Last week Matthew Vincent, the leading journalist on the private client industry for the Financial Times, called to ask a few questions about the ‘value added’ services that Family Offices can provide.
I am close to a number of CEOs of Single/Multi Family Offices and decided to pick up this issue with them. For many of them I was part of the team that created the family office structure they are running so they felt comfortable to speak openly to me.
First all the CEO’s I spoke to said there was a real distinction between a Single Family Office, where the family or in some cases families have formed a Family Office to look after their financial interests, and the Family Offices which have been formed by investment managers. These investment managers could have come from a range of backgrounds; private banks, hedge funds or fund managers to form a boutique that acts for UHNW families. The attitudes, philosophy and goals of the two are very distinct.
A multi-family office – which is the term I will use for the investment manager led office, has as its primary goal to win new business; increase AUM, and will use many of the methods applied by the institutions they have come from; networking with intermediaries, hosting conferences and an active profile on LinkedIn.
The most pressing challenges faced by single family offices are to reduce costs and drive up returns on investments. Top priorities in reducing costs are to minimise the fees paid to banks and intermediaries, tax and any form of dispute.
For those family offices which either alone or combined with other families, can boast institutional wealth, a reduction of costs is easy if they can secure the same privileges and rates as institutions. They will then invest in these funds available only to institutions; pensions and insurance companies, which are blessed with the best deals, the best professional opinions and the best financial analysts.
The value added for these families in the future is their eagerness to buy the fiduciary arms being shed by global institutions, which could then be built into the private banks of tomorrow.
The families who do not have institutional wealth have different value add objectives. They are looking to private equity to increase returns but recognise that it is a risky proposition.
To minimise the risk, SFOs are first looking for deals which have been pre-qualified by one or more investment analysts. Then they need access to a team of advisers – which we call the inner Ring of Confidence, to monitor the development of the private equity investment, make the most of tax breaks and diffuse disputes before they escalate into a costly problem.
These investors are also looking for a secondary market so that as and when an equity investment succeeds, they can take profits, by selling part to other SFOs.
Notwithstanding the risk, there are some interesting added advantages to private equity investment; first with a good spread, one or two investments will come good, which will be taxed as capital gains against which any losses can be set off, second there are numerous tax breaks for investing in private equity, not least business property relief for inheritance tax and third families like to co-invest – or at least talk about it – sharing is caring!
There have been a variety of initiatives keen to use digital technology to meet the needs of these Single Family Offices. If any-one succeeds which is likely, much needed finance for small to mid-cap private equity will be available and more jobs for professionals eager to work with and for SFOs will be forthcoming.
On tax and Brexit, all Family Offices, large or small based in London, are disappointed that the UK has not followed the Singapore model, which encourages wealthy families to live in their country. As the UK haemorrhages its lead by diluting its tax breaks for non doms, other European countries have taken the initiative and UHNW families are considering seriously emigrating to their shores for the tax breaks; Italy, Portugal, France are keen to attract wealthy families, to name but a few.
All SFOs, whether onshore or offshore, large or small are affected by the speed of change to their world. A few however are excited that the change has thrown up opportunities. If you are one of these few please feel free to comment.
If you have other questions on setting up a Family Office, managing your FO or have other questions please get in touch with us direct:
Contact : firstname.lastname@example.org
020 3740 7423
Caroline's books 'When you are super rich who can you trust' and 'Winning Business from Private Clients' will be republished on 11th October at Waterstones Piccadilly.