Most of Wall Street is glorified wealth management
This is a shower thought that has stuck with me for the past few days.
Take real estate private equity for example - sponsor sources a deal. The capital stack has GP & LP equity and then debt. GP equity is the sponsor. LP equity is HNWI friends/family (wealth), family office (wealth), boutique funds (comprised of HNWIs = wealth), sovereign wealth funds (obviously wealth), institutional investors (like behemoths that manage a lot of rich people’s money = wealth OR pension fund behemoths that manage a lot of working class people’s money = wealth). It all chalks up to wealth.
PE is basically the same as above except underwriting businesses instead of RE assets. Similar capital stack.
VC is pretty much PE but focused on early or growth stage companies and higher risk. In a similar spirit, a good amount of capital flows from HNWIs into VCs or if the VC is a division of a bigger fund, then that’s also a source. Either way, stems from kind of wealth management.
Hedge Funds are basically deploying aggressive strategies with UHNWI money, family office, or perhaps some institutional grade group. Either way it’s all wealth based. They’re either the people with the money or they’re the ones that are managing the money for the people with the money.
Asset management is using money from pension funds (pooled wealth) etc and buying into numerous strategies with mutual funds etc.
Then there are credit funds that lend against property, receivables, litigation financing, etc etc but often times depending on the lenders profile it could be wealthy investors backing it.
I guess consulting and IB wouldn’t be directly related although maybe IB since they do some capital raising for what it’s worth.
But basically everything seems to be - someone with money puts it with someone who either invests it for them or finds someone else that will invest it. The service is basically the same, it’s just that it changes asset classes and the fee structure may vary.
It just is crazy to me how it all is basically glorified wealth management. And how the money often exchanges so many hands before it’s deployed, with each hand being someone getting paid to some degree. It’s like inefficient.
Am I retarded for oversimplifying this? Or am I retarded for only realizing that now?
What are the challenges in capital raising where it warrants having to deal with so many of these third parties?
Capital raising involves numerous challenges that justify the involvement of multiple third parties, each playing a specific role in the process. Based on the most helpful WSO content, here are the key challenges:
Access to Capital:
Building Trust and Credibility:
Regulatory and Structural Complexities:
Time and Resource Constraints:
Creating Scarcity and FOMO:
Market Saturation and Competition:
Risk Mitigation:
Investor Preferences and Alignment:
In summary, while the process may seem inefficient with multiple hands involved, each party adds value by addressing specific challenges, reducing risks, and ensuring a smoother capital-raising process.
Sources: Troubled fundraising processes, How do all the smaller GPs handle the funding to closing process?, Fintech is going to kill Private Wealth Management jobs?, Q&A: Fundraising for Private Equity, Cap Intro & Investor Relations Career Paths, Development and Capital
Post shower thought - Can't wait to go to my Northwestern Mutual internship today, everyone else on Wall Street asks friends and family for money and is basically glorified wealth management!!! I don't know why everyone rags on this gig, selling life insurance is the same thing! Wealth management for the win!
Pre much ye. If you think about the pension contributions basically fund the entire financial services industry.
Are you high?
You just listed a bunch of fields within the broader asset management industry and then went on a rant about how all they do is manage assets in different ways?
And then described it as wall street? While missing out the entire of the sell-side?
Is it new to you that companies in the same industry provide the same product/service with different features for different customers? If I told you that an ipad, a phone and a laptop are basically the same thing in different sizes, would that blow your mind?
bro just figured out how the game works 🙏
You are suprised that the industry of managing money manages money?
there is a lot of money owned by a lot of people so of course there are tons of strategies and viewpoints on how to do it. Some will like the institutionalized approach and are fine paying the bigger fees and others are more DIY.
Capital is wealth by definition
Then if you boil it down further everything is related to sales and bringing in new capital/wealth. Then if you boil sales down it's all about relationships. Then if you continue to boil it down to the nth degree you have primates dancing around the discovery of fire.
Wait who did you think owned the money?
So you’ve discovered that the buyside needs money to actually “buy” things. Where did you think the money came from?
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