It isn’t just private equity. Sovereign wealth funds want a piece of the wealth management business.

“As large RIAs continue to grow over time, they become too big for any one private-equity firm to take on by themselves," says Dave Welling, CEO of Mercer Advisors, the $70 billion firm that received a substantial minority investment from GIC, Singapore’s sovereign-wealth fund last year. “I think you’re going to see more firms take on a multiple ownership structure similar to ours that includes sovereign funds."

“Firms that reach a certain tier in terms of size need more capital and there’s a scarcity of PE firms that are equipped to take over as the next backer," agrees Harris Baltch, co-head of investment banking at Dynasty Financial Partners. “To get to the capital threshold that’s required, sovereign funds are positioned to serve as a partial solution."

In addition to investing in Mercer (a “good size, double digit" minority stake, according to Welling), last month GIC invested in Altruist, a fast-rising RIA custodian. Another sovereign wealth powerhouse, the Abu Dhabi Investment Authority, bought a minority stake in Fisher Investments, the country’s largest RIA with nearly $300 billion in assets, last year.

In November, Mubadala Capital, a subsidiary of another Abu Dhabi fund, took Canadian-based CI Financial Corp., the owner of Corient, a U.S. RIA with $190 billion in assets, private in a transaction valued at $4.7 billion.

These deals are happening just as the pool of PE investors with sufficient resources to fund the expanding capital requirements of fast-growing mega-RIAs is shrinking.

RIAs have appeal. For sovereign-wealth funds, the ability of independent advisory firms to provide recurring revenue, predictable cash flow, high margins, attractive growth rates and long-term value appreciation is appealing now that the biggest among them are large enough to attract their interest.

Wealth management hasn’t been “a large enough investment opportunity" for the funds until recently, wrote former Fiduciary Network head Mark Hurley in a white paper last year arguing that sovereign funds will start to disintermediate private-equity investors as mega-RIAs merge. “It’s now becoming [feasible]. This is something where they could put several billion dollars to work for 15 to 20 years."

“These are among the largest investors in the world," said Karl Heckenberg, managing partner at minority RIA investor Constellation Wealth Capital. “They have to deploy hundreds of millions of dollars in each investment [and] wealth management needs more capital than private equity can offer."

What’s in it for RIAs. For RIAs, the contrast of sovereign funds’ extended investment horizon with the three to seven year private equity time frame is as important as the size of the check. As CI Financial CEO Kurt MacAlpine put it when the deal to take his firm’s RIA private was announced: The Mubadala fund’s “long-term investment outlook…provides stability and certainty for CI’s clients and employees."

GIC’s time horizon was similarly appealing to Mercer, says Welling. “They realize how long our strategy will take," he explained. “Tech investments are a good example. GIC understands that benefits will be evident in a five to 10 year period, not this year or next. It’s great to have that perspective."

That long term commitment is extremely appealing to RIAs used to having private equity sponsors who have a three to five or seven year exit strategy, says merchant banker Peter Nesvold, managing partner of Nesvold Capital Partners.

“There’s a shot clock when you’re working with PE," Nesvold says. “They need to exit and monetize their investment. RIAs want to get off that treadmill if they can."

IPO Path. The sizable investment and extended time horizon of a sovereign wealth investment can also provide a bridge to an eventual initial public offering for a mega RIA, industry observers say.

“The top performing RIAs are doubling in size and will need more capital than the private markets can support," says Heckenberg. “At some point somebody has to go public, and sovereign wealth can extend out the life span of those firms as a private company until the public markets are receptive."

While an IPO isn’t necessarily Mercer’s goal, Welling says, he characterizes a sizable sovereign fund investment as a “natural progression to becoming a public company."

Mercer, which is also funded by PE funds Altas Partners, Genstar Capital, and Oak Hill Capital, also benefits from GIC’s international expertise and exposure to markets in the U.K., Canada and Mexico, all “logical" destinations if Mercer wants to expand overseas, Welling says.

RIAs receiving a sovereign-wealth fund investment also get a reputational boost, according to Dynasty’s Baltch. “It validates valuations and is a meaningful signal to the market," he says. “These funds have a tremendous selectivity bias."

Political issues. Conversely, the Trump administration’s shifting outlook on foreign ownership is a potential concern, and some clients may raise eyebrows if a Middle Eastern monarchy owns part of the advisory firm they do business with, industry executives said on background. “There may be political sensitivity," one executive said. “The analogy would be what happened with LIV Golf." (The upstart professional golf organization backed by Saudi Arabia’s sovereign-wealth fund that became mired in controversy.)

How much involvement sovereign-wealth funds have with an RIA’s operations or how much preferential treatment they may receive over other investors appears to be an open question. Sovereign funds are likely to ask for immunity from lawsuits, and may also ask for special deal terms like receiving a preferred share class, says attorney Richard Chen, whose Brightstar Law Group specializes in RIA compliance, M&A and contracts.

“If these funds are bringing so much money in, the real question is how much operating authority do [RIAs] have?" says veteran industry executive Jay Hummel, who together with partner John Phoenix just launched a new RIA aggregator and “succession incubator," Uniting Wealth Partners.

GIC has one board seat on Mercer’s 11 person board of directors, Welling said, but declined to comment about specific deal terms. GIC and the Abu Dhabi Investment Authority didn’t respond to requests for comment.

More scrutiny. What RIAs can expect from sovereign funds is increased due diligence. The investments come “with a double-edged sword of greater scrutiny," says David DeVoe, CEO of his eponymous RIA M&A strategic consulting firm. “This level of diligence comes with a cost of extra work, but it creates a new level of discipline and structured thinking that ultimately will benefit most organizations."

“There will be a lot more required transparency for risk management, compliance and governance structure," Chen says.

What’s more, he adds, a sovereign-wealth fund may insist that an RIA’s investing values align with theirs. A Middle East fund, for example, may not want an RIA to invest in companies that sell alcohol.

More deals coming. As RIAs get bigger and consolidate, industry executives fully expect to see more sovereign wealth investment.

“As more RIAs graduate to very large valuations, you will definitely see more sovereign-wealth funds in the mix," says Nesvold.

“Permanent capital is the Holy Grail for RIAs and that’s what sovereign funds can provide," says Baltch. “But the ones who get it are going to have to [be big enough to] move the needle" for fund returns. He thinks that means a minimum of $50 billion in AUM.

Heckenberg estimates an RIA would need an enterprise value of $2.5 billion as the threshold for obtaining a sovereign fund investment. RIAs with over $40 billion in assets who haven’t recapitalized in the past three years would be likely candidates, according to Welling.

RIAs most frequently cited as potential recipients of sovereign fund investments in the future include Beacon Pointe Advisors, Pathstone, Cerity Partners, Hightower Advisors, Wealth Enhancement Group, Captrust and Edelman Financial Engines.

Sovereign-wealth funds would have the resources to help finance a prospective industry megamerger between industry giants such as Mariner Wealth Advisors and Creative Planning, according to industry observers.

“There’s no doubt sovereign-wealth funds have very deep pockets, can finance big deals and are a huge positive for the industry," said John Phoenix, partner and co-founder with Hummel of the Wealth Advisor Growth Network. “But are they bringing anything to the table besides capital?"