FAMILY OFFICES – Asset Management and beyond

For many years, there has been some sort of ‘enigma’ surrounding the term Family Office. In parallel, the last decade has seen tremendous growth in the number of Family Offices globally. With continuing wealth concentration, the natural desire of families is to pass on assets to the next generations and in the face of increasing globalisation, there is every reason to expect more Family Offices to be established.

With their sixth century roots, the modern concept of the Family Office was developed in the 19th century, when the family of financier and art collector J.P. Morgan founded the House of Morgan to manage the family assets. In 1882, the Rockefellers founded their own Family Office, which is still in existence and provides services to other families.

The expression Family Office covers all forms of organisations and services involved in managing large private fortunes. To honestly call itself a Family Office, an organisation needs to provide more than just the standard wealth management functions.

The definition is still unclear for many and this is largely attributable to the fact that there is a lack of clear direction of what a Family Office constitutes, in addition, it is not a licensable or protected activity. As a result, many traditional niche financial advisers have taken up the term ‘Family Office’ for marketing purposes, though in essence, they have remained investment advisers, deal networks or brokers.

The following intends to shed some light on the origins of Family Offices and some basic concepts behind them.

What is a Family Office?

There are two main types of Family Office; Single Family Office (SFO), serving one ultra-affluent family and Multi-Family Office (MFO), which serves several families simultaneously. Publications on the subject are relatively old and few studies are available since 2012. Cap Gemini in The Global State of Family Offices, 2012 indicated the types of Family Offices needed based on assets and costs:

Family Office Type Assets (millions) Overhead cost per year (million)
Administrative (basic) USD 50m to USD 100m USD 0.1m to USD 0.5m
Hybrid USD 100m to USD 1 billion USD 0.5m to USD 2m
Fully Integrated >USD 1 billion USD 1m to USD 10m

 

Why set up a Family Office?

There are numerous good reasons for setting up a Family Office or for joining other families in a Multi-Family Office set-up. They should all contribute to the facilitation of the inter-generational transfer and help manage the complexity related to the growth of the wealth.

  1. Governance and Management Structure

A bespoke system of values for the long-term in order to avoid family conflicts, with transparent and confidential management under the same structure.

  1. Alignment of Interests

The Family Office works for the client and is paid by the same client. It follows the interests of the family.

  1. Potential Higher Returns

Asset Management, Investment Management and Financial advice across banks and asset classes help maximise the returns and lower risks.

  1. Separation

The Family Office allows for the separation with the family business and offers objectivity to the family.

  1. Centralisation

The operational consolidation of risks, performance management and reporting, allows the family to make quicker and efficient decisions.

The coordination of other initiatives within the spaces of non-financial assets, philanthropy, estate planning etc. help the family to meet its mission and goals.

What does a Family Office do?

At the heart of any Family Office is Investment Management. It is not about managing part of the assets and delivering a performance, it is not about products, rather, it is about risk diversification and ‘peace of mind’.

The Investment Management philosophy of a Family Office implies:

  • the evaluation of the overall financial situation;
  • determining the investment objectives, the risk profiles and the investment horizons;
  • establishing the asset allocation;
  • supporting banking relationships;
  • managing the liquidity for the family;
  • providing due diligence on investments and external managers;
  • consolidating all positions.

Beyond the money… when a Family Office becomes a real Family Office

When it;

  • Continuously bridges between you and service providers (lawyers, real estate agents, bankers, accountants), getting best results from them, on time and within budget.
  • Provides access to other asset classes (real estate, commodities, private equity, diamonds, art etc.).
  • Addresses personal needs by providing high level, integrated ‘life style’ services.
  • Helps the family organise affairs in an efficient manner, allowing family members to focus on their business / life style and enjoy the benefits of their wealth.

You and your Family Office

The concerns of the set-up of a Family Office are mainly linked to costs and regulations. Both have to be analysed and budgeted for carefully, but joining an existing Multi Family Office helps address many of these concerns.

A Family Office should operate from a centre, such as Gibraltar, where sophisticated markets and legal structures are in place. There is a definite risk associated with the choice of the jurisdiction, for example, we have noticed that there is no development of Family Offices in emerging markets.

The presence of generalists will help in avoiding conflicts of interest with stakeholders (banks, lawyers, real estate agents). It is extremely important, given the confidentiality needs of a wealthy family, that the selection of a Family Office should be based on competency and trustworthiness. High staff turnover is to be avoided.

The Investment Management must be global, in the form of an advisory mandate, and benefit from partnerships with universal banks (access to all types of financial instruments) and in a regulated financial centre. Access to products, markets and IT tools and platforms (custody, consolidation, risk management, trading) will do the rest.

The family, with the assistance of their Family Office needs to establish a comprehensive overview of its situation, determine the priorities, the services needed and the beneficiaries.

Ultimately, what makes for a successful Family Office is the ability for it and the family to assess regularly the mission and the goals effectively, respond to changes and align itself wherever needed.

In Gibraltar, during the last seven years, Hyperion Group, have successfully developed a Multi Family Office in order to address the concerns of families. Hyperion was founded in 2010 by Raymond Kirsche and welcomed Yan Delgado and Frederic Ohana in 2012 and 2013 respectively. Just recently, Yan Delgado has been appointed CEO in order to take the group to the next stage.

words | Yan Delgado and Raymond Kirsche, Hyperion