MFOs continue to try to carve out a niche with the UHNW – some more successful than others

The mathematics of keeping wealth in the family are unforgiving when you account for taxes, inflation, disruption, volatile markets and the needs of future generations.

In due course, you generally discover you need to create wealth to preserve it – often quite aggressively.

Family offices are designed to handle all this, on behalf of the truly rich. And people of lesser wealth are equally keen to get their money managed in a similar fashion by multi-family offices.

Family office consultant RA Prince & Associates points to a survey which shows that 75% of 206 ultra-wealthy families seek to use multi-family offices, as opposed to wealth advisers.

The family office sector is also seeing a rise in informal co-operation between SFOs, particularly in relation to investment and venture capital deals

The sector is also enjoying a merger wave, as firms seek to increase their share of a growing sector. Larger firms tend to have the best chance of keeping families satisfied with an offer which satisfies all their desires. 

Cresset Asset Management bought $2.3 billion MFO PagnatoKorp this summer, while PathStone acquired $4 billion Cornerstone Advisors.

Family Capital has compiled a list of multi-family offices backed by families who have met with success in the MFO world and related spheres.

The movement was led way back in 1907 by the Phipps family’s Bessemer Trust, a $100+ billion behemoth, which offers an unusually broad range of services and investment opportunities.  

The Pitcairn and Pew families followed suit with offerings with Rockefeller Capital Management becoming a later entrant.

In Europe, the Quandt family’s HQ Trust opened its doors in 1988. Stonehage Fleming has a broad wealth offering built its purchase of Fleming Family Partners. J. Stern, run by its founding family for 200 years, has developed into a broadly based advisory firm.

The vast majority of MFOs sponsored by founding families seek to provide access to investment ideas, club deals, risk control and administration.

Providers set out with the aim of covering costs involved in running their family office. To defray costs, they can take on the one-off management of a different family office, reflected in Kirk Kapital’s recent decision to take on the Nissen family of Denmark.

However, single-family offices are often reluctant to take on MFO business.  

This reflects the relatively low fee they earn from other families. An MFO relationship can also be time-consuming. According to one legal expert, a single-family needs to be aware of the risk of a negligence action in the event of bad news.

Other ways to save on costs are making it more economical to start a virtual SFO than defray costs through an MFO. 

Consultant Steve Martiros of Martiros Strategies says: “These days, you can outsource practically everything. I believe this will be the big story for family offices in the coming years.” 

By all accounts, list management is the latest outsourcing craze. 

The family office sector is also seeing a rise in informal co-operation between SFOs, particularly in relation to investment and venture capital deals. 

Pritzker Private Capital, for example, has promoted co-investment with other families for private equity deals. MSD Partners, run by the Dell family, has wheeled out a series of private equity and venture opportunities where other families have participated.

In a twist, MSD Partners co-founder Glenn Fuhrman is working with hedge fund manager Danny Och and a few wealthy associates at a $750 million blank-check SPAC expected to find a deal soon. 

McNally Capital has built up a network of 800 family offices who participate in investment deals. Club deals between family offices who meet to discuss opportunities have also developed. 

An investment club called SFO Alliance began this year, led by Lex van Dam, whose views aired in Family Capital.

On the advisory front, Roy Ballentine has moved his Balletine Partners family business into offering MFO and advisory work. 

Tiedemann Wealth Management is a top-end trust adviser started by the late Carl Tiedemann whose son Michael is CEO. It is dedicated to the broadest possible range of wealth and family advice, recently strengthening its governance and education offering.

On the commercial front, a wealth of advisory firms and banks are jostling to supply MFO initiatives to wealthy investors.

Adam Wethered of Wren Investment Office, a former JP Morgan banker, argues that MFOs dominated by a single family can often lack commercial drive. 

He says a commercial MFO is in a good position to hire talent and speak truth to power on the back of a rigorous analysis of client affairs.

A wealth adviser adds that commercial MFOs also offer value for money: “In the US, you can get fees down to 40 to 50 bps. If a family is worth, say, $200 million, it might make sense for it to use commercial MFOs rather than committing to a family ofice.”

However, families need to be sure that MFOs are equipped to handle all their affairs rather than using the MFO tag as a marketing tool for a narrow range of services.

Clients also need to keep a close eye on comings and goings at MFO firms they retain. GenSpring Family Offices is back on the front foot, but it suffered a severe client exodus after its former CEO Mel Lagomasino, and associates, quit in 2012.

GenSpring has its roots in the 1986 acquisition of a $200 million MFO built by Ellen and Henry Perry out of the proceeds of a sale of a media business. Sun Trust, the banking group, bought GenSpring in 2001. 

Banks can be decent owners of wealth businesses but they can also be brutal in defining their bottom line.