Iconiq Capital is now an $89bn RIA as it evolves from wealth management to KKR mode – not without Henry Kravis and ‘glaring conflicts’

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San Francisco company has nearly quadrupled in size since June 2020 is sourcing and buying shares ahead of IPO, determined to be a wealth manager for the super-rich and compete for private equity deals from the A list with Blackstone et al.

Note from Brooke: I always wondered how far the separatist movement on Wall Street could go. We know that investment banking profit centers are primarily tied to trading, financing and closing deals and retail brokerage strengths were almost an afterthought – a means of distribution. What if these “broker-distributors” organized themselves and gained enough added value to use the power of direct investor relations to set up financing mechanisms for the most lucrative transactions. Iconiq Capital appears to prove that it can be done – avoiding conflict at all times – but seemingly delivering extraordinary returns by using clients’ expertise, capital and relationships in a virtuous circle on their behalf.

Iconiq Capital grew from $23 billion in June 2020 to over $80 billion after a group of companies went public and generated huge capital gains on shares held by clients before the ‘Initial Public Offering.

Divesh Makan, Morgan Stanley’s stockbroker for Facebook co-founder Mark Zuckerberg, co-founded San Francisco’s RIA in 2011 and had big stakes in 11 companies, including Honest, Robinhood, Gitlab and Warby Parker. All made their initial public offering last year. See: How Facebook’s IPO creates the mother of all RIAs, Iconiq, and what a surprise it’s for Wall Street

David Lee now manages most of Zuckerberg’s fortune outside of the Iconiq RIA.

Iconiq also scored big on M&A deals involving two companies, Wolt, a restaurant food delivery business, and Turbonomican application resource management company.

It was an early major investor in the two, which were acquired by Doordash and IBM respectively.

“The reason Iconiq got so big is that they invest in the next big thing – Facebook (Meta) for example – even before they go public.

“These guys (Iconiq) really got it,” says Lorenzo Esparza, founder and CEO of Manhattan West – a JPMorgan breakaway in Los Angeles looking to build a major venture capital firm as part of a fund manager. RIA heritage.

Inevitable conflict

Yet being in so many lanes as both a manufacturer and a distributor must simply remove the icebergs of conflict, says Eliza DePardo, Founder and Consulting Director at De Pardo Consulting.

Eliza De Pardo
Eliza DePardo: “The conflict of interest issue is glaring.”

“The issue of conflict of interest is glaring,” she says. “I don’t think it matters how this issue is conveyed or phrased, it’s inevitable.”

Iconiq agrees, at least for disclosure purposes.

“Many investors in ICONIQ Private Funds are our managed account clients, and when we recommend these clients invest in funds we sponsor, we face actual and potential conflicts of interest,” he wrote. on page three of this SEC document.

Such a set of product sponsorship and customer fiduciary duty conflicts under one roof is mostly new to RIAs, as the rise of the business model is “a recent phenomenon,” according to DePardo.

Asked by Business Insider how it would overcome such conflicts, insiders said Iconiq’s focus on investments will avoid creating conflicts of interest with its customers, as capital goes to large tech companies. means that the customers’ companies will not pursue, according to the people. familiar with the business – leaving aside concerns of conflict with the wealth manager.

“RIAs aspiring to turn into private equity are a recent phenomenon,” DePardo adds in an email.

“The question is, does the ability to meet clients’ advisory needs through wealth management, financial planning, or investment management capabilities creates the foundation for a successful private equity player?”

Covering the basics

“In the case of an RIA wanting to build PE capability, does the company have a specific sub-area of ​​expertise that could be used as a springboard to create additional value? Success in PE is ultimately a matter of creating value. Sourcing opportunities, structuring, signing, restructuring, scaling and selling are all essential core competencies,” she says.

For some, some companies are more than capable of effectively deploying such a complex business model, says Esparza.

“This is really what wealthy clients should be looking for [as opposed to a plain portfolio of stocks and bonds],” he adds.

“Why not be able to talk to someone in real estate who really knows the space used by your RIA company? Why not talk to a late-stage private market venture capitalist who can give you access to big names before they go public?”

Upsizing

Becoming such a complex organization requires a large enough staff to cover all the bases.

Doug Fritz
Doug Fritz: “We call it ‘being like Iconiq…’

Iconiq now has 293 employees, according to SEC filings, nearly six times as many as 55 employees in 2015, when its assets under management were $12.5 billion.

“It may seem easy, given the performance of the markets over the past decade, but it really isn’t,” Aite Group researcher Wally Okby told Business Insider when asked about the apparent ease. of the Iconiq model. “The test of that will come when the markets turn or when they wobble a bit. You need a certain skill set.”

Iconiq’s customer base consists of 257 high net worth investors with $11.5 billion in assets under management and 45 charities with an additional $4.1 billion. The bulk of its client assets, $44.8 billion, are listed as “clustered” in 204 pools, according to the latest ADV report from December.

Freewheel

All of this RIA growth apparently comes without too much tailwind from Zuckerberg’s personal fortune, according to a paid article in Business Insider from last March.

Lorenzo Esparza: These guys (Iconiq) “really get it”.

The article says the 37-year-old Meta mogul has transferred most of his assets to his wife’s philanthropy, Chan Zuckerberg Initiative (CZI).

CZI chief investment officer David Lee was hired by the Princeton University Investment Company, the university’s $38 billion endowment.

The creation of CZI was announced in 2015 with the idea that 99% of Zuckerberg’s Facebook wealth would live there with a philanthropic focus, but it’s not a foundation or other tax-exempt entity, giving him freedom to make large-scale investments.

For example, it can invest in for-profit startups, can spend money on politics and lobbying, and keep top executive compensation secret.

gold standard

Regardless of the number of assets moved from Iconiq to CZI, the former’s assets totaled $89 billion in assets under management, including $66.5 billion discretionary and $12.5 billion non-discretionary, according to the Iconiq ADV2, dated September 30.

The Iconiq site offers another version of its AUM at $83.5 billion. (See screenshot at right.)

“In terms of Iconiq, this really should be the benchmark for RIAs and the vision for RIA evolution.

“They saw the future, got the goodwill, then skated where the puck was going,” Esparza said. See: Manhattan West poaches Reggie Tucker’s ‘inflection point’ as Los Angeles VC ‘deal flow’ reaches critical mass and startup RIA 2016 hires wildly to seize once-in-a-generation opportunity

The company certainly has a history of golden elbows to rub.

Henry Kravis of KKR, David Bonderman of TPG, and Chase Coleman of Tiger Global Management (via his own foundation) are, or were, Iconiq clients. All three sat on the board along with Twitter founder Jack Dorsey and LinkedIn founder Reid Hoffman, according to a 2017 WSJ article.

Doug Fritz, CEO and co-founder of F2 Strategy, says Iconiq’s business model is unique enough to describe itself.

“We call it ‘being like Iconiq’ whenever it comes up,” he says.

“In short, I see this as a likely (albeit limited) trend where groups of very wealthy individuals will find themselves in a position to benefit from the company of other very wealthy individuals. business nature of their customers.”

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