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The Family Office Interview: Turning Private Assets into a Profit Centre

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Private family assets such as superyachts and jets are expensive, not just to buy, but also to run.  Many families try to manage these costs but few have successfully turned them into profit centres. But Harkamal Singh Sandhu, head of private assets at a UK-based multi-billionaire single family office, reckons you can.

Harkamal talked to me about how he turned the expense of a superyacht – arguably the most money draining asset most billionaires will ever own – into an income stream.

These beautiful assets can be used and enjoyed whilst providing a return

“Expenses in the superyacht world can be astronomical,” says Harkamal, who has decades of experience managing superyachts for billionaires.  “To keep tight control, one must prioritise.  Most people look at human resources costs and fuel, which is correct, but then they fail to focus on secondary items, which can really add up.”

A 100-metre superyacht with a top speed of 25 knots and 50 crew members costs around $275 million to buy, according to Towergate Insurance, a UK insurance broker.  Then fuel, maintenance, tax, insurance, docking fees and HR, including crew salaries, will mean that an owner should expect to spend around 10% of that initial cost every year.  

Given these running costs, Harkamal says everyone on the yacht needs to pull in the same direction and spend money as if it is their own.

“Many people have a simple concept – get three quotes from a supplier.  But that’s not enough. I want to see the kind of effort being made that you would apply if it was your own money.”

To make this work, says Harkamal, having a good captain and heads of departments are vital.  “The crew need to share your philosophy in saving money so that you can cut down on wastage. The senior staff will drive that philosophy down to all staff.”

The approach should not be limited to obtaining multiple quotes, but to also understand the owner’s mindset. “For example, some staff may naturally think they must buy expensive shampoos because their users are billionaires,” says Harkamal. “But, in reality, some of these very billionaires may be happy to use ‘Head & Shoulders’ shampoo and shop at the same supermarkets that most of us use.”

He adds: “My job includes understanding the family’s requirements. Once this is done, to source the desired products and services for the best value. I recall we were paying $70 for a Bvlgari soap set which I sourced later for $50 – these small savings add up.

There is also more to this philosophy than avoiding profligacy.  “You need to know when to pay for quality and I don’t over negotiate on two things; people and food. For me, these two things must be ‘creme de la crème’.”

Harkamal also has a simple but effective way of ensuring transparency in the family office’s yachting costs. For many of the agents involved in the process of a working superyacht such as fuel agents, he receives a breakdown on the invoice for the cost of fuel and agent commission. “It’s a very transparent relationship and I understand everyone runs a business to make money.”

Harkamal says he spends: “80% of my budgeting time in cost-cutting and 20% negotiating the charter revenue”.  Chartering, or renting out the yacht to third parties when the family is not using it, is the key to turning a profit.  While some families can spend months on board, the use of yachts varies significantly and some families only use them for a handful of weeks a year.

“When I joined we were already chartering the yacht, but the problem was we did this for only 14 weeks a year.  I increased this to 26 weeks and I was prepared to take some risk with some last minute bookings. For example, I have been able to achieve a 50% (€500,000) increase in single weekly charters by using the above strategy.

“This risk strategy can only pay off with extensive industry knowledge which takes years to build,” says Harkamal.

The biggest hurdle in increasing charters was managing the crew.  “When there are guests on board it’s a lot of pressure on the crew and in the summer period there would be a 24-hour turn around”.

The broker market is also changing with the internet threatening to disintermediate this market.  Charter clients will soon be booking on comparison style websites. “Somewhat like Booking.com, the internet is bringing more transparency to the charter sector.  It’s changing and making charters more competitive”.

“These beautiful assets can be used and enjoyed whilst providing a return,” says Harkamal.  

“But to do this, one must build a good team which will include the crew, suppliers and agents. Once you have all these stakeholders singing from the same hymn sheet, one will achieve a sense of satisfaction as the numbers will prove that in yachting the impossible is possible”.

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