It has been exactly 25 years to the month since The Townsend Group won its first institutional client. Since taking on the Ohio Police & Fire Pension System in 1986, the Cleveland-based firm has grown to become a dominant global force in real estate consultancy and discretionary investment management.
Just to chuck a few numbers out there: Townsend has $100 billion in total advised assets and allocates real estate capital on a discretionary and non-discretionary basis for more than 85 institutional clients from offices in Cleveland, San Francisco, London and Hong Kong. If it were a designer of high-end fashion sold to the rich and famous, one would say the firm has a “client list to die for.” It is, in fact, the biggest in the business.
Because of its clout, or perhaps in spite of it, Townsend always attracts its fair dollop of intrigue, as well as (grudging) admiration. Still, news this week that Townsend’s senior management sold a 70 percent stake in their business to Aligned Asset Managers has put the firm under the spotlight even more than usual and caused some to speculate on two things.
First, given that the buyer is a company that looks for asset managers and one that ultimately is owned by private equity firm GTCR, hasn’t this now lifted the skirt of Townsend? In other words, this would seem to indicate that Townsend’s core business is investment management rather than consultancy.
Of course, there is an assumption built into that conclusion. If one assumes that a private equity firm is looking for a certain multiple on its investment and you believe the usual mantra that consultancy work is not brilliantly rewarded, then the private equity firm must be attracted to Townsend for its outsized money management.
The second item to ponder follows the first. If the acquisition is all about investment management, what do Townsend’s consultancy clients think of the sale? [There also is a third question – what does this say for consultancy firms, in general? – but we will leave that for another time.]
These are all interesting questions to consider, but perhaps the starkest point to emerge this week is the fear that Townsend seems to instill in others. Frankly, the firm drives both consultants and managers nuts over its ability to mix consultancy and investment management work. Yet, no one wants to speak out; they just mutter.
By the way, Townsend sees its combination as a big strength, rather than as something to hide. The bad news for its critics, however, is that the deal with Aligned could see Townsend become more powerful still.
Townsend now has a partner that can sufficiently bankroll it to retain its top-performing staff and to pay for extra professionals in the offices it plans to expand from, notably London and Hong Kong. After all, it couldn’t go on adding staff at the rate it has over the last 24 months from just its own capital.
In the wake of the deal, Townsend has gone from eight partners owning the firm to 13. Terry Ahern and Kevin Lynch, the co-founders, will be running the business for the next five years as part of the deal. So, no change there.
In addition, that’s enough time for a natural successor to emerge from Townsend’s younger set – one who will be able to take on key relationships and build on them. And its new majority owners want Townsend to build on both the firm’s investment management business and its consultancy. Basically, the new owners just want it to continue to grow.
The upshot of the deal with Aligned, therefore, is that Townsend is here to stay and could get bigger. That is not the news the firm’s competition wanted to hear.