Background : About a year ago several of us gathered around a beach fire and started talking about recruiting, retaining and general management of family offices: including investment technologies, tech used for administrative purposes and tech used for intra family…
About a year ago several of us gathered around a beach fire and started talking about recruiting, retaining and general management of family offices: including investment technologies, tech used for administrative purposes and tech used for intra family communications to manage the investment portfolio.
Out of this well spring colored with abundance of champagne, some lovely wines and Smores (an American must have treat around a fire) we came up with part dare and part genuine curiosity, a survey to find out: What are other families doing, what are the challenges others are facing and how can we improve.
We often share among ourselves relevant information, often some important private bank’s published information about family offices. Recently, for example, one bank wrote that on average in 2017, family offices performed X% better overall than in 2016. We scratched our heads and remarked: but that’s like saying the weather was X% better in 2017 than 2016: It doesn’t account for what risks, assets are allocated into, size of capital deployed, whether these are single families or multi family offices or even what is considered “better”. More and more, we are realizing that we may have more intimate information.
Some caveats :
This survey wasn’t professionally done, in fact, it was more of a check the box and write what you think. We circulated among friends and single families we know: 110 of them, globally. We followed up with a call, often times the call digressed to what we were working on, where we would meet again, and how we were. Where formality is lost, the information is credible: There’s trust that the information provided remains confidential as to the families and individuals. There’s further genuine support and interest that this information can improve the investment efficiency for family offices.
Hence, our survey results, of 110 single family offices globally located, hopes to give clearer insight: As no one knows us better than ourselves.
Last week I spoke at a conference and published for the first time 2 slides with some of this survey’s results. We are still analyzing the balance of this survey. The audience was a mix of fund managers, asset managers, VC’s, projects looking for funding, multi families and single families. I saw some man in the front looking almighty bored, then some actively taking copious notes, others photos of the slides and on the whole, I received emails reflecting a range of surprise and curiosity on the materials presented. So, I thought to write this short article to gauge the interest level, if at all, then to provide more color on this topic in the future.
I’ll highlight some of the survey results that I provided at that conference:
We divided the families based on the range of capital managed by that family office on the X axis. Then on the Y axis, characteristics: Generation of the family, size of staff, classes of assets, up to 20 different categories.
There is more common denominators then we thought. There’s the adage passed around that “once you’ve seen one family office, well you’ve seen one family office” is actually a fallacy.
The common denominators hinge on two fundamental pillars: Generation of the family and Capital that family has. What was more alarming was the actual naivete many first generation families were in wealth management. Although many had the capital to hire first rate top notch money managers, these families lacked the skill to discern what type of money managers they actually needed.
To a large extent, professional recruiters were retained, but perhaps due to the opaqueness of family offices and the families themselves being unclear on their expectations, the job descriptions for CIO’s on average were all over the gamut. Not what we would write ourselves to attract that level of talent. More precisely, not very useful to attract the right CIO talent for the right family.
We compared the first generation families to families with 30% turn over rate (average turn over rate is 10% in a well managed company) and saw a higher percentage of first generation families in this category. We also targeted on some of the leading causes for this high turn over rate, as well as a direct correlation to lower investment performance even when a bulk of that portfolio is managed by external managers.
We compared second generation families and graphed the performance over a period of time and saw similarities during management integrations after a corporate merger or buy out.
We looked at second generation family heads and third and later family heads and again found misalignment in objectives, expectations and performance among the family members and more relevantly with the professional managers: CIO and staff.
Of these families we saw families performing well and families with fractured performances. We found consistent poor performance as a result to several factors regardless of generation of wealth. Again, the common denominators are more than one would realize.
What we saw added to this mix that will become more of a challenge is the arrival of the Millennials. North America and UK alone represent over $4Trn in wealth transfer with Millennials being the largest beneficiary class (Source: FT 11/17/2017). Millennials savvy in technology, access to information, well educated make investment decisions completely differently than their forebears: mission, focus and manner.
Last, the survey yielded a rich insight on compensation. We were surprised to see from $250M USD – $1Bn USD capital, the compensation coalesced around $350,000 USD on average for the CIO on total cash benefits. However, most allowed for other in kind compensation structures taking the entire compensation package to a “potential” level above even VC or PE GP’s deploying similar size capital. Whereas actual “soft benefits”, the smaller the family’s capital, the more soft benefits were provided down to none for families with capital over $1Bn USD. We, of course, had to look at correlation of compensation to performance: There was none that was obvious.
At least one suggestion:
I will end on this, families within each global region, regardless of size of capital, behaved similarly: Investment decision making process, staff size and expectations. This showed that recruiters and investment professionals working with or looking to work with these families should put a higher emphasis on cultural knowledge and cultural formalities: E-IQ plays a greater role then expected even in the above $1Bn USD capital professionalized family offices.
Authored By :
Catherine Shiang – Managing Director at Asia Capital Advisor Ltd.
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