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The next gen influence at family offices is growing rapidly – two case studies

The Murdochs have endured periods of angst. For years, Sumner Redstone fought his daughter over the governance of his media empire. Unfair pressure on next gen has produced suicides and drug abuse. 

In recent years, however, more parents are taking a more inclusive approach, by teaming up with their business-savvy children to develop new opportunities as well as their family office.

Recruitment consultant Mark Somers of Somers Partnership says:  “The older generation has learned their children can be invaluable to the functioning of a family office in technology, investment advice, venture capital and ESG. The generations have also become closer in the pandemic after spending more time in each other’s company.”

A change in societal expectations is a key factor. But the potential in the next gen is also being unlocked by their enthusiasm for tech-driven growth stocks as opposed to struggling value picks.

Next gen also has an intuitive approach to the operation of technology which is useful to family offices. It can get a grip on disruption at speed. 

Their sustainable initiatives are also moving up the agenda as the climate crisis develops.

And zero interest rates are helping to nurture disruptive businesses which the young are best equipped to handle. 

Of course, some principals believe tech-driven companies are riding for a fall, just as soon as central banks sanction a hike in interest rates. 

They choose to doubt their children can offer enough talent leaving them (quite naturally) with no choice but to soldier on, with the help of seasoned advisers.

Even so, it is hard to remember a time when so many family enterprises were prepared to put so much faith, and capital, behind their children. 

Lior Messika recently set up his own crypto and blockchain venture backed by his family office, a diamond trader, while his sister runs a jewellery business with their father.

Ellie Rubenstein is backed by her father, David Rubenstein, co-founder of Carlyle Group, at Manna Tree, a VC outfit committed to traditional farming. 

UK entrepreneur James Dyson bought his son Jake’s lighting company to use his expertise: his two other children have their own businesses.  

Dental technician Smile Direct Club, listed in 2020, is run by David Katzman, picking up the idea from his son Jordan, who sits on the board and has a large share stake. 

James Murdoch has set up his own family office and left the family firm, News Corporation. 

If you want to see more examples, go to Family Capital here.

The outcomes for each, and every, business set up by next gen are different. But the generations are mainly happy to reunite around a central core – the family office. 

Next gen is bringing new ideas to every meeting to shape their inheritance more closely with their image.

You can go further, and draw on the arguments of philosopher Thomas Kuhn about scientists, which argues that closed communities end up becoming rigid and self-perpetuating.  Third-party advisers tend to make the problem worse, because they are reluctant to challenge the views of principals, making the acceptance of new thinking from a new generation vital. 

Family Capital has analysed two case histories which illustrate how next gen investors are influencing the family office agenda.

Howard Marks co-founder of Oaktree Capital and family office Freemark Partners is a successful bond investor with a yen for value equity investing. 

During the pandemic, however, he spent time with his son Andrew, partner of TQ Ventures. They have not convinced him that value is dead but he has decided it is badly in need of repair. 

According to Howard Marks in his latest memo: “Discussions led me to conclude that the focus on value versus growth doesn’t serve investors well in a fast-changing world.”

He can’t bring himself to turn bullish on cryptocurrencies but reserves the right to change his mind. Andrew Marks is “quite positive on bitcoin and several others, and thankfully owns a meaningful amount for our family.”

Howard Marks points out asset management was once a cottage industry where you often found value stocks at a big discount to their underlying worth. Computer programmes now tease out endless quantities of data on stocks. Quant investors easily hoover up value opportunities. Algorithms have gone ballistic. 

So, if a stock remains cheap, there is probably a good reason: “Broad observations about historic valuations are no longer a sufficient foundation for market opinions today.”  

Unlike value investors, they seek to see the future to judge whether a great company can be capable of becoming even greater.

Howard Marks says value investors need to accept that some valuations, while lofty, can be justified. Companies refusing to fade away should not be sold prematurely although general market setbacks can throw up interesting value bets. 

Many of the changes have resulted from technology. Computer code can make, or break, attempts to achieve scale. Unprecedented scale can develop.

Marks says: “The economics of winners have never been more attractive, with very high profit margins and minimal capital requirements.” 

 After an early career in manufacturing, Frohman Anderson became involved in private equity. He is co-founder of private investment group EverWatch. Wife Kim is a successful entrepreneur in consumer goods. According to Anderson: “Our generation has really been able to leverage the next.” 

At 14, in 2009, daughter Ava started a business with her mother, marketing consumer products free of toxic chemicals. 

Her 16-year-old brother, also called Frohman Anderson, became involved with her initiative, now sold and called Pure Haven Essentials.

He also learned the way families need to deal with failure, vet third party suppliers and manage risk. He and his sister, are adept research commercial opportunities in great depth, drawing on their parents’ business nous.

Eight years ago, the young Frohman Anderson invested his entire personal savings in Tesla. He was deeply impressed by Elon Musk, plus the vast sweep, and detail, of his ambition. 

Frohman steadily developed a deep understanding of Tesla’s business which led him to hold tight to his shares, as less informed analysts urged people to sell.  It soon became clear Tesla was a lot more than an electric car company. In 2018, he doubled his stake. 

Tesla has now joined the S&P 500 and continues to innovate. Anderson has multiplied his savings a hundred times and remains a holder. 

He concedes there is key person risk around Musk: “But I wouldn’t want to be involved in any sort of growth company that doesn’t have key-person risk. “ 

His father has been impressed with his son’s research. His wife invested in Tesla at a later date and the family office came on board a year ago.

But Anderson senior concedes: “My son was, you know, the guy in the Skunk Works, constantly focused on Tesla for years. And for years we just weren’t willing to go there.” 

The Andersons have been listening carefully to their children over issues like sustainability. According to their father: “You can’t continue to be indifferent and you can’t unknow what you’ve seen, once you’ve taken a bit of a deep dive into this.”

He now sees ESG as a risk management tool, capable of employing a new realm of data beyond traditional analysis.  The family office used to invest in traditional energy stocks, now it invests in clean energy while checking out nascent opportunities.

Alongside his Tesla research, the young Anderson is involved in alternative protein using cells and plants, as opposed to meat. His VC firm is EverHope Capital,

He says: “It takes twenty pounds of grain put through a cow to get one pound of beef. If you use twenty pounds of grain to get twenty pounds of plant-based meat that has to be more efficient.”

You need less overheads, less water, less land and you don’t need to kill animals. As long as you can define your customer base with tasty food, he believes you could see a $2 trillion market place, for starters.

Anderson concedes there are only so many opportunities he can research. But he has also taken the trouble to understand cryptocurrencies, where has been an investor. 

He believes the sector can now offer more regulatory clarity, robustness and an institutional following.  His father, unlike Howard Marks, accepts the argument,  although, inevitably, he wants to research it further.

The Frohman Anderson discussions were hosted by Angelo Robles, chief executive of the Family Office Association

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