Michael McCroddan of Alexander Advisory considers the growth in family offices and how this might impact existing investment institutions.
'What has caused strategic consultancy groups such as KPMG to acquire Ken McCracken from Withers and Deloitte to buy Peter Leach’s eponymously named business? Why has nearly every private bank and boutique fund management company called their private client offering their ‘Private Ofﬁce’ and ensured it is staffed by their best customer relationship managers and fund managers?
The answer is simple - the explosion in the number of both single (SFO) and multi-family ofﬁces (MFO) over the last 10 years. I last fully researched this sector for a keynote presentation in Montreux Switzerland in 2015 where it was found there were some 4,600 SFOs, not to mention MFOs. There are now probably in excess of 10,000 SFOs (Ernst & Young estimate). Even The Wall Street Journal reported that, since 2011, ‘three dozen hedge funds have converted into family ofﬁces’. Hampden Wealth, who provided the research for the latest UBS Wealth Report 2018, estimated that family ofﬁces hold assets in excess of $4 Trillion. The other amazing statistic, among many in this sector, is that some $59 trillion will pass by intergenerational transfer from estates from now through to 2061, the largest shift of wealth in history.
Many well run and professional family ofﬁces have now allowed outside access to their expertise, particularly in the ﬁelds of private equity and fund management. The Rockerfeller Family Ofﬁce, for example, now has over 250 clients. Bill and Melinda Gates and the Quandt family ofﬁces also let fund management groups invest in their funds. The era of secrecy and total lack of regulation is now coming to an end with governments, intelligence and security organisations taking an active interest in global family ofﬁces. This, of course, poses problems for those families that are subject to geo-political risks.
The long term trend is for sustained growth in the family ofﬁce sector, especially with the increasing number of billionaires being created in the Indian sub-continent and China. They will also attract some of the best fund managers and private bankers globally because of their unique combination of being able to invest in a whole range of sectors and to deal with the world’s most prestigious and long lasting family businesses. They will also have the economies of scale and access to funds which many banking and smaller fund groups will ﬁnd impossible to match. Only big players (for example institutions such as Credit Suisse, UBS, JP Morgan) will be unintimidated by the challenge. I also anticipate there will be increasing consolidation in the family ofﬁce consultancy ﬁeld, such as the recent amalgamation between Stonehage and Flemings.'
Watch out for Part 2 of McCroddan's article, where he delves deeper into the points raised here. Get in touch with Eleanor on firstname.lastname@example.org if you would like to share your opinions or your own written response.