Multi-family offices aim to move into the limelight

Multi-family offices have a once in a lifetime opportunity to grow, believes Peter Sartogo, managing partner at Geneva-headquartered multi-family office Global Wealth Management (GWM). These independent firms, which advise multiple ultra-rich families, are expected to capitalise on the disillusionment of the wealthy with private banks, in the wake of the financial crisis. “But one of our biggest frustrations is that multi-family offices are not known that much” says Mr Sartogo. Aligning interests Moreover, multi-family offices can be very different. They can be just “luxury accountants” who analyse costs and consolidate investments. Or, like in the case of GWM, a multi-family office is synonymous for a centre of expertise and information sharing, which enjoys economies of scale and can solve any type of problems for its clients, says Mr Sartogo. GWM has E2bn of assets under management, staff of 60 people and serves 25 wealthy European and Middle-Eastern families. “Our motto is aligning our interests with clients’ interests in anything we do,” says the former investment banker, who left his position as managing director at Deutsche Bank in London to join GWM in 2006. “We are paid on performance delivered net of costs,” says Mr Sartogo “and this means that we are keen to reduce our costs as much as we are interested in increasing performance.” “This is our strong point, and it is something that no banker will ever be able to do,” believes Mr Sartogo. “The truth is that when you work for a bank you have to sell products and services to your clients in order to make money for the bank and to earn money for yourself.” Some wealthy families may also want to continue using private banks to manage part of their assets, but in this case, by using its buying power and knowledge, GWM can reduce fees for banking services by 30 to 50 per cent for its clients, claims Mr Sartogo, effectively transforming them from private to institutional. Multi-family offices are both loved and hated by banks. “On one hand banks are afraid of us, because they see us a competitor.” Indeed, the main source of both clients and advisers for multi-family offices are increasingly private banks themselves. “We are now attracting people that it was hard to attract before the crisis,” he says. Mr Sartogo explains that, as the opportunity cost for bankers to leave their firm has remarkably decreased, having lost most or all of their unvested interests, they are now finally “free” to join a multi-family office, keen to offer an innovative solution to their clients. On the other hand, he says, banks are eager to have multi-family offices as their clients. “Banks love us because we buy their products; there are some incredible niches of excellence out there.” Truly open Unlike private banks, which only claim to embrace open architecture, around 80 per cent of GWM’s assets are managed by external managers. “Private bank’s most used expression is open architecture, but then strangely, when we inherit clients’ portfolios from private banks, we find that the majority of products are in-house products, because they are more profitable,” explains Mr Sartogo. GWM was reportedly the first European multi-family office to establish a partnership with a manager of managers firm, SEI Investments, for its long only manager programmes in 2006. Since then, the firm has added other multi-managers in the long-only space. “If you select or get help in selecting the best managers, the probabilities to have a good return are higher.” Similar process is applied in all the other asset classes in which they invest. For example, GWM employs advisors that help do the due diligence on hedge funds, but also delegates full management of funds of hedge funds, although it always keeps an active role and closely monitors its sub-investment managers, says Mr Sartogo. Over time, hedge funds have proved to be very valid instruments, they have generated good returns, non-correlated to the equity market, while reducing volatility and preserving capital, he says. “Depending on clients’ risk profile, we recommend an exposure to hedge funds that can be up to 20-30 per cent of clients’ assets, but the hedge fund portfolio has to be extremely diversified. We do not allow any hedge fund to represent more than 4 per cent of a total hedge fund portfolio, because you cannot control fraud,” he says, emphasising that they managed to avoid Madoff’s fraud as they were not able to understand how the money was invested. Although not all the client’s assets are necessarily managed by GWM, their wealth is consolidated under the multi-family office. Asset allocation is tailor-made and takes into account of the client’s specific current and future needs, and the market exposure they already have with their own business. “We do not pigeon-hole investors within model portfolios like private banks do,” says Mr Sartogo, “and we spend a great deal of our time trying to understand what level of volatility the client is able to bear.” Fear and greed But he concedes that clients’ fear and greed are feelings difficult to manage. Last year, some of their clients’ performance have been “extremely negative”, while others have been “extremely moderate,” he says. That all depends on clients’ risk profile and on their investment time horizons, he says. In addition to GWM Wealth Management, which was founded by Sigieri Diaz Pallavicini in 2000, the group has added two more divisions more recently to create what Mr Sartogo believes to be the only multi-family in the world to offer an all round service to its clients. GWM Merchant – which provides corporate finance and investment banking services to entrepreneurial clients – and Sodali, which advises listed companies on corporate governance and transactional services. Sodali – which counts among its clients giants like UniCredito, Banca Intesa or Generali in Italy and Nokia and Swedbank in the Nordic countries – over time, will be turning its attention towards smaller, family-run firms quoted on stock exchanges, which frequently have made huge strategic errors in terms of corporate governance, says Mr Sartogo. “This is a way to introduce our company to those families, but it is certainly a very noble way,” says Mr Sartogo.

Sartogo: attracting new clients