The academics and techies revolutionising portfolio management at family offices

Leading Stanford University academic Ashby Monk and Silicon Valley entrepreneur Joe Lonsdale are stepping up their campaign to use data flows to help family offices, and other investors, manage their wealth more effectively. 

Rather than spreadsheets, they want to use portfolio mapping, which gets a precise fix on client assets, hones their targets and discovers routes to achieve the right solution, with the help of modelling software. Monk compares the process to using Google Maps.

My hope is that the crisis will lead to spreadsheeticide – a  mass destruction of spreadsheets

“You need crises in order to drive change,” he says, pointing to the inertia which exists in the world of asset management. Real Capital Innovation, the company he formed with Lonsdale in 2017, has joined forces with Addepar, also started by Lonsdale, to kick-start solutions.

In April, Family Capital outlined the failure of family offices to respond to investment challenges triggered by the coronavirus. According to Martin Stadler, CEO of Swiss-based systems provider Altoo: “Keeping track and control of wealth was never as important as in the current situation. We have seen more than two times more logins from clients over the last few weeks. The need for ‘remote work’ has led to several requests from family offices in order to maintain business continuity.”

Monk believes we are on the cusp of a new age. “I believe investors will come out of this crisis by integrating alternative data and ESG into core decision-making processes.” 

He said concern over tail risks had developed to a new level. He believes large companies may create their own corporate wealth funds, as a buffer against hard times, rather than continuing with share buybacks. He thinks alternatives investments will become massively popular in the world where interest rates are close to zero and bond yields are depressed.

Monk is research director of Stanford’s Global Projects Center, where his team researches ways to unlock the $100 trillion run by professional investors to benefit society and deliver better returns. He believes that technology will dramatically raise their game. 

He is a popular figure, on excellent terms with a wide range of institutional investors, endowments and sovereign wealth funds. He believes Capital Real can push his network of contacts deep into the world of wealth.

Lonsdale is part of a new generation of tech-driven entrepreneurs using technology to deliver data-driven solutions across the business world. He co-funded Palantir Technologies in 2004 with tech investor Peter Thiel. The company has gone on to win a stream of data contracts from the US government including the military. Lonsdale also co-leads 8VC, a venture capital business out to find tech-driven opportunities.

In 2009, Lonsdale set up Addepar, which manages $1.7 trillion for wealthy investors. Its backers include Peter Thiel’s Founders Fund and Thrive Capital run by Joshua Kushner, brother to US President Trump’s son-in-law, Jared.  WestCap pumped in $40 million this March: its founder Laurence Tosi is former CFO at AirBnB. 

Lonsdale founded Addepar with Joseph Marra, who used to work for Palantir.  Valor Equity Partners, long-standing backer to Elon Musk, has invested in the business. Its founder and Tesla director Antonio Gracias sits on the Addepar board.

Addepar’s clients include advisers Morgan Stanley and AllianceBernstein.  Family office clients include CAM Capital, founded by macro hedge fund pioneer Bruce Kovner, Gleneagles Group, Cherry Creek, Rincon Advisors and Fremont. Justin Rockefeller is Addepar’s global director of family offices.

Family offices use Addepar’s reporting engine to secure rapid, comprehensive, access to portfolio data on a customised basis so they can make timely investment decisions.  The display is simple but not so easy to programme. It requires data feeds from every custodian.

According to Rincon chief investment officer John O’Connor: “Addepar offers a level of transparency that’s hard to achieve without a huge back office.”

In a 24 April presentation to Addepar clients, Ashby Monk despaired at the way investors, not just family offices, have been tripped up by administrative systems which have found it hard to keep up with a today’s flow of data. “My hope is that the crisis will lead to spreadsheeticide – a  mass destruction of spreadsheets. They are a very good tool for small projects. But you are flying a plane, rather than a paper dart, they are not so good. And you get errors.”

Through its partnership with Addepar, Real Capital will get an accurate fix on the assets owned by family offices. It also has access to a wide range of institutional investors which can benefit in the same way.

After receiving a portfolio breakdown Real Capital can discuss targets. In the case of pension schemes, these would concentrate on pension liabilities. Family offices may choose a broader remit, including socially responsible returns and tail risk exposures.

Real Capital can go on to determine the route investors need to follow to achieve their target. This would include simulations and scenario planning to stress test assumptions, in the case of different market events. Monk says ESG will be part of the mix: “The impact of a forest fire in California in eight years time is going to be much greater than now, due to climate change.”  

He likes to compare Real Capital’s routing approach to Google Maps.  Just as it reacts to traffic jams and accidents, Real Capital has the technology to work through stress tests to help clients to navigate away from a market panic, or prepare for one. 

It is possible that investment routes will need to change, over time. But it is also possible that Real Capital’s scenario planning will encourage investors to stay the course. London asset manager Schroders recently published research which proved that investors staying in cash following a market crisis saw their long term performance suffer. A simple rebalancing is often more effective.

Real Capital puts stress on the collection of accurate data, to make its assessments as precise as possible.  It needs to input fees and costs, for example, and get a handle on data which explains how secretive private equity firms deliver their returns, as opposed to hiding behind their bald performance numbers.

Over time, if things go to plan, its use of data could even have the potential to play a role in a tech-driven disruption of the entire asset management and wealth advisory industry, already reeling from the implementation of indexation for the masses.