WealthInsight head, Oliver Williams, reviews how multi-family offices (MFOs) are responding to generational and technological challenges. Like other areas of wealth management, MFOs recognise that they must adapt in order to flourish.
On Monday 2nd July, LJ Partnership, a London-based multi-family office announced two major hires and a rebranding.
Coming onto the newly named Alvarium Investments would be Ken Costa, the former chairman of Lazard International and Ali Bouzarif, previously head of investment execution at Qatar Investment Authority.
This news is just the latest in a string of major hires in the family office sector.
Last month Bloomberg reported that Chicago-based Cresset Wealth Advisors had poached two executives from Ascent Private Capital and Wells Fargo’s Abbot Downing.
US banking heavyweights have increasingly flocked to family offices. High profile executives Frank Ghali of Goldman Sachs and Margaret Dechant of Morgan Stanley have both created their own family offices in the past two years, luring former employees with them.
In the UK, a pair of senior Credit Suisse private bankers started Artorius Wealth a few years ago and another – Richard Algar – joined last month.
This string of high level hires shows the urgency with which multi-family offices (MFOs) are responding to generational and technological challenges.
Demands of young UHNWIs
Experienced bankers are being bought in to broker the big deals that wealthier, and younger, UHNWIs are demanding.
On announcing the changes, LJ Parternship released a statement in which Costa said he would bring “merchant banking for the millennial generation”.
The statement read: “This sophisticated generation of investors expect greater transparency, control and the opportunity to partner and co-invest with asset managers across a broad range of sectors, which is in turn re-shaping the wealth management sector.”
Millennials are widely considered to be more sophisticated investors than their forebearers: 72 percent of millennials “describe themselves as self-directed with direct control over their wealth”, according to a Deloitte report. This savviness is partly driven by the poor rates and returns since the financial crises.
With roughly quarter of a million millennials becoming millionaires in the next five years, this group is not only demanding more from their financial advisers, but becoming wealthier in the process. Some MFOs are taking note.
LJ Partnership says that it will meet this demand by providing “bespoke global investment opportunities in existing sectors such as real estate, and new areas including M&A, private equity, technology and advisory”.
Investment opportunities in these “new areas” are rarely available to typical private banking customers given the competitiveness of deal-making in the middle market.
This explains the rush to hire big names like Costa, Bouzarif, Ghali, Dechant et al.; experienced brokers with a raft of contacts are better placed to secure direct investment opportunities, which often see MFOs go up against private equity and pension funds.
Talking to the Knight Frank Wealth Report, Russ D’Argento of FINTRX, a family office asset raising platform, commented: “Not only are the folks who are pulling the strings regarding investment decisions better versed on the process, they’re also positioned to make quicker decisions when they see unique opportunities.”
Family offices without such deal-making aficionados rely on private equity funds to provide such opportunities.
However, that figure is falling according to the Family Office Exchange, which last year reported asset allocation towards direct investments was up three percent while money allocated to private equity was down four percent.
This trend is likely to continue given 81 percent of family offices have at least one person working on direct investments.
MFOs and venture capital
With the private equity space already crowded, however, many MFOs are turning towards venture capital.
Some MFOs will invest through funds, such as China-based investor Sequoia Capital which recently raised $6bn, much of it coming from family offices according to the FT.
Others prefer direct positions, like Paul Allen who recently contributed to a $1bn Series H round for Singaporean ride-hailing service Grab.
Family office patrons with a background in one industry might draw upon expertise or contacts to arrange such investments, as the Paul Allen example shows. His Vulcan Capital shows another fashion in the family office space: adding an ‘investment’ or ‘capital’ suffix instead of the more traditional ‘family office’. LJ Partnership’s rebrand to Alvarium Investments verifies this trend.
As the war to win millennials intensifies in the wealth management space, these family offices are making a clear statement through hires and rebrands: They provide the muscle and opportunities that fintech and robo-advisers cannot.