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Profile: how career burnout led to a family office launch

Profile: how career burnout led to a family office launch

Burnt-out and retired after spending years working in banking and hedge funds, Christian Armbruester had no intention of returning to the industry.

But all this changed when he was asked to manage his family’s wealth by his German father.

‘I am a former proprietary trader at Bankers Trust and then Credit Suisse, then I built two hedge funds and I was actually retired when my dad called. I was burnt-out from a career in finance and had no desire to come back,’ he recalls.

‘It was just when I decided to look at what was happening with my family’s money that I decided that I could do this better.’

The family wealth was generated from manufacturing and a physical commodities business managed by Armbruester's brother.

The wealth was managed for the first generation by a number of private banks, asset managers and assorted advisers.

‘I am second generation and got involved in late 2009. We took a long look at the offering. We met the managers, we met the private bankers and very quickly we decided that we were paying too much money.’

At the time, Armbruester did not know what a family office was, but he decided that he would close all the family accounts and start one from scratch.

In 2011, a Dutch family asked him to manage their wealth the same way, which entailed setting up Blu Asset Management in Amsterdam.

Armbruester then moved to the UK, where his family is based, and began expanding, most notably joining forces with Dominik von Eynern, who had done a similar job for his own family.

The pair established Blu Family Office in 2013 in London.

One of the things that attracts investors to the firm is the alignment of interests, says Armbruester. ‘For me it is about doing my father proud and when families come to work with us, we form the same bond I have with my father, because I do not want to let them down. Most of them have gone through a lot of the same experiences we went through, in that they received expensive, hard to understand advice that may not even work,’ says Armbruester.

‘We take away the pressure that they have to do something and that everyone knows something they do not.’

The Richmond-based company was determined to throw out the rule book in its quest to help clients avoid unrewarded risks and unwarranted costs, he says. To begin with, the multi-family office eliminated the expense of paying for economic research.

‘If no one can predict the future, why are we all paying these guys to forecast it for us?’ asks Armbruester.

‘It was a big turning point for us because not taking a view did away with the prevailing model. Everybody does predictions, that is the whole industry and it works because people would like to believe it.

‘We did away with a lot of costs by eliminating forecasts. We have no chief economist, no analysts, we do not go to conferences to hear people’s views on where the markets will go, we do not buy outlook reports and we do not take a house view. This all saves us a heck of a lot of time and money.’

With the firm belief that ‘to make money, you have to take risks’ Armbruester says that asset allocation decisions are focused on diversifying across risks.

‘There is no such thing as a free lunch and, in the same way, there is no such thing as 10% annualised risk free returns. The trick is how do you properly group risks together so that you can diversify effectively and not cross contaminate your risk buckets?’

The company’s investment universe is grouped into four key types of risk: credit, equity, arbitrage and convex (the risk that a specific investment outcome does or does not occur).

‘A lot of our time is spent trying to assess what type of risk each new investment presents. After you have accurately placed the risk into one of these buckets the next thing we look at is whether or not the price of this investment is good risk to reward,’ he explains.

‘This mainly involves looking at fees, what am I paying to take on this risk, because risk is a fairly efficient pricing mechanism. If you take on higher risk you will generally get rewarded for that. It is just a matter of how much you get paid to take on that risk.’

This model of investing has proved popular, helping the firm grow its assets under management to more than £1 billion.

Its clients are made up of five large families with individual assets of more than £100 million and around 200 smaller clients who invest directly into its funds or managed accounts. Armbruester estimates the average net wealth of the smaller clients at £2 million.

The firm currently offers a range of managed accounts and funds.

In order of lowest to highest risk, the strategies target credit, arbitrage, equity and convex risks and are called Blu Income, Blu Alpha, Blu Beta and Blu Gamma, respectively.

Management fees on the strategies range from 1% for the Alpha and Gamma, 0.75% for the Income fund and 0.25% for Beta, which is a passive long-only product. For discretionary asset management the firm levies a charge of 0.5%.

The majority of Blu Family Office’s clients invest in the Beta strategy which has a minimum investment threshold of £75,000. It has returned 73% over the past three years, compared to the MSCI All Countries World index’s 71% rise over the same period.

The best performing strategy in the range is Gamma, which has netted investors 160% since inception in 2012, compared to its benchmark, a composite of its peers based on the Eurekahedge database, return of 26.7% over the same timeframe.

Meanwhile, the Alpha variant, which uses long/short strategies, rose 59.4% over the past three years, compared to the 45.7% rise of its benchmark, again a peer group average based on Eurekahedge data.

The most popular of the range at the moment is the Income strategy, Armbruester says.

‘We launched the fund, which invests in secured, short duration private lending strategies, in November 2016 and it is yielding around 5.5%-6% in a negative yield environment, with a one-year duration. It is really popular with yield hungry investors,’ he says.

‘When we started investing in 2011, bond yields were still positive, but this went away after a couple of years. So with the help of Absolute Return Partners [an investment advisory firm] we began venturing into the private debt space.’

The relationship with Absolute Return Partners proved so strong that Blu ended up hiring its managing partner Nick Rees to be its CEO and lead a planned European expansion, earlier this year.

The firm is gearing up to open an office in Germany and also has plans to set up a branch in Zurich, expanding its activities from its core markets of the Netherlands and the UK.

As a result of Rees joining the firm, Armbruester will take a step back from leading the business operations of the firm to focus on investment. ‘One of the reasons we brought in Nick is that I wanted to focus more on the investment side,’ he explains.

‘I did not want to run a business and in Nick we have a really experienced operator. It was really lucky that he was looking for a new challenge and that we knew him because of our work with Absolute Return Partners.’

He adds: ‘We got our own FCA licence in April, after initially operating as an appointed representative of Absolute Return Partners’ FCA licence. This will allow us to trade directly and we are planning to launch a long/short relative value strategy by the end of the year.

‘Our plan is now to grow our assets under management through launching new products and increasing our distribution channels.’

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