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Additional Praise for The Family Office Book

“The Family Office Book is a truly unique piece of work. Richard has thor-oughly explained the workings of the modern day family office, a world thatis highly secretive and little understood, even amongst finance professionals.His status as a trusted adviser is attested by the quality of the interviews withfamily offices and his incisive views on the future of this powerful investorclass. An essential study that is relevant to anyone who is keen to under-stand the family office, either from a professional perspective or purely outof intrigue.”

—Max Kantella, CEO McLaren Global Partners PE Ltd

“Richard’s book on family offices is the most complete, organized, and com-pelling book on an extremely important and growing segment of the wealthmanagement business. I plan to use this book as a gift to our family officeclients to prove to them they made a good decision in setting up their ownfamily office!”

—Don F. Wilkinson, Family Office Consulting, LLC

“The Family Office Book is a rare and well-documented guide for anyonein the wealth management industry. The interviews cover a wide array offamily office professionals and were in-depth, informative, and extremelyhelpful. There is no better way to learn than hearing the experiences, advice,and insight straight from the experts themselves!”

—Tom Thiel, McAdams Wright Ragen

“As someone who has worked in both a SFO and MFO, Richard and hisextremely well qualified lineup of family office professionals have done anexcellent job of outlining exactly how the family office industry works. Thisbook is pretty much all you need in order to fully understand how the in-dustry operates.”

—Dave Trunzo, Family Office Investment Professional

“The family office industry is a secretive and complex niche of the wealthmanagement industry, and much of how it worked was hidden, until now.Written from the best, this is certainly a book that everybody who works inthe finance, fund management, or wealth management industry should holdin their library.”

—Alexis Alexiou, Portfolio Manager

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“The Family Office Book is really great because it explains exactly howthe family office industry works, how the ultra-wealthy are investing theirmoney, and how the fund manager selection process works. Interviewingtop family office executives about their experience provides a realistic viewof the industry picture of how everything is applied in the industry today.”

—Michael Skapoullis, Certified Hedge Fund Professional (CHP)designation, Ceo Societe Goldfinger

“The Family Office Book is the most comprehensive informational resource,with respect to family offices, that I have read. Although its main audience isfamily offices and ultra-high net worth individuals, it is a valuable resourcefor anyone who wants to learn about the operations, perspectives, motiva-tions, and inner workings of family offices. The multiple interviews withseasoned family office representatives provide a keen insight to the world ofthe family office. Richard Wilson provides a history of the family office,the definition of what constitutes the current day family office, and per-spective on where this market is headed. And his use of interactive media,i.e., audio interviews, videos, and external links, lends an added dimensionto the comprehensiveness of the material. I highly recommend The FamilyOffice Book to anyone who is interested in learning more about family of-fices and this often underpublicized market.”

—Eric Warshal, Fund Associates

“Richard Wilson’s family office book is a valuable resource that improvedmy firms focus and success immediately. The examples from his practice andthe leading experts he interviews are to the point and provide subtle insights.We have incorporated several key strategies from this book into our mar-keting and client retention plans. The book’s emphasis on a consistent, welldeveloped approach to your messaging and the creation of an educationaltone to your potential investors is unique and effective.”

—Stephen Chunias, CPA, Chief Financial Officer,Cazenovia Creek Investment Management

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The FamilyOffice Book

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Founded in 1807, John Wiley & Sons is the oldest independent publish-ing company in the United States. With offices in North America, Europe,Australia and Asia, Wiley is globally committed to developing and market-ing print and electronic products and services for our customers’ professionaland personal knowledge and understanding.

The Wiley Finance series contains books written specifically for financeand investment professionals as well as sophisticated individual investorsand their financial advisors. Book topics range from portfolio managementto e-commerce, risk management, financial engineering, valuation and finan-cial instrument analysis, as well as much more.

For a list of available titles, visit our web site at www.WileyFinance.com.

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The FamilyOffice Book

Investing Capital for theUltra-Affluent

RICHARD C. WILSON

John Wiley & Sons, Inc.

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Copyright © 2012 by Richard C. Wilson. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form orby any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permittedunder Section 107 or 108 of the 1976 United States Copyright Act, without either the prior writtenpermission of the Publisher, or authorization through payment of the appropriate per-copy fee to theCopyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978)646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should beaddressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030,(201) 748-6011, fax (201) 748-6008, or online at www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts inpreparing this book, they make no representations or warranties with respect to the accuracy orcompleteness of the contents of this book and specifically disclaim any implied warranties ofmerchantability or fitness for a particular purpose. No warranty may be created or extended by salesrepresentatives or written sales materials. The advice and strategies contained herein may not be suitablefor your situation. You should consult with a professional where appropriate. Neither the publisher norauthor shall be liable for any loss of profit or any other commercial damages, including but not limited tospecial, incidental, consequential, or other damages.

For general information on our other products and services or for technical support, please contact ourCustomer Care Department within the United States at (800) 762-2974, outside the United States at (317)572-3993 or fax (317) 572-4002.

Wiley also publishes its books in a variety of electronic formats. Some content that appears in print maynot be available in electronic books. For more information about Wiley products, visit our web site atwww.wiley.com.

Disclaimer: Please review the following: Every individual has different risks and needs for wealthmanagement. Before joining a family office or wealth management firm of any type, you should seekprofessional legal counsel and conduct your own thorough due diligence. The words you read directly fromheads of family offices in this book do not replace speaking with an expert one-on-one about your uniquesituation. No investment, fund manager selection, or wealth management decisions should be made basedsolely on the information provided in this book.

Your specific city, state, and country may regulate capital raising or marketing of family office, wealthmanagement, or RIA services. Please speak with legal counsel before taking action on the informationprovided within this book if you are a wealth advisor of any type.

Nothing presented in this book should be construed as a solicitation, offering of securities or sale ofinvestment products, wealth management solutions or private placement vehicles or any other legallybinding statement.

Library of Congress Cataloging-in-Publication Data:

Wilson, Richard C.The family office book : investing capital for the ultra-affluent / Richard C. Wilson.

p. cm. – (Wiley finance series)Includes index.ISBN 978-1-118-18536-0 (cloth); ISBN 978-1-118-22743-5 (ebk);ISBN 978-1-118-26516-1 (ebk); ISBN 978-1-118-23326-9 (ebk)1. Investment advisors. 2. Financial planners. 3. Financial services industry.

4. Families–Finance, Personal. 5. Rich people–Finance, Personal.6. Wealth–Management. I. Title.

HG4621.W47 2012332.6–dc23

2012009221

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

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Since the 1700s the Wilson name has stood for taking actionand focusing on something instead of simply talking aboutideas. This book is dedicated to the entire Wilson family for

creating an environment for our generation of the familythat fosters creativity, a strong work ethic, entrepreneurship,

and tenacity.

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Contents

Introduction xi

PART ONEFamily Office Fundamentals 1

CHAPTER 1The Family Office Industry 3

What Is a Family Office? 3The Family Office Universe 5The History of Family Offices 6State of the Family Office Industry 9Who Uses a Single or Multi-Family Office? 10Why Family Offices? 12More Money, More Problems 13Family Office Industry Conferences 13Conclusion 14

CHAPTER 2Family Office Services 15

Ultra-Affluent Clients Have Different Needs 15Family Office Services 17Additional Benefits and Life Management Services as a

Competitive Advantage 17Single versus Multi-Family Office Services 19Differences in Global Family Office Service Offerings 20Conclusion 21

CHAPTER 3Family Office Operations 23

Outsourced Model 23Family Office Team Members 25Family Office Investment Committees 27Board of Advisors 27

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viii CONTENTS

Family Office Governance 27Individual Family Governance 28From CPA to Family Office CEO 29Family Office Service Providers 31Developing a Well-Oiled Family Office Machine 32Implementing Processes, Procedures, and Systems in Your

Family Office 32Conclusion 32

CHAPTER 4The Ultra-Affluent’s Guide to Selecting a Family Office 33

Starting a Single Family Office versus Joining aMulti-Family Office 33

Objective Family Office Selection Advice 34What Do You Want? 34Character Judgments 35Seven Critical Family Office Questions to Ask 36Family Office Veteran Quotes on How to Select a

Family Office 37Family Office One-Pager Evaluation Form 42Conclusion 42

CHAPTER 5Family Office Marketing 45

Your Client Avatar 46Crystal Clear Edge 47Brian Tracy Interview Excerpt on Capital Raising 48Capital Raising Trifecta 49Capital Raising Funnel 50Storytelling 54Persuasive Writing (Copywriting) 58Brian Hughes Interview on Family Office Business

Development 60Conclusion 68

PART TWOFamily Office Veteran Interviews 71

CHAPTER 6Single Family Office Interviews 73

Family Office Interview with Michael Connor of ConsolidatedInvestment Group 74


Contents ix

Family Office Interview with Elizabeth Hammack ofCM Capital Corporation 88

Family Office Interview with Frank Casey 101Family Office Interview with John Grzymala 116Family Office Interview with Matthew Andrade, Director

of Investment Analysis at Kinnear Financial 122Family Office Interview with Angelo Robles, President

of the Family Office Association 131Conclusion 146

CHAPTER 7Multi-Family Offices Interview Transcripts 147

Family Office Interview with Charles Grace ofThreshold Group 147

Family Office Interview with Lukas Doerig of MarcuardFamily Office 159

Family Office Interview with Jeff Colin, Founder of BakerStreet Advisors 171

Family Office Interview with Thomas Melcher of HawthorneMulti-Family Office 187

Family Office Interview with Greg Kushner, Founder ofLido Advisors 200

Family Office Interview with Bob Benson, Chief InvestmentOfficer of Laird Norton Tyee 217

Conclusion 229

PART THREEFamily Office Mechanics 231

CHAPTER 8Family Office Investments 233

Traditional Investments 234Alternative Investments 234Venture Capital and Angel Investor Investments 235Infrastructure Investments 236Hard Asset Investments 236Family Office Investment Process 237Three Family Office Portfolio Construction Models 239The Operating Business Sandbox Model 239The Diversified Institutional Model 241The Hybrid Model 241Family Office Investment Committees 242


x CONTENTS

Investment Committee Examples 243Strategic versus Tactical Asset Allocation 247Institutional Consulting Firms and Family Office Investing 250Family Office Interview with David Thomas, CEO of Equitas

Capital Advisors, LLC 251Conclusion 262

CHAPTER 9Fund Manager Selection and Deal Flow 263

The Six-Step Fund Manager Selection Process 264Managed Account Trends 266Fund Manager Preferences 267Global Fund Manager Due Diligence 267Family Office Partnerships with Fund Managers 271Managing Deal Flow Overload 272Objective Character Analysis 273The 6 Cs of Character Analysis 274Family Office Interview with Evan Cooperman of

Artemis Wealth Advisors 278Conclusion 290

CHAPTER 10The Future of the Family Office Industry 291

There Is No Family Office Industry 291Shifting Investment Criteria 295Family Office Job Growth 295Family Office Training 295New Global Hot Spots 296Four Global Drivers of Family Office Industry Growth 297Conclusion 299

Conclusion 301

Appendix: Family Office Newsletter 303

About the Author 305

Qualified Family Office Training 309

Index 311


Introduction

I am writing this book for single and multi-family office professionals andultra-high net worth individuals who want to further explore how familyoffices operate and deploy capital.

See the video “Welcome Message,” atwww.FamilyOfficesGroup.com/Video1.

My current role involves providing the best-of-breed fund managers tofamily offices. Years ago, when I first started working with family offices,I wanted to learn more about this industry. Much to my surprise, I foundthere were very few books or web sites dedicated to the subject.

After several years of working with family offices, I startedFamilyOfficesGroup.com, the first free-to-access educational web site on thefamily office industry. Since then, we have been posting new educational re-sources to the web site each week, and we have seen the association’s mem-bership grow from five initial members to its current level of 40,000-plusmembers from all over the world.

Objective: The objective of this book is to provide you with a $1,000multimedia training experience for just the small price of this book. In my at-tempt to create this value, I provide you with insights on the operations, cap-ital deployment best practices, investment processes, portfolio allocations,investment committees, and fund manager selection processes of family of-fices using instructional videos, audio MP3s, and other unique resources yousimply won’t find anywhere else.

IS THIS BOOK RIGHT FOR YOU?

While this book was written primarily for family office professionals, ultra-high net worth individuals and fund managers will also gain a better un-derstanding as to why family offices exist, what function they serve, andhow they manage capital. Moreover, this book will assist you in making amore-educated decision when selecting a family office to meet your needs.

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xii INTRODUCTION

Understanding how family offices invest their capital is important forthe healthy growth of the industry so family office executives and entry-level professionals can see how their peers are investing. It is also importantfor ultra-high net worth individuals to know what to expect, how a familyoffice may invest their money, and what questions to ask when they sit downto hire a family office.

WHAT THIS BOOK IS NOT

The main purpose of this book is to explore how family offices operate anddeploy their capital through fund manager selection, cash management, andportfolio construction. This book is not a quantitative, statistical researchstudy, or set of recommendations that family offices should follow. You willnot find PhD-level mathematical models showing how to calculate the truerisk of particular asset classes, or in-depth financial models of efficient port-folios, as there are dozens of books already written on these important top-ics. Instead, this book contains valuable insights from some of the world’stop family offices.

WHAT IS UNIQUE ABOUT THIS BOOK?

Most books present only one perspective, opinion, or angle on an issue orindustry. Rarely does a single individual’s expertise present the complete di-verse picture of what is going on regionally or globally within any industry,however, making those books an incomplete resource.

To prepare for this book, I read and reviewed each of the other familyoffice books currently in print. Many of them are valuable and worth read-ing; they provide valuable quantitative statistics, research, and case studiesin a few instances. I know for certain, however, that this book is unique;you get to read the direct thoughts of dozens of global family offices, includ-ing several that are frequently listed as being among the largest and mostsuccessful top 50 family offices in the world.

To write this book, I leveraged the 40,000-plus member family office as-sociation that we manage, the Family Offices Group. To make sure this bookpresented ideas as diverse as the family office industry itself, we spoke withthousands of family offices and conducted recorded interviews with dozensof single and multi-family offices to create both the Family Office MonthlyNewsletter and this book. The interviews were conducted with family of-fices from Australia, Israel, Dubai, Monaco, United States, Switzerland, Sin-gapore, and many other locations. Each of these interviews lasted for 30 to


Introduction xiii

90 minutes, and, once transcribed, the interviews in total resulted in 225,000words’ worth of family office advice and insights. The average family officeexecutive we interviewed had 22 years of experience, so in total this bookand our newsletter constitute 756 years of industry experience.

This is the only family office book that contains family office interviewtranscripts, MP3 audio interview downloads, dozens of instructional videomodules, recorded family office conference presentations, and free PDF tem-plates. I have made every effort to ensure that this is not simply a book, buta high-end multimedia training experience for those who have the time andinterest to use it as such.

NAVIGATING THIS BOOK

Throughout this book we have added bonus resources that are actually farmore valuable than the text of this book alone. This is part of our commit-ment to seeing that you get a 20-times return on the time and money thatyou invest in this book.

This symbol represents a link providing free access to an MP3 record-ing of a phone interview.

This symbol is shown throughout the book whenever one of the30-plus free video modules on a related topic is available on ourweb site.

This PDF symbol represents a free PDF template or tool that ourteam created for you to download.

I have been completing research on and working with family offices ofdifferent types for almost 10 years now, and I think it is important to sharewhat my perspective has been of family offices so that readers can understandwhere I am coming from in this book. I study family offices because my entirecareer and business revolves around the family office industry; it seems themore I share in the form of speaking, recording videos, publishing articles,and so on, the more I am rewarded in unexpected ways for this hard work.

See the video “FOG Overview,” atwww.FamilyOfficesGroup.com/Video2.

I am motivated to dig as deep as I can into the truth of how this in-dustry operates and invests capital; if I don’t know what family offices arelooking for, I fail in operating the Family Offices Group association and our



xiv INTRODUCTION

Richard Wilson Capital Partners business. If I don’t have strong value-firstrelationships with family offices, I’m out of work. I care very little about col-lecting $8 book royalties and I care a lot about making this book so valuablethat it is a conversation starter between you and me.

Your friend in the family office space,

Richard C. WilsonFamily Offices Group

P.S. Feel free to reach out to me to ask questions about the book’s contentor what we do at [email protected] and I will get back toyou as soon as possible.

mailto:[email protected]

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PART

OneFamily Office

Fundamentals

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CHAPTER 1The Family Office Industry

We often tell our ultra-wealthy clients that they have been in theget-rich business and we are in the stay-rich business.

—Paul Tramontano (CEO of Constellation Wealth Advisors,a top 50 multi-family office who we recently interviewed)

Chapter Preview: The family office industry can be challenging tolearn about. This chapter will provide you with a high-level, 10,000-foot view of the family office industry. It will cover the basics of howthe industry operates and serve as a foundation upon which the restof the book will build upon.

T he family office industry is secretive. While speaking at the LatinAmerican Family Office Summit recently, I was reminded by ThomasHandler (interviewed later in this book) of an adage I hear used often in theindustry: “A submerged whale does not get harpooned.” This quote sumsup why so many family offices are so secretive and difficult to learn moreabout. Many family offices and ultra-high net worth individuals see thatmedia attention and press often attracts sales professionals, possibly com-pliance headaches, and others looking only to harvest ideas or competitiveangles on the family’s operating business.

The goal of this book and chapter is to show you exactly how familyoffices operate, provide their services, and invest their capital.

WHAT IS A FAMILY OFF ICE?

See the video “What Is a Family Office?” atwww.FamilyOfficesGroup.com/Video3.

3



4 THE FAMILY OFFICE BOOK

A family office is a 360-degree financial management firm and personalchief financial officer for the ultra-affluent, often providing investment, char-itable giving, budgeting, insurance, taxation, and multigenerational guid-ance to an individual or family. The most direct way of understanding thepurpose of a family office is to think of a very robust and comprehensivewealth management solution that looks at every financial aspect of an ultra-wealthy person’s or family’s life.

Single Family Office Definition: A single family office is a full-balance-sheet 360-degree ultra-affluent wealth management and CFO solution for asingle individual or family.

The Security and Exchange Commission (SEC) recently defined singlefamily offices as “entities established by wealthy families to manage theirwealth, plan for their families’ financial future, and provide other servicesto family members. Single family offices generally serve families with atleast $100 million or more of investable assets. Industry observers have es-timated that there are 2,500 to 3,000 single family offices managing morethan $1.2 trillion in assets.”

John Gryzmala, a single family office executive we recently interviewed,states: “The definition of the single family office for me is: an entity or anindividual that helps relieve the family members of certain, if not all, mun-dane tasks that they would prefer not dealing with, be it investments, be ithousehold staff, be it insurance, be it handling legal issues, trusts and estatesissues, and tax planning. That’s it. So however you want to structure it tohandle and help you, the family member, with those issues is my definitionof the single family office.”

Multi-Family Office Definition: A multi-family office is a full-balance-sheet, 360-degree ultra-affluent wealth management and CFO solution formultiple individuals and families.

Multi-family offices can serve anywhere from two clients to 500-plusultra-wealthy individuals and families. In both the single family and multi-family office, what is really being offered is a full balance sheet financialmanagement solution to ultra-high net worth individuals. The implemen-tation of the family office model is diverse. In both single and multi-familyoffices, a very narrow set of services could be offered so that one family officehas just one or two functions, while others can provide a fully comprehen-sive solution. Every family’s model is unique as a result of its budget, needs,and wants also being unique.

It is important to note that many hybrid models are very much closed-door single family offices, yet they serve just two to three families and neveraccept outside money. This is an exception to the rule, but important to fullyunderstanding how the industry operates.


The Family Office Industry 5

Traditional wealth management firms advise on your investments andsometimes help you make insurance-related or budget-related decisions.Most wealth management firms are not specialists in taxation, charitablegiving, or even in multigenerational wealth management. Family offices canprovide those solutions and more with a single team, allowing several di-verse experts to speak with one another in order to create a cohesive planfor preserving and/or growing the wealth of the ultra-high net worth client.

There is a constant debate over the definition of a “true” family office.Some professionals believe single family offices are the only authentic fam-ily offices, and multi-family offices are simply wealth management firms indisguise. Others believe that you must have $250 million to launch a singlefamily office, though there are many successful single family offices with aslittle as $50 million. I believe that a family office is defined by how it op-erates and what solution it provides to the family, not by its asset size. Ahedge fund is a hedge fund and a venture capital firm is a venture capitalfirm, based on the structure of their investments, fees, and purpose, not bytheir asset size; the same goes for family offices.

This will be covered in more detail later in this book, but it is importantto note that some multi-family offices start out as single family offices andgradually add more clients. The recent rising costs of talent and compliancehas driven up interest in converting single family offices into multi-familyoffices.

THE FAMILY OFF ICE UNIVERSE

It is helpful to look at the family office industry and think about how closelyaligned different parties are to the central needs of ultra-wealthy clients. Thediagram in Figure 1.1 depicts how closely aligned the goals of various partiesare to the needs and goals of ultra-wealthy clients.

You can see that there is a symmetrical ring around the ultra-wealthy.That first ring represents single family offices that focus solely on the needsof an ultra-wealthy individual or single family.

The second ring represents multi-family offices that are almost com-pletely aligned with the ultra-wealthy client; at the same time they need toplease several or even hundreds of other ultra-wealthy clients as well, so theyare not 100 percent aligned with the goals of a single ultra-wealthy client,but close.

The third and fourth rings represent service providers and regulators.The service provider grouping includes consultants, placement agents, tradi-tional wealth management firms, and general accountants or tax attorneys.



Fund Managers

Ultra Wealthy Single Family Offices

Multi-Family Offices

Regulators

Service Providersand Consultants

F IGURE 1.1 The Family Office Universe

While a tax attorney is surely more focused on ultra-wealthy client needsthan is a regulator (as depicted later in this chapter), all of these groups are,for the most part, not focused on and built around the needs of ultra-wealthyclients or family offices.

The stars within the Family Office Universe diagram represent thetens of thousands of fund managers and investment professionals who areconstantly trying to seek capital from family offices. They are sometimesconnected to multi-family offices or service providers, or they are discon-nected from the industry to the extent that they don’t really understandwhat a family office is or how most of the ultra-wealthy are having theircapital managed.

THE HISTORY OF FAMILY OFF ICES

Single family offices have existed in different forms for thousands of years.In the article “Family Offices in Europe and the United States” by Dr. SteenEhlern, the managing director of the Ferguson Partners Family Office,noted that the merchants of ancient Japan and the Shang dynasty in China(1600 b.c.) both used multigenerational wealth management strategies.There are also several accounts of “trusts” being set up for the first timeduring the Crusades (a.d. 1100). Later, many wealthy banking families ofEurope, including the Medicis Bardis and Rothschilds, were said to haveused a family office–like structure. These organizations often offered theirservices to other wealthy families, and in the late 1800s and 1900s theystarted to look more like modern day multi-family office operations. Theseoperations grew out of single family offices that were asked to serve con-nected business families and out of private banks and early trust companyestablishments that were looking to serve more affluent clientele.



Even now the family office industry is relatively obscure and not verywell understood. While everyone in the financial industry has a rough ideaof what a hedge fund is (or at least knows that they exist), many financeprofessionals don’t know what a family office is or what it does. When itcomes to the general public, knowledge of a family office or its operationsis close to nonexistent.

Looking at the growth of the hedge fund industry, I believe the modelreally started to take off between 1970 and 2000. The family office industryis on a parallel growth track, and our market research and interviews haveuncovered that we are just 10 years into a 30-year surge of growth in thefamily office space. For example, I recently spoke on stage at an event witha wealth management professional who has 17 years of experience; whilehe was very successful and bright and did know what a hedge fund was, hedid not know what a family office was. If someone who works in wealthmanagement is not aware of the family office industry, many of the ultra-wealthy are not either. There are more than 10,000 family offices in theindustry; I predict that the industry will double in size by 2020.

The wealthy will continue to expand their wealth, and family offices willcontinue to grow in numbers. That growth is accompanied by an increasingneed and desire among the wealthy for wealth management services. Aroundthe globe, more and more wealthy families are looking for something similarto the family offices seen in the United States and Western Europe.

I was fortunate to recently record an interview with one of the foundingfathers of the modern-day family office industry, Charles Grace. Charles isa director at the Threshold Group. He is known for founding Ashbridge In-vestment Management and for building the first open-architecture platformfor family office investment management. Charles not only knows the his-tory of the family office industry but also has helped shape it as well. Hereis a short excerpt from that interview:

Richard Wilson: Charles, you have been in the family office industry forover 50 years, which is longer than anybody else we areinterviewing for this book and our monthly newsletter. Sohow have you seen the industry evolve?

Charles Grace: It used to be that family offices were based in the finan-cial office of the operating company. There was perhaps adedicated accountant in there that took care of the operat-ing company. So that was the beginning, and then some ofthe wealthier families set up distinct offices that were notnecessarily housed in the operating company, but whichwere a part of it, and they provided services to the family.Not too long ago, maybe, say, I don’t know, 20 years ago,



some of these larger family offices started to provide ser-vices to other families and the founding family. And a cou-ple of names that come to mind are us, the Rockefellers,and there were a couple of others that built a multi-familyoffice business on a family office, and so that was the firstlevel of development.

Next came the trust companies. The trust companieswere always in this business too, not as family offices, butas a part of the trust work—trust and investment work—and they were always there as competitors in this businessand still are. Then along came the brokers; while the bro-kers were very transaction-oriented in the early days, theyfound out that they wanted to provide more advice thantransactions because transactions were very cyclical. Theybecame involved in the family office’s business and theystarted selling the family office business model. They pro-vide other services, too, primarily outsourced I think, butsome of them are housed in-house. I mean I think Gold-man Sachs and some of those guys provide other servicesto their wealthy clients rather than just a dozen products.So that is a third level of development.

Now then out of that came people that spun out ofthe investment banks, the trust companies, and the familyoffices and started their own multi-family offices. So youcan see there is sort of a tree growing here and you see thatthe branches have now gone out to sort of third, fourthgeneration, where you have people spinning out of thefamily offices, the brokerage houses, the banks in orderto start multi-family offices.

Richard Wilson: I think that’s a great, brief overview of how the indus-try has evolved. It was back in the early 1980s that yourfirm was one of the pioneering family offices that cameup with an open-architecture investing platform. Can youtalk about that in a little bit more detail since you be-came well known for offering that early on in the familyoffice space?

Charles Grace: Well that’s another revolution, Richard. We started outby—this was in the old days 25 years ago whereby hedgefunds were less developed than they are now. Privateequity was there, but less developed. So the investmentquestion was sort of a simple one: a set of asset allocationand manager selection. It was based upon rather simple



strategies, I mean various types of stocks—big andsmall stocks, international stocks—weren’t regularlyconsidered until later on in the industry’s development.Hedge funds came along, I don’t know, not at the verybeginning. The investment program developed from, itused to be an asset allocation model, just an efficientfrontier which was by definition backward looking.

See the video “History of Family Offices,” atwww.FamilyOfficesGroup.com/Video4.

Then it grew into an emphasis on manager selec-tion and identifying “the best managers,” who generallyreverted to the mean, but nonetheless were very good,and so there was lot of work done on the organizationand the people themselves, investment managers. Then,[it grew] to a form of a tactical asset allocation ratherthan just strategic. Strategic asset allocation, manager se-lection, and now it’s moved into much more emphasis ontactical asset allocation across a very, very broad spec-trum of investment strategies. So there has been a lot ofchange in the way investment advice has been offered andutilized by the family offices.

Stay tuned for more of our interview with Charles Grace in Part Two ofthis book.

STATE OF THE FAMILY OFF ICE INDUSTRY

See the video “State of the Family Office Industry,” atwww.FamilyOfficesGroup.com/Video5.

The family office wealth management industry is larger and faster-growing than ever before. Family offices are thriving. Ultra-high net worthfamilies shape our economy and communities; that can be seen all around usthrough their operation of franchises, apartment buildings, operating busi-nesses, and capital infusions. Family offices are an important source of capi-tal for small and medium-sized businesses and investments, which fuel muchof the global economy.

Family offices are often global in their presence and investing. To date, Ihave spoken in more than 20 countries around the world, and every regionshows evidence of a thriving industry that is only just beginning to become

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more widely understood and defined. Throughout this book, you will havethe chance to learn more about these industry hot spots, recent trends, op-erations, investments, and the future of both single and multi-family offices.

WHO USES A SINGLE OR MULTI -FAMILY OFF ICE?

While some family office clients inherit their wealth and others earn theirwealth as an athlete or movie star, a high percentage of family office clientshave recently taken a company public or sold a business. As a result, theirnet worth is now $20 million, $300 million, or more, assets they did nothave to manage in the past. Family offices try to help manage and preservethat wealth, and the goal of this book is to explore how they attempt to dothat on a consistent basis.

Examples of well-known individuals who use family offices are MichaelJordan, Paul Allen, Oprah Winfrey, Bill Gates, and Donald Trump. Almosteveryone who runs a single family office has between $100 million and$1 billion in assets, with a smaller percentage having over $1 billion andan even smaller percentage having under $100 million under management.

Most multi-family offices require $20 million to $30 million in in-vestable assets to join their platform, but due to economic conditions andhunger for business growth, some family offices are allowing $5 millionand $10 million clients in the door. At the other end of the spectrum, somehigh-end family offices, including several we interviewed for this book, re-quire $100 million to $250 million in investable assets to participate in theirmulti-family office. For the purposes of this book, we will be referring toultra-affluent clients as individuals or families with more than $20 millionin investable assets.

See the video “Ultra-Affluent Clients,” atwww.FamilyOfficesGroup.com/Video6.

While we don’t have room in this book to detail the line item costs orrequirements of running a family office, I want to dispel one myth: Manyindustry studies will tell you that you need $100 million to $250 million ormore to set up your own single family office solution. Experts will tell youthat running a family office will cost at least $1 million a year. I don’t believethat is true. Due to technology and the ability to leverage taxation and riskmanagement experts and consultants, I have found some successful singlefamily offices with “only” $30 million to $50 million in assets.

I asked one successful single family office executive, Louis Hanna ofCorigin Holdings, when it makes sense to consider forming a single family




office instead of working with a multi-family office. “I think it’s kind of ona case-by-case basis, but arguably and it’s a large subset, but I would say be-ginning at 50 approaching 100 million, again depending upon the situation.And also obviously it is not based upon just asset level but also investmentmanagement experience, level of financial sophistication, and goals of fam-ily members.” The amount of assets needed to set up a single family officedepends on the type of risk the family has to manage, what they invest in,what global taxation issues they face, and what goals they have for the fam-ily and family office, but, as Louis notes, other factors besides assets shouldbe considered before forming a single family office.

I had the opportunity to interview Angelo Robles, head of the FamilyOffice Association, an exclusive association for single family offices. Youcan hear exactly how he responded to my question on this topic during therecorded audio interview.

Richard Wilson: How much in assets do you think that someone needs tohave before it makes sense to form a single family office?

Angelo Robles: I often think those numbers are thrown about, and some-times I am guilty of that as well. So, why not $67.2 mil-lion, how come $50 million or a $100 million? My viewson this issue have also changed in the three years since Ilaunched FOA. A part of the reason for my change wasabout a year ago, I had a chance to come across a signifi-cant wealth owner who noted to me, “You know, Angelo,I’m liquid in the ballpark of about $45 million.” And Isaid, “$45 million, I mean congratulations, you are suc-cessful. But I think you may be a little bit small for cre-ating your own entity, your single family office. And it’sexpensive relative to your assets.”

And he leans forward and says, “Let’s get a couple ofthings straight, Angelo. First of all, don’t tell me what’sexpensive. If I have, whatever, $45 million, and I want tocreate for a couple of thousand dollars a private operatingcompany and hire someone who may be paid a coupleof hundred thousand dollars, I have got $45 million. Ithink I have the resources to do that. And by doing that,I am taking control of my assets and my money. I havetalent; it may be one person, but talent that’s going to beexclusive for me. Why do I have to have a billion dollars?Isn’t that a little different than a traditional definition butstill a definition of a single family office?” And that reallycaused me to rethink.



Now, I think, to be optimized to have a multiple oftalent inside the single family office, sure, it’s going to besuperior to have $200 million, if not even more. But Ihave come around to the gentleman’s point of view thatthere really is no clear-cut definition on how much assetssomeone has to have to find it worthwhile because a lotof people that want to create an single family office, theyare entrepreneurial in nature; they are type A personal-ities; they are successful on some level; and they believein the opportunity for control, customization, and pri-vacy. And if they are able to build the governance and thephilosophy around that and hire even one person to helpthem in their initiative, doesn’t that qualify to be a singlefamily office? Just because they are not worth $300 mil-lion, $400 million, or $500 million yet, doesn’t mean thatthey don’t have the opportunity to build something thatwe would broadly still describe as an single family office.

There is probably a sweet spot or a medium, $500million to $1 billion, and we have some families that areForbes 100, a couple of Forbes 10. Those families havetens of billions of dollars. But we also have some thatare “only”—and again I use that word loosely—$50 mil-lion or $100 million or $150 million. So I think the op-portunity here is to not define an single family office bytoo restrictive of a definition. If someone sees value inthe benefit of control, privacy, and customization, then Idon’t think we could contain their desire to create one ormaintain one just because we perceive they don’t have theclassic $100 million in assets.

To download the full 40-minute audio interview with AngeloRobles, please visit www.FamilyOfficesGroup.com/audio1.

WHY FAMILY OFF ICES?

There are many reasons why the ultra-high-net-worth are forming and join-ing family offices faster than ever before. We will explore the four drivers ofgrowth in the industry within Chapter 10, “The Future of the Family OfficeIndustry,” because you may be wondering, “What are the core motivationsof these ultra-wealthy individuals looking to start or join a family office?”
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Documents

JWBT730-fm JWBT730-Wilson Printer:CourierWestford June14,2012 … · 2013. 7. 24. · JWBT730-fm JWBT730-Wilson Printer:CourierWestford June14,2012 21:55 viii CONTENTS FamilyOfficeGovernance