Bay Area Wealth Explosion Draws Wealth Advisers
With its recently opened outpost on San Francisco’s Mission Street, Bel Air Investment Advisors is joining a burgeoning wealth management industry catering to Silicon Valley’s tech elite. It’s not LA.
On September 21, 1998, online auction company eBay went public. Overnight, eBay founder Pierre Omidyar and Jeffrey Skoll, one of the company’s first employees, became billionaires. Skoll, who wrote its first business plan, had only worked at eBay, which Omidyar founded in 1995, for two years.
Both set up eponymously named foundations: the Palo Alto, California–based Skoll Foundation, which is hosting the Skoll World Forum on Social Entrepreneurship in Oxford, U.K., this week, and Omidyar Network, in Redwood City, California. These organizations have been influential in both the impact and social-finance movements. But beyond philanthropy Omidyar and Skoll are emblematic of a new generation of high-net-worth individuals, members of a class that has amassed immense wealth in Silicon Valley’s tech sector before hitting age 50.
That kind of fortune attracts wealth advisers. And not surprisingly, private wealth advisory firms are moving to the San Francisco Bay Area to cater to the growing ranks of ultra-affluent tech entrepreneurs, riding the wave of social media–, e-commerce- and app-driven start-ups.
Much of this activity is focused on Silicon Valley, of course. Of the top 25 billionaires in the Bloomberg Billionaires Index, four — Oracle co-founder and former CEO Larry Ellison, Facebook co-founder and CEO Mark Zuckerberg and Google co-founders Larry Page and Sergey Brin — reside in Northern California. The wealth diffuses through the entire Bay Area. Consider Marin County, just north of San Francisco — and a good hike from Silicon Valley. According to the most recent census data, roughly one quarter of Marin County families make $200,000 a year or more, compared with the national average of 6.2 percent.
Tackling this new explosion of tech wealth is a challenge. Bel Air Investment Advisors, based near the tony Los Angeles neighborhood of the same name, was founded in 1997 by three former Goldman Sachs & Co. private wealth advisers. Today the firm has more than $7 billion in assets under advisement. Last month Bel Air opened its first office outside Los Angeles — at 555 Mission Street in San Francisco. While the business is keeping an LA presence, Darell Krasnoff, one of Bel Air’s founding partners, has moved with his family to the Bay Area to head up the new office.
Krasnoff says one of Bel Air’s areas of expertise is helping clients who are selling, or have already sold, a business. The Bel Air partners themselves have been through that process — most recently in 2013, when Montreal-headquartered investment manager Fiera Capital Corp., with $86 billion in assets under management, acquired the firm. Much of Bel Air’s current client base — the average client has a net worth of $30 million — made their wealth in business. In addition to the entertainment industry, Los Angeles has large and prosperous apparel, defense and real estate sectors.
The new San Francisco office will give Bel Air a base for advising existing Northern California clients and developing new relationships. This won’t be easy; Bel Air has relationships and a reputation, but San Francisco — not to say Palo Alto — and Los Angeles are very different markets. “We intend to get pretty deep into the tech world,” says Krasnoff. The firm already has long-standing ties with a number of top venture capital firms, he says, which often serve as the gatekeepers to entrepreneurs in firms that Bel Air needs to reach. These clients are distinct from many of the firm’s LA clientele: younger, less fixated on inheritance and estate issues, often philanthropically oriented, and eager to do their own VC investing. Bel Air believes it can help these newly wealthy tech stars with everything from hedge fund allocations to legal services.
Bel Air is hardly the only private wealth business trying to establish itself in the Bay Area. New York–based Flynn Family Office was founded in 2014 by Rick Flynn, former principal-in-charge of the family office group at Roseland, New Jersey, accounting firm Rothstein Kass & Co., which had a big practice in hedge fund and alternative investors. (KPMG acquired Rothstein Kass in June 2014.) Flynn recently hired Ronald Macleod, a veteran of Rockefeller Financial, Nuveen Investments and U.S. Trust, to head up its West Coast business, based in Santa Barbara, California.
Macleod says the most recent tech boom has sent valuations and the anticipation of great wealth ever higher: “These young kids, with unbelievable valuations, that’s what you’re seeing.” He attributes the surge to the incubation efforts of two major institutions in the area: Stanford University and the University of California, Berkeley.
The wealth boom, he says, is producing a corresponding boom in independent wealth advisory start-ups. Among the best-known boutique private wealth advisers catering to the Silicon Valley set is Iconiq Capital, notable for having Facebook’s Zuckerberg as a client. Like Bel Air’s founders, Iconiq founder Divesh Makan got his start at Goldman Sachs. But he left the firm in 2008, landing at Morgan Stanley before launching Iconiq shortly before Facebook’s 2012 initial public offering. Iconiq has $3.3 billion in discretionary assets and $9.2 billion in nondiscretionary assets.
Then there’s those relative old-timers, Omidyar and Skoll. Mike Mohr, founder and chairman of Los Gatos, California–based private wealth advisory firm Comprehensive Financial Management, oversees Omidyar Network’s assets. Later this year Omidyar, who remains eBay’s largest individual shareholder, is due for another cash influx as eBay spins off payment processor PayPal. Not all tech billionaires choose to hire external wealth advisers; some prefer to build their own family office. That’s what Skoll did, founding New York– and Palo Alto–based Capricorn Investment Group to manage his, and the foundation’s, money.
With record-breaking valuations for still-private firms such as Uber and Snapchat, the next wave of outsize wealth is set to wash over the Bay Area. The wealth management infrastructure just needs to figure out how to channel the rising tide.