Behind the dynasty billions: family offices

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Gerard Ernest Goodman
5 years ago
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as Australia s largest family offices skew the top of the list, the likes of the van Lieshouts, the Gandels and the Walkers,

1 Behind the dynasty billions: family offices PUBLISHED: 7 hours 43 MINUTES AGO UPDATE: 3 hours 24 MINUTES AGO PUBLISHED: 29 Jan 2014PRINT EDITION: 29 Jan 2014 While the Rineharts (Gina above) and the Forrests ranked first and seventh in size respectively as Australia s largest family offices skew the top of the list, the likes of the van Lieshouts, the Gandels and the Walkers, among others, tip the source of wealth for the majority of family offices heavily towards property. Photo: Claire Martin Matthew Smith

2 Family offices are the hidden force in the investing world wielding enough capital to make a fund manager blush; they are known to swoop on deals where venture capital firms fear to tread. They are the private investment arms of Australia s wealthiest dynasties and recent studies estimate their collective worth is more than $200 billion. Put another way, that s about half the total pool of money invested by Australia s million self-managed super fund members, concentrated in the hands of just a smattering of people. With a net worth estimated at $2.1 billion by BRW, the Libermans are among a handful of wealthy Australian families with the means to invest directly in early stage ideas. The LJCB Investment Group the family s own fund has a mandate to take large stakes in entrepreneurial endeavours; its investment mid-last year in Melbourne-based education venture, Ducere, is its latest. Family Offices are also known for their ability to deploy capital quickly and to buy assets at the bottom, which is when trustee responsibilities relegate many institutional investors, such as superannuation funds, to the sidelines. Many of these deals will go unnoticed by the general public because they are done under the veil of the private markets. But while Family Offices are among the most fearless investors in the market, they also consider capital protection and preservation as their number one and two defining characteristics. Rarely seek publicity Despite the immense influence Family Offices have globally due to their ability and willingness to put capital to work, they rarely seek publicity about the work they do and how they do it. In Australia, Family Offices can be roughly divided into three categories based on size: up to $200 million in assets; between $200 million and $500 million; and $500 million and above. Each of the top 200 Family Offices in the country have at least $200 million worth off assets, according to an analysis of public information compiled by Family Office Connect. With more than $200 million worth of assets, FOs will have the scale and complexity to employ their own legal and administration staff and will start bringing some of the investing functions for the family in house. At the larger end of the scale $500 million in assets and above Single Family Offices (SFOs) can employ a dozen full-time staff or more, including internal investment professionals, lawyers, accountants and administration staff. The largest FOs will be equipped to handle everything in-house, from paying the rent of the heirs, to signing off on deals worth tens of millions of dollars. There are only a handful of Multi Family Offices (MFOs) in Australia, of which Melbourne-based Myer Family Company and Mutual Trust are the largest both are ranked just inside the top 30 largest FOs in the country.

3 The Myer Family Company is the most recognisable an extension of the Myer Family Office (MFO) founded in 1934 by the namesake of the iconic department store chain. MFO started offering its wealth management services to other wealthy families in Under the radar While SFOs are likely to be more secretive and remain under the radar, MFOs are increasingly, albeit carefully, cultivating a public profile as the Family Office services industry continues to grow. Quality MFOs need scale in order to provide high -quality services and access the best investment talent, says Mutual Trust chief executive Tim Hammon. The way Multi Family Offices will spring up in Australia will be by growing their scale, they will be able to employ better and better people to provide high quality advice, Hammon says. At the end of financial 2013, Family Office Connect estimates the top 100 Family Offices representing about 80 per cent of all FOs in the country accounted for about $180 billion, up slightly from the end of FY 2012 estimate of $ billion, compared with $161.9 billion at the end of FY Most Family Offices, either in Australia or around the world, will originate within a family business, explains Peter Pagonis, a partner at Deloitte Private, who specialises in advising wealthy families. It makes sense for the Family Office to start informally, leveraging off the business s administration functions, but as the business grows and the owners look to diversify their asset base, that s usually when the stand-alone Family Offices is formed. Structure will transition The family business might then be sold to private equity or listed on a public exchange and the Family Office structure will transition to distribute and protect the family s wealth. The next generation might not be interested in going into the family business, they might be more interested in protecting the wealth, diversifying and having the opportunity to go into other investments, Pagonis says. As such, the main purpose of the FO will be to diversify the family s interests away from the business activities, Pagonis says. The next generation are putting together their own venture capital funds and private equity deals; that seems to be what they like to do, he says. In Australia, property is the asset class with the highest allocation of family wealth, chief executive of Family Office Connect and founder of third party marketing company The Table Club, James Burkitt, points out. While the Rineharts and the Forrests ranked first and seventh in size respectively as Australia s largest Family Offices skew the top of the list, the likes of the van Lieshouts, the Gandels and the

4 Walkers, among others, tip the source of wealth for the majority of Family Offices heavily towards property. As a result, many FOs will be set up to source investment opportunities away from property. Someone who s very wealthy will continue on to make investments in their field of expertise, but they will look to the Family Office as an internal structure to manage their family s interests with more discipline, Burkitt describes. Diversify risk FOs are most likely to be looking for alternative investments such as private equity, hedge fund strategies and exposure to credit markets to diversify their risk, says Tom Murphy, managing partner of wealth management firm, Family Office Research & Management. Murphy acts as an investment outsourcing arm for Family Offices. Family Offices will be quite thematic in their investment approach and benchmark unaware. You will find the bigger families will run as much money as they can themselves. And they ll outsource where they feel they don t have a core competency, Burkitt says. They ll want to do private equity domestically by themselves; many of them like to be quite active and not invest via a investment manager. There is a certain desire among wealthy families not to be co-mingled with retail investors. They want something special and they want something that s priced to reflect their wealth. Even if their money is going to a managed fund, they want to be paying 0.75 [per cent of assets invested] instead of 0.9 per cent. As the Family Office wealth grows, Murphy says more and more fund managers are carving out wholesale pricing for wealthy families. Family agreement Common among every FO is a family agreement, Pagonis says. Every family agreement will have a distribution policy, an agreement for a board structure, a policy on philanthropy and remuneration for principals. It s not uncommon for one family member involved in building the capital for the Family Office to be remunerated more than others based on fair market value. The old way of doing it is: I ve got four children and one is running the business, she only gets a nominal amount because she ll get 25 per cent of the pool at the end. That s a huge issue for a Family Office and it doesn t work, Pegonis says. The cost of a family trust will usually run in the realm of 1 per cent of assets invested before investment fees, the experts agree. While the larger Family Offices will struggle to compete with the large investment firms for talent, they will often attract the smartest deal makers and investment professionals by allowing their chief investment officers to co-invest alongside the families, on the same terms and conditions. The flexibility and quantum with which most Family Offices are able to invest makes them a magnet for investment opportunities in the marketplace.

5 While private client business of large investment firms have been more successful in managing Family Offices in the more established European and United States markets, family wealth in Australia remains predominantly within the SFO structure, according to Scott MacDonald, chairman and co-founder of the International Family Office Association. Private banks would think give us all your money and we ll look after you, but they don t look after what we call the soft issues, such as managing family interactions and managing the family legacy, he says.

special report 24 PROFESSIONAL PLANNER Gian Pandit and Ella Brown Photo by : Matthew Fatches,

special report 24 PROFESSIONAL PLANNER Gian Pandit and Ella Brown Photo by : Matthew Fatches, Photo by : Matthew Fatches, www.mattfatches.com.au Gian Pandit and Ella Brown 24 PROFESSIONAL PLANNER Courage of conviction There is a growing sense that the time to move back into equities is drawing