Partnerships provide multi-family offices with global reach

As wealthy families become increasingly international, private banks and multi-family offices (MFOs) are striving to broaden their global footprint, in order to offer the jurisdictional flexibility their clients require. 

With the key objective of managing their own wealth, ultra-rich families generally set up family offices in the country or region where they have sourced their wealth. But chasing investment opportunities, in particular in private equity and real estate – increasingly appealing in this ultra low interest rate and return environment – is driving the very ultra-wealthy to open offices or move staff further afield.

“Investment opportunities have become more global over the past 10 years,” says Jeroen Kwist, head of international wealth management at BNY Mellon Wealth Management, which serves more than 400 family offices worldwide. 

“We are starting to see for instance European family offices creating satellite offices or moving operations to different jurisdictions, such as Asia, as they want to get closer to specific investment opportunities.” 

A growing number of family offices are now emerging in Asia, as new wealth grows.

Evolving regulatory frameworks also drive FOs’ decisions. Gradually, family offices will move more across jurisdictions, says Mr Kwist, as the upcoming enforcement of the Common Reporting Standards in the OECD, following the adoption of Fatca in the US in 2010, will create a more level playing field globally, with regards to tax transparency, and the resulting operational burden of reporting. 

Meanwhile the appeal of the US has surged back, after family offices had shied away from this jurisdiction in the recent past.

Geo-political risk is also a significant driver of jurisdictional diversification. 

“The most important thing for a family office is to work with partners that offer flexibility in terms of how they can structure their operations,” says Mr Kwist. “That’s why our businesses are focused heavily on broadening our jurisdictional capabilities and services.”  

Establishing a strong foundation for FO structures, such as a master custodian, creates flexibility for future growth. It also ensures operational efficiency, including the ability to generate consolidated reporting, while FOs can focus on their core competency, he says.

SINGLE POINT OF ACCESS

To improve its service offering, JP Morgan launched the Institutional Wealth Management business early last year, a team aimed at providing sophisticated ultra net worth clients a single point of access to the capabilities and resources across the firm. 

“Family offices are typically our largest and most strategic clients, seeking a quasi-institutional service,” says Darren McDermott, managing director at the private bank, which has a long history of dealing with large entrepreneurial families.

Clients can interface the bank’s globally trading desks and benefit from its large alternative investment as well as credit platform.

A holistic service approach is critical. “Providing expertise and assisting family offices in areas such as wealth advisory, tax and estate planning, family governance and philanthropy is part of the all round service we offer to clients, and it really helps deepen our relationship with clients,” says Paul Knox, head of UK Wealth Advisory Emea at JP Morgan Private Bank. 

If MFOs cannot compete with large banks in terms of global reach, research capabilities or brand, MFOs have thrived in recent years on the back of private banking scandals related to tax, secrecy, regulation, rate-rigging and mis-selling of products. 

But a growing trend sees these independent, conflict-free institutions strike partnerships to acquire scale and a more global footprint to target disillusioned clients. 

To this group they promise total alignment of interest, “putting them first”, customised solutions and personalised, attentive service. They have expertise in manager and product selection, with some also creating products for clients. Some also strive to offer advice on areas such as governance and succession planning.

 “Ultimately we are competing with big banks, in terms of advising clients, and at the very top end families are global and have links to many jurisdictions,” says Daniel de Fernando, managing partner and CIO of Spain-headquartered financial, wealth and independent family strategy consultancy MdF Family Partners. The firm has $2bn of AuM, and also has offices in Geneva and Mexico. “The big challenge for multi-family offices is how to become global.”

MdF’s recipe to face this challenge is to form alliances, such as the one it has with WE Family Offices, a US-based, international MFO with $6.8bn in assets under advisory across 70 families. 

Together, the two firms recently founded Wren Investment Office in London, which they partly own. Wren reunites the former investment committee of MFO Lord North Street, which was acquired by Sandaire two years ago. 

Mr de Fernando, who had previously been CIO at Lord North Street, which his firm had had a partnership with for a few years before the acquisition – is also CIO of Wren.

The three firms together operate as separate entities, each of them having its own shareholders and dynamics, but sharing investment resources and capabilities as well as operational systems. “We operate through a tested system of split revenues and shared costs, which works well because all people involved have strong fiduciary mindsets,” explains Mr de Fernando, who previously held senior positions in private banks such as JP Morgan and BBVA.

The aim is to offer clients a single value proposition, based on a global investment strategy with local implementation, while benefiting from a bigger team of investment professionals, explains Mr de Fernando. Scale offers higher purchasing power with managers and products. It also allows them to create synergies and servicing FOs across multiple countries.

Alliances can be a bonus for newly formed firms as well. “We have some of the benefits of being a start-up, such as focus and flexibility on clients, but also the benefits of being part of an established team, in terms of investment resources, systems, and client servicing,” says Michael Parsons, CEO of Wren.

The M&A route 

Other firms are looking to expand via mergers and acquisitions. LJ Partnership, a London-headquartered private wealth partnership, recently purchased Guggenheim Investment Advisors in Hong Kong, part of global investment and advisory firm Guggenheim Partners.

Following a combination of both mergers, acquisitions and organic growth, the firm, which started seven years ago as a partnership of a handful of families, today has 11 offices across Europe, the US and Asia. It is a collaboration of 200 families and entrepreneurs across industries, continents and cultures, who have sought to take more control of their wealth, explains Andrew Williams, CEO. 

“Scale and variety in a continuing development of strategies is critical in attracting and retaining talent. And you want best in class quality to maintain your returns and standards,” he says.

Illiquid investments – mainly real estate but also private equity – represent half of its $13bn in assets under management. The firm generates its own strategies, setting up joint ventures and structures to execute them, and manages its own funds. 

 Illiquid investments are totally underwritten by the firm’s own capital, and other families are invited to join if they can or want to, he explains. The management of liquid strategies, particularly in the equity space, is outsourced to third-party managers.

The firm, which provides trust and fiduciary services in addition to investment advisory and direct investing, has strategic growth plans in the Asia-Pacific region, and is looking to open new offices in the US and/or Australia.

“We are in this business to manage our own money, and create partnerships globally with other families, and you make your money through investing effectively,” says Mr Williams, arguing that private wealth management is “not a highly profitable business” like banking can be.

Cost of compliance

The increased cost of regulatory compliance is another key driver to consolidation in the MFO space, says Alexandra Altinger, CEO at Sandaire. 

“Small firms will struggle to compete effectively and will have to come together to share some of these costs to comply with regulation,” she says. 

Investing in technology and customer relationship management  systems, developing good internal processes and training people in compliance and risk management is “absolutely necessary”. But the importance of moving towards digital cannot be underestimated as it will redefine the entire client experience, she states. Digitalisation requires substantial upfront investment for MFOs if they want to have a chance of competing with big banks in targeting the next generation.  

Sandaire – a founding member of the Wigmore Association, composed of CIOs of family offices with the aim of sharing cost and insights in areas such as manager selection and research – is on the verge of launching its first dedicated client portal, including digital investments. “Cyber security will be absolutely critical,” says Ms Altinger. 

Sharing a secure information platform is a key issue, especially if families are multi-generational, and have complex structure, says Edouard Thijssen, CEO of Trusted Family, a technology provider. To meet the needs of their own families, Mr Thijssen, a fifth generation member of the Aliaxis Group, set up a purpose-built, modular and secure online platform with former investment banker Edouard Janssen, whose family owns chemicals company Solvay. 

The platform is now used by 100 family offices in 25 countries, with MFOs also in the pipeline.

The system enables families to securely share, organise and send information to their members, all in one central place, be it information related to their own business, investments, children education or event management. They can also securely access their portal and documents on the go, through their iPhone or iPad.

“It’s all about creating transparency and good process, professionalising the family office and increasing cohesion between members,” explains Mr Thijssen. “If family members are not aligned with family values, are not communicating and do not trust each other, then family offices break apart.”