Business

The family office for athletes – the quarterback solution and sourcing deals

Professional athletes get showered with investment opportunities. All too often, they ask their family to sort things out and make commitments they regret.

They risk bankruptcy after retirement when their agents stop returning calls and commitments made years earlier need to be met. 

Some get locked into large advisers who charge a fee to develop in-house products and another fee to allocate them, closely aligned with the stock market, even when it is close to overheating.

Many family offices will review as many as 500 deals a year and carry out due diligence on complex deals which can cost as much as $400,000.

Pro-athletes worth billions, like Serena Williams and David Beckham, can pay what it takes to manage their affairs through family offices. They are among a very select group of elite athletes with their own investment offices. Those worth less than $100 million risk being marooned.

Family office adviser Wendy Craft is chief of staff for Fulcrum Equities, a single family office. She is an advisory board member of Athlon Family Office and says pro-athletes should not despair. Multi-family offices, with a twist, can provide a solution.

“We like the model of where you retain a quarterback for family offices,” she says. “You can find them for $350,000 – or $600,000 between three to four people.”

Quarterbacks are renowned in the NFL for their key role in coordinating their team. A family quarterback, retained in-house, would do the same – discussing strategies and vetting deals while running third-party legal and accounting advisers.

Clients may share access to family quarterbacks but they can also employ them to access family office networks, plus personal advice. Athlon also advises smaller family offices in other sectors, which add to the mix.

A family quarterback can urge discretion on household staff and watch out for security risks: “There’s so much more than investments involved,” says Craft.

If a child breaks a neighbour’s window, the parents might fix it for $2,000. “But if a pro-athlete’s kid breaks a window, you get people saying they are traumatized, they can’t live next door any more etc, which ends up with a legal demand for $200,000.” Tact is essential, and best applied by an intermediary.

Co-founder of Athlon Family Office De Anna Guerreiro is also chief executive of private equity consulting firm Vinecrest Investments. Her vision for Athlon is to educate and mentor pro-athletes to provide them with alternative investment strategies to create generational wealth. 

She is convinced pro-athletes need their quarterbacks, if they can’t afford a family office: “We’ve been focusing on why athletes go broke. It’s clear they lack a family office or qualified people looking after their interests.”

Craft has sadly watched pro-athletes steadily diminished by the cost of franchises, houses, agent fees and hangers-on.

Craft stresses that pro-athletes taking on the distraction of a car dealership or restaurant franchise need to get involved, to develop an interest in it, preferably while they are still playing sport.

Karl Rogers, co-founder of Athlon, points out European pro-athletes, particularly footballers, face a serious challenge because they join academies, and become separated from reality, as young as 12.

Most US pro-athletes benefit from a college education and often view deals as a long-term income source. Basketball player LeBron James moved to Los Angeles because he had business ventures to manage.

Rogers, Craft and Guerreiro have joined forces at Athlon to pool their pro-athlete experience and provide alternative investments to aid wealth creation. 

Guerreiro sees money as a tool to turn a dollar into multiple dollars over time, by investing in small to medium enterprises. 

They retain and work with several associates and trusted advisers, including tax expert Olivia Cooper of Axiom Stone.

Athlon likes to find deals which provide a steady income, safe from stock market volatility.

Guerreiro says she reviews numerous deals, maybe 15 a week, in areas like mining, manufacturing, agriculture, trade finance, real estate and biotech. 

Many family offices will review as many as 500 deals a year and carry out due diligence on complex deals which can cost as much as $400,000.

Athlon sets out to ease the vetting process by avoiding poorly structured companies with no real clear exit strategy or revenue streams. It sets out to understand the way companies work, and their growth goals. Thought also needs to go into how companies should be managed and which people should be appointed.

Althon gravitates to smaller deals where the banks can be invisible, private debt funds are too big to play and the pandemic has led to companies looking for capital injections, debt and equity funding.

Banks continually chase volume to service institutional clients and their own overheads. But Guerreiro says: “They don’t know how to micromanage these companies with the proper due diligence and set up infrastructure to protect the investment. There’s this huge open area of small to medium-sized enterprises, which need between a million to $40 million. We go in and fill the gaps to meet the needs of SME enterprises.” 

Guerreiro knows about banks. She worked for one during the credit boom but left when she saw how the packaging and resale of subprime mortgages would leave her clients exposed.

A recent financing deal centres on a mine in Peru, from which Glencore is buying copper. It is getting an income stream of $19 million over 36 months, on capital of $2.5 million. A small ticket, maybe, but that is enough income to service five wealthy families. A recent past oil deal returned 14.7% when crude prices went as low as $20 a barrel. 

Athlon also has a significant presence in trade finance. Over the last sixty days, Its trade finance partner, in the last part of 2020, shipped 800,000 tonnes of product to produce gross revenue of $200 million. Clients can expect a steady internal rate of return of between 6% and 11% depending on the trade.

Agricultural deals are also on offer given that farmers and food manufacturers in countries like Brazil are desperate for finance. 

Karl Rogers argues the time is right for alternatives: “Traditional and portfolio diversifying investments are not doing what they ought. They are correlated and driven by broad market risks.”

He offers Athlon expertise developed by his company Ace Capital Investments which sources, analyses and provides a range of smaller hedge funds operating in niche environments. 

Over three years his multi-manager programme shows a 12% annualized return, with a 10% correlation to the S&P 500 compared to a 5% annualized return, 86% correlated with the S&P, from the broader HFRI fund of fund index. Areas of interest include electricity, commodity arbitrage and market-making.

Guerreiro says the time is right for family offices to take back control of the financial markets during the current Covid crisis: “They have the opportunity to come together in a consortium and benefit from the current situation.”

But she adds this year could be “scary and dark”. 

Pushed to name a sector capable of displaying resilience she picks agricultural goods where shortages are developing. 

“The demand for food is going to be super-incredible,” she says. 

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