Single family offices are appointing
investment consultants, refreshing their teams and forming
multi-family offices, trends which are all contributing to an
increasing professionalisation of the sector.
In particular, third-party consultants are
being appointed to perform due diligence on investments, asset
allocation and to provide advice on forming partnerships with other
family offices. This has, in part, been driven by restructuring
following reduced assets under management (AuM) figures in the wake
of the financial crisis, particularly because of family offices’
preferences for the private equity and hedge fund investments that
were hit hardest by reduced liquidity.
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With lower AuM figures, it is harder for single
family offices to be viable to their owners from a cost
perspective. This has contributed to the success of organisations
like Family Office Metrics in the US over the past year, which
advises wealthy families on teaming up with others and converting
into multi-family offices. This month it signed up its 100th
client.
Declining AuM and increasing costs is not the
only driver of this process, however, according to Jon Carroll,
president and CEO of Family Office Metrics, a consultancy. He
said quality, rather than cost, has been the key driver of
innovation among family offices.
“If you look at Fireman Capital Advisors, our
100th client, they’re not proposing to pursue this business model
to spread cost over a wider base,” Carroll said.
“They are doing it to add value at a profit.
It’s a business, not cost-sharing. That’s an important
distinction.”
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By GlobalDataInvestment consultancies are also seeing more
enquiries from family offices, which are looking to fix
shortcomings in their investment processes. This involves improving
corporate governance structures, operations and internal controls
and increasing investment in technology as a way of improving
quality of data and reporting.
As well as the professionalisation of single
family offices, there is also evidence multi-family offices are
becoming more adventurous. GenSpring Family Offices, based in
Florida, is seeking overseas deals, while St Louis-based Lowenhaupt
Global Advisors set up an office in Australia last year.
“In the multi-family office space, there are no
global players,” said Santiago Ulloa, head of GenSpring’s
international operations.
“There are lots of small boutiques, but none of
them have managed to develop their business the right way in other
places. We believe that 15 years to 20 years from now there will be
two or three global players in this area with a presence in the Far
East, Europe and the Americas. With the background and size we
already have, we want to be one of these three, if not the main
one.”
Further regulation
possible
Another consideration affecting family
offices is the prospect of greater regulatory scrutiny being placed
upon them, particularly in the US. The situation currently remains
cloudy – a bill which has been passed in the US House of
Representatives mentions family offices as an entity which should
be regulated. There are also bills before the Senate, but none have
yet been passed.
In June 2009, the US Treasury issued some
guidance to the market under the Private Fund Investment Advisers
Registration Act, which indicated family offices, along with
private equity and venture capital funds, should be regulated to
make sure there are not contingent liabilities or risks within the
system.
“The smart money says something will happen,
and it’s likely to happen without full definition of what a family
office is,” said Carroll.
“That means it’s likely regulators will have to
define what a family office is after the legislation is passed,
which will give them some latitude.”
Charles Lowenhaupt, who heads multi-family
office Lowenhaupt Global Advisors, said it could lead to reporting
of assets under management at single family offices. This would
lead to costs that family offices are currently not bearing, in the
form of the added burden of time, money and resources associated
with compliance.
But Carroll said most family offices he works
with operate as though they are already regulated, meaning
regulation may not prove as onerous as anticipated.
Wealth consultant Ian Woodhouse, (see PBI
256) said many family offices were recruiting to strengthen
in-house teams and using external consultants.
It is this confluence of factors which is
leading to the professionalisation of family offices and promises
to deliver a leaner, more efficient and regulated environment for
these enterprises to flourish.
