are taken care of. And I think it's, you know, I always kind of joke, you know, look, you know, even before we close, we're talking about, look, we are a fund, like we are gonna exit.

[01:37:19] Karl Heckenberg: What does that look like? What does the bio universe look like? Who's gonna pay the most? Like, what do you want to do with your clients? How do we build something that is authentic to your firm, but then also creates a premium for a buyer in the future that you would wanna be a part of that organization?

[01:37:34] Karl Heckenberg: And you have to start thinking about that immediately. And I think it's true for asset management. I mean, you should be thinking about where your business fits in. Yeah. To box one or Blue Owl or to an Aries or an Apollo, or do you have a plan to keep it independent forever? Some people can, and but that means candidly sacrificing some things, you know, which is, you know, top dollar and, and you know, all these different other [01:38:00] things.

[01:38:00] Karl Heckenberg: Right. Um, it's not easy. So Interesting. So that was one of my questions. So. Differentiation. When you specialize, like you said, it's baked in, which is a nice thing to have. 'cause you are different just by virtue that you do something different. On the exit side though, is that an area where differentiation can come in as well?

[01:38:20] Stacy Havener : Because I would imagine, I mean, so for you, you do wanna get bought out because otherwise how do you have a, a liquidity event for your investors? But is there some nuance to that between the groups that are providing capital? What I generally find is almost none of the other investors going in are having the conversation, what the next stage looks like.

[01:38:45] Karl Heckenberg: And I think it's kind of like, here's what we think we're building and here's the exit price and then it, it's good for everybody. You know, I think going back to this conversation that we were having a moment ago about one of the firms and them thinking that they'd stay independent loan, yeah. [01:39:00] Part of it was, Hey, look, when you sell this next slug of equity, whether it's to us, which it wouldn't be because it'd be a controlling interest at that point or to another party, you're going to lose control of the business.

[01:39:11] Karl Heckenberg: So if you're gonna lose control of the business in five years because you wanna sell, the partnership wants to sell another 25% and somebody's gonna own 51%, let's be real. Do you wanna work in a business where you've just rolled half of your equity into a business that you don't control? And he was like, well no.

[01:39:28] Karl Heckenberg: And I'm like, okay, so you know, I agree with that. I don't want to get a little bit pregnant on this. So like, why don't you just sell 50%, you've already sold 25, and why don't we start thinking about what that buyer universe in five to seven years looks like? Because the one thing that ever comes up with these sellers, and I guess they just don't really think about it, is when they sell control of the business, they still have to keep working.

[01:39:52] Karl Heckenberg: Which is, you're still gonna have to work there for like three to five years, right? At least contractually, you can stay longer. [01:40:00] So who do you wanna work with, right? Yeah. The firm. Is it somebody? And look, we've seen this with a lot of success, some aggregators, uh, not us or the firms that we back. Some do go into market and say, Hey, look, you know, this was focus pitch, right?

[01:40:16] Karl Heckenberg: Like, leave your name. You just do whatever the hell you want, right? Like, we're, we're not gonna bother you. And it's not really a firm, like, and that wasn't their approach. They were more of a financing vehicle. But I think some people have leaned into, leave your name, leave your investment operations. Like we're just buying it and getting kind of the art and, and we'll move on.

[01:40:35] Karl Heckenberg: I think other people kind of lean in and say, Hey, look, you know, I wanna go to a single technology solution. I'd like to centralize more the asset. Mm-hmm. And then the compliance and all this. But I would like to find a group of people that I wanna partner with. Some people go the other direction and they say, and we see this on the investing side, even on the Nordic, there are a very few people that say, I actually want an investor that knows nothing about my business.

[01:40:58] Karl Heckenberg: I want somebody that's gonna [01:41:00] sit quietly, just gimme the capital. And leave me alone. And that's not for us. We, we don't do those. But, you know, look it, we see that on the control side where they're like, Hey, the biggest thing was they let us keep our name and they weren't gonna make us consolidate anything.

[01:41:15] Karl Heckenberg: To me, that's not a business. But, you know, for some sellers, we start talking to 'em very early on, like, what does the exit mean? Yeah. And also like you are gonna have to roll some equity in this deal, right? Like on the next trade. And so what does it look like for you to get fully liquid? Like what does it look like for your family?

[01:41:32] Karl Heckenberg: I mean, these are not, and look, things are constantly moving, right? Like nothing. I joke, you know, at immigrant we used to do a lot of employee financing for them to buy their equity. We're a bank so we could make loans. I always joke, every year we do these patch of loans, you know, 40 whatever loans to different younger partners.

[01:41:51] Karl Heckenberg: Every year there was always last minute maneuver and people dropping out, people trying to jump in and some of it is just, life happens. Yeah. He needs to buy a [01:42:00] second home, they needs to send a kid, parent got sick, whatever. So you know, the long-term planning is great, but you also have to keep your eye on the short, intermediate term stuff.

[01:42:09] Stacy Havener : This is so fascinating to me. So I keep seeing this unfortunate, weird. It's kind of BS to me, and I'm gonna ask you about it because it pisses me off. I have a B in my bonnet over it. So, and it's a little bit different because these are boutiques or spins. So if we use the vernacular of where you are, it's more like VC probably than, than where you are in the evolution.

[01:42:35] Stacy Havener : But in the asset management side, we talked about similarities and you have these talented fund managers maybe do wanna leave, right? Yeah. But they can't do it on their own. They need help, they need resources, they need expertise, all the things you're describing. And so in the old days. It'd be like, yeah, you know, you could get a C or someone to back you and they'd take 20% of the firm, Carl, and I mean, I'm [01:43:00] talking about till like three years ago, that was the deal.

[01:43:02] Stacy Havener : The stuff I'm seeing now is so egregious. It's like. We'll give you barely anything and take majority stake of the business. And I'm like, how did we get here? And also it's like a choke hold on entrepreneurship because now you know, a healthy ecosystem should have the bigs and the consolidation and the scale-ups and the new, but we're not getting the new entrance because nobody can figure out how to do it.

[01:43:34] Karl Heckenberg: I mean, I get that. The only thing that I would say that yeah, I think is an offset is, you know, so like when we launched the business, I think we looked at average check size. I think if you'd said, Hey look, I'm gonna do this a normal way. You would've raised maybe a hundred, $150 million for a first fund, right?

[01:43:53] Karl Heckenberg: Mm-hmm. I think on the asset management side, you can do that, but you know, then maybe fund two is 300 million fund threes. [01:44:00] Mm-hmm. You know, I mean, look, I think this is very true on wealth management. There is a bit of a decision where you have to make, where it's like. You really have to be scale the matter, right?

[01:44:10] Karl Heckenberg: And so what is the trade off in in that? Now I think to your point, if you're getting nothing, that sucks, right? If you're getting something, I think it's fine. But some of it goes back to that ownership, right? So, and that's where I'm struggling. It's like then you're just an employee really. Yeah, but you know, it's, it, it is interesting.

[01:44:30] Karl Heckenberg: So we saw a private equity firm, uh, stay kind of a, a large breakaway, call it 10 plus billion, still not public, I would say. They needed a decent amount of capital. They needed to be able to really, you know, provide transition and so on. You know, they sold a, a controlling interest, but, you know, 99% of the revenue came over.

[01:44:53] Karl Heckenberg: They got offices, they got stood up. I mean, look, I think for them the math was how long are they gonna do [01:45:00] this? The answer's probably five or seven years, which fits within the fun life. The equity even at half is gonna be worth more than what it would've been. Just taking another seven year note at a wirehouse.

[01:45:10] Stacy Havener : This is a good point and I totally get it, but I mean, I do think, you know, it's one of those things I always joke, nobody cares what's fair. You know, so I think the reality is, yeah, you, you can say, well, you know, you should do it this way and you should grow it that way. I think whether we like it or not, the Blackstones and the Apollos and the Aries, you know, we're talking about firms that are either a trillion or 300 billion going to a trillion fast.

[01:45:35] Karl Heckenberg: And when you talk about it on the fundraising side, if you look at the resources of some of these firms, I mean, a lot of those firms that we just talked about, if you're talking about just. Capital formation in the RAA space, they have like 150 people each. And if you're a $20 billion manager, you have no business trying to raise capital in the retail market because you've got maybe a half a resource and they've got 150 still banging their heads.

[01:45:59] Karl Heckenberg: Right? [01:46:00] But you can't beat them at that game. And I mean, we kind of see that, like we deal with, we have a couple of large asset managers that are LPs in our fund. It's interesting talking to them because they're willing to manage a lot of assets for state plans and other people for no fee. Because they can.

[01:46:17] Karl Heckenberg: It's crazy. Right? I know. And, and I think that, look, from their standpoint, it makes all the sense, and obviously they're very profitable. I think the RIA space is, you know, scale will matter, right? I think it's, it's the same thing as asset management. Same thing. Yeah. So, yes, you dentists, you know, there's a great business in saying Louis, they really focus on physicians.

[01:46:38] Karl Heckenberg: So they'll consult on. Real estate, you know, student loans, like all these things, but they go super deep. We, we were invested immigrant in a great firm in Memphis that, um, their history was FedEx Pilots. Right. I was just gonna say, there was a business in Dallas that did the American Airlines pilots, which was a great RIA.

[01:46:56] Stacy Havener : Yeah. It's funny because the FedEx used to call them [01:47:00] with questions about the plan 'cause they've been doing it for like 30 years, longer than anybody at FedEx. And so I think you're either hyper specialized or you have to be at scale. Right. And I think we've got the same conundrum in the asset management space, which is, I don't think you're gonna be able to plot along at, you know, a billion of capital, because on the capital side it's just, it's way too competitive and people are willing to give away, you know, co-invest for other things, essentially for free.

[01:47:27] Karl Heckenberg: And, you know, it, it does make the economics challenging. I don't know. I wish I had an answer to it and I, I mean, it's just good to hear you talk about it because, and also from a slightly nuanced perspective, but with similar dynamics. Yeah. Fascinating. This has been a wonderful conversation. Carl. Thank you so much for coming in and talking with us.

[01:47:48] Stacy Havener : I'd love to end with a couple, they're not fast fire, but they're sort of fast ish. They're designed after Pro's questionnaire to help us get to know you a little bit better. I always say this is an [01:48:00] easy one, but if you like to read it can sometimes not be an easy question. So my first question is, what book inspires you?

[01:48:09] Stacy Havener : And it does not have to be a business book. It can, but it doesn't have to be. I'd love to say I'm a bigger reader than I am. You know, I love Michael Lewis's stuff. Oh yes. It's, I think he has such a keen interest in people. You know, if you look at like Moneyball or the Big Short, the commonality, of course is people that, it's kind of like that Peter Thiel question, what do you believe that nobody else believes?

[01:48:30] Karl Heckenberg: Like, yes. Love, you know, historical stories of people, particularly in our industry, because I find it interesting that they took the other side of the trade, right? Mm-hmm. Like they, they took the, the complete, I wish I. I had the balls to kind of do that, but I think it, yeah. It is interesting when you read about this, particularly something like Moneyball, where you know you're just doing something that nobody had done before and it worked because most of the time it does not.

[01:48:55] Stacy Havener : I know he's a great storyteller and his character development is really [01:49:00] where it's at for me too. Like it's just so good. Great one. Have you ever read the Undoing Project? No. Mm-hmm. Okay. I'm gonna buy you one. I'm sending you one. Okay. All right. Here we go. Next one. We're going from books to places. Okay.

[01:49:16] Stacy Havener : What place inspires you? What's your happy place? I love the mountains. I mean, we spent COVID in the mountains. Uh, I love Wilson, Wyoming, that area. Anything like that? Any, anywhere where you just see nature. I mean, Malibu, California is the same way, like anywhere. You just see it like that because living in the Midwest, you don't see a lot of that.

[01:49:38] Karl Heckenberg: Uh, so when, when you see it, but it's also just, it's quiet, it's peaceful, it's, yeah. There's something too about. Like how far the eye can see on the horizon. Like I feel like when you're in the city and the buildings are smashed up against you, it's actually, I think, I don't know. No, no, no research on this, but like anecdotally, it feels [01:50:00] like it's difficult to have like big, long-term strategic thinking when stuff's just, you know, up in your face all the time.

[01:50:07] Karl Heckenberg: That's right, that's right. Like gimme some space, you know. Okay. From places. Songs, are you ready for this one? This is my favorite. Alright. Okay. All right. So you are going to give a talk in a stadium thousand of your adoring fans who can't wait to hear what you're gonna tell us. And as you're about to take the stage, we're gonna play a walkout anthem.

[01:50:37] Stacy Havener : What's it gonna be? I'm a bit of a nihilist. Uh, I'd, I'd probably pick something bizarre. I, I love the song, uh, spitting Off the Edge of the World by the Yeah, yeah. Yes. So, okay. You can't say no this song, but I will be listening to it. Posthaste. No, you, um, anything like that, that's probably a bit of a head scratcher for people.

[01:50:59] Karl Heckenberg: Uh, [01:51:00] you know, does he wanna be here? Does he not wanna be here? Like, well, you know, so here's an interesting nuance to this question. I think some people pick songs because of the lyrics. Right. And some people pick songs because of the beat. Yeah. Yeah. And so are you picking that song 'cause of the beat or the lyrics?

[01:51:20] Karl Heckenberg: This actually checks both boxes for, okay. All right. This is good. I can't wait to listen. There you go. Um, okay, next one. What profession, other than your own, would you like to attempt? Oh man, I don't think I'd be good at anything else. Um, my, my daughter's fairly certain of that. Uh, I have a fondness for cars.

[01:51:46] Karl Heckenberg: I love, there's a couple of guys around the country that just have these amazing kind of brokerage collections of vintage Porsches and stuff like that. I would find that interesting mainly because I would just want to go into work every day. Right. Oh, right. [01:52:00] You know, so it'd probably be something like that where I feel like it's pretty low stakes.

[01:52:05] Karl Heckenberg: I'd be okay with that. I'm carrying some inventory and trying to make a small margin I'd, I'd be okay. I've been doing this for so long, I don't think I'm fit to do anything else. Uh, good, bad, or indifferent. So well also, once you're an entrepreneur, you're basically unemployable after that. So there's that problem on top of it.

[01:52:22] Karl Heckenberg: Hey, that, that's exactly it. The worst case, I got a bunch of cars in my garage that I like, and if nobody wants to, yeah. Do you have, do you collect cars? Uh, yeah. I, I do. So. And are you Porsche guy? Yeah. Okay. Fascinating. So I grew up in a family of, as they say in the UK Petrolhead, um, and in fact I also caught that bug.

[01:52:45] Stacy Havener : So I actually have a 1946 Chevy pickup. Oh yeah, yeah, yeah. And uh, my dad was the one who was like, sort of buying and restoring cars, but um, he's had some really rare ones. So when I was, when I first was able to start buying cars, the cheapest cars [01:53:00] were kind of American muscle. If you think about like in the nineties and cared about 'em.

[01:53:04] Karl Heckenberg: So I had a 65 Corvette and then ended up with a 56th Thunderbird. And what I realized is they're beautiful cars and they sound great. They drive like crap. Uh oh. Yeah. So I, when I actually had a little bit of money, I started buying, uh, Porsches that nobody cared about, uh, tour, kind of the first water, cool cars, and uh, I just stuck with it.

[01:53:26] Karl Heckenberg: So, yeah. That's so fun. I love that you shared that. Yeah. 10-year-old daughter. Uh, so it's, it's worked out well. So she That's great now. Awesome, Carl. I love that. Okay. Flip side, what profession would you not like to do? Oh, God. Uh, plenty. I don't, I don't think I'd have the stomach to be a vet or a doctor. Uh, it's just, that's not in the tea leaves for me.

[01:53:53] Karl Heckenberg: Uh, I don't think I'd line up well with that. You know, it's interesting about the vet because this has come up in other [01:54:00] conversations and some people who actually started out wanting to be veterinarians, and then what they realized is actually the animals are not happy to see you. Yeah, no. And I was like, gosh, who thinks about that?

[01:54:13] Karl Heckenberg: I, you know, it's like being a doctor. Nobody's thrilled. No, it's happy to be there. Right? Like you're seeing things at, at the worst. Uh, so yeah. I always joke, I like wiring people money, like, you know. Yeah. It's good to make friends. Yeah. Yeah. People like you a lot, right? Um, I'm, yeah. It, it's good. Okay. Last but not least, and hopefully not anytime soon, what do you want people to say about you after you've retired or left the industry?

[01:54:42] Karl Heckenberg: I mean, the honest part of me is like, I'm not. Really gonna worry about that or think about it because, you know, I'm gone. Um, think like, actually I don't care. It's a little bit of that. Uh, I, I think it's, uh, there's a little too much ego if you're thinking that people [01:55:00] are talking about once you, once you're gone.

[01:55:02] Karl Heckenberg: I don't, I don't, you know, I don't think there's gonna be a memorial service for, for all my years of service. Uh. You know, I, I think if I was asking, you know, or answering it on an LP questionnaire, I would say, and, and it is sincere. Look, I like it when everybody wins. Like, I don't view this as a. You know, I, I like our partners to do well.

[01:55:24] Karl Heckenberg: I don't view it as a competition. I think if their clients win, if their next gen wins, the partners win, and, and our investors win, and our employees win. I, I think all that's attainable. I, I think we have a great track record of doing that, uh, over a number of exits and investments. So. I think that's fine.

[01:55:42] Karl Heckenberg: But yeah, I think the honest part of me is nobody's gonna be talking about it. No one's gonna care. It's so true though, but it's also very freeing, isn't it? When you realize no one actually gives a shit about you. You're like, I can do whatever I want. Yeah. I'm gone. Yeah.

[01:55:57] Stacy Havener : I love this, but actually, you know, [01:56:00] he helped everybody win. That's a pretty good vibe, isn't it? You know, but, but all the people that I helped win are probably on the beach themselves too. They're not, yeah, totally. Yeah, that's fine. But listen, I, I think that's a great place to end because this industry especially is very zero sum game.

[01:56:18] Stacy Havener : Yeah, right. Like in order for me to win, everybody else has to lose. Even if they're not my, in my asset class or in my peer even. Like, just everyone must lose. That's how I win and I think it's very refreshing to talk to somebody who sees it differently because I do too, and, and you're one of the good ones.

[01:56:37] Karl Heckenberg: Thank you. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. The information is not an offer, solicitation, or recommendation of any of the funds, services, or products, or to adopt any investment strategy. Investment values may fluctuate and past performance is not a guide to future performance.

[01:56:57] Stacy Havener : All opinions expressed by guests on the show are [01:57:00] solely their own opinion and do not necessarily reflect those at their firm. Manager's appearance on the show does not constitute an endorsement by Stacey Haven or Haven or Capital Partners.

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Episode 115: Karl Heckenberg, Founder of $1B platform Constellation Wealth Capital, on Billion Dollar Partnerships, Founder-Led Firms, and Why People Matter More Than Performance
Episode 114: John Bowman, CEO of CAIA, on Founder-Led Sales, Listening Tours, and Why Empathy Wins in Finance
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Stacy Havener

Stacy Havener is a blue collar girl from a working class town who leveraged her literature degree and love of words to revolutionize an industry dominated by men obsessed with numbers. At the age of 30, she founded Havener Capital to connect boutique asset managers with early adopter investors. She has raised $8B+ for new/ undiscovered funds that led to $30B+ in follow-on AUM. How? By telling stories.

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Episode 114: John Bowman, CEO of CAIA, on Founder-Led Sales, Listening Tours, and Why Empathy Wins in Finance