Single-family offices are expected to increasingly outsource parts of their businesses as they seek to concentrate more on deal-making, and less on things like financial reporting and even the management of their liquid assets. The biggest beneficiaries of this trend might just be the multi-family offices.
J Stern & Co, a London-based private investment office with ultra-high net worth families as clients, currently works with “more than five” single-family offices, says CEO Jerome Stern. “For us, it’s really important to understand family issues,” he says. “I think that gives groups like J Stern an advantage when it comes to working with single-family offices.”
Multi-family offices often have started, like J Stern & Co, as single offices so they have firsthand knowledge of the issues SFOs have to deal with. This is a point also made by Alex Scott, the chairman of his MFO, Sandie Investment Office, also based in London. “MFOs get the issues that SFOs face because they were in many cases one themselves when they started.” Sandaire currently works with two SFOs, but Scott reckons this number is likely to rise as SFOs outsource more of their work. “Areas like financial reporting and management of liquid assets will most likely be outsourced more in the years ahead as SFOs concentrate more on doing direct deals,” says Scott, who set up Sandaire 20 years ago after the sale of his family business.
SFOs also like MFOs, particularly if the founding family have skin in the game. “We have total alignment with our investments – our family invests with our clients,” says Stern. He adds that many of the big fund houses and banks are not driven by the same set of values as families, particularly when it comes to long-term investment objectives. “That gives groups like us an advantage.”
Investment offices like J Stern can also tell a pretty good story about their family, given their links to multi-generation family business, which in J Stern’s case goes back to the 17th century. SFOs often like to see something with substance behind them – it appeals to their long-term objectives. “We know about issues like succession and the importance of the preservation of wealth over multiple generations,” says Stern.
The bespoke nature of MFO investment objectives can also be popular with SFOs, adds Stern. “The big fund houses can rarely do something bespoke for you. They tend to be too orientated to using funds.”
And it’s not just MFOs that will benefit from the SFO outsourcing boom. There is growing evidence that SFOs want to work more with other outside groups to increase efficiencies. Even in the area of direct investing, SFOs are looking to rely more on outside groups to bring them the best deals. As evidence of this, it was reported by Bloomberg last week that Bill Gates’s family office Cascade Investment, along with two other family offices, is backing a New York-based buyout specialists to source deals for them.
Also, non-investment work like tax structuring, legals, concierge, compliance, technology, and cyber security are areas SFOs are likely to bring in more outside specialists to handle in the coming years.