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Everyone’s Claiming to Be a Multi-Family Office. Don’t Be Fooled.
Pretenders abound in this hot sector.
The bandwagon effect has hit multi-family offices.
Just like what happened in outsourced-chief investment officer services and smart beta products, new providers are popping up seemingly out of nowhere to get a piece of the trendy category. Some have done little more than rebrand themselves, prompting eye-rolls from the serious players.
“Folks that are traditional wealth managers covering the ultra-high-net-worth space are calling themselves multi-family offices,” said Jacqueline vonReichbauer, head of the family office practice at Silicon Valley Bank, in an interview. “We are definitely seeing that.”
VonReichbauer’s team works with families that are building venture capital portfolios worth in the hundreds of millions of dollars. One client, for example, is a single family with $1.5 billion invested in venture. And that’s just the VC allocation. She explained, “They’re at a much different scale than the $25 million wealth manager’s client.”
[II Deep Dive: Where the World’s Wealthiest Families Are Putting Capital — And Where They Aren’t]
The world’s super rich is a client base that traditionally belonged to white-shoe private banking. But as the number of rich families increases, their tastes are also changing in favor of family offices. Over the last decade, the number of family offices has increased ten-fold, according to EY data.
The line between “wealth manager” and “multi-family office” can be fuzzy, depending on who’s defining it. There’s no clear asset-size delineation, for example.
Multi-family offices tend to emerge from a single family’s investment operation opening its doors and portfolio to other billionaires and centimillionaires — for a fee. Members of the Guggenheim clan did that, seeding a multi-family office within Guggenheim Partners that eventually spun out as Alvarium Investments.
Anyone calling themselves a family office should be providing independent advice, according to Alvarium Investments partner Jose Remy. That’s why his firm — which now oversees more than $17 billion — split from its asset-manager parent Guggenheim Partners about 10 years ago.
“By 2009, after the crisis, Guggenheim had made certain acquisitions, and there was beginning to be an appearance of conflict of interest, and they decided that the best thing was to start spinning off the business,” Remy told Institutional Investor. After all, the founders had “identified a niche in multi-family office services because of the conflicts that private banks had and the level of sophistication that they offered their clients.”
For those looking to hire, work at, or partner with a supposed multi-family office, it’s critical to “focus on what differentiates a sophisticated family office from one that popped up from one day to the next,” Remy said.
To be the former, “you’ve got to get clients access to the best-in-breed managers. Finding them in every asset class in the universe is quite an endeavor” — as allocators at endowments, foundations, and pension funds know all too well. Alvarium and others have been hiring out of the institutional world accordingly.
“As we started this effort 18 years ago, we recognized the level of sophistication at institutions, and added people from the endowment and pension world,” Remy said. “Definitely that’s a trend in the industry, as more and more people recognize that the best returns have been achieved by pension funds, endowments, and the like. Poaching talent is something that the best family offices are doing.”
Direct deal capabilities are another critical differentiator between bandwagon “multi-family offices” and the real deal, experts said.
At Silicon Valley Bank, vonReichbauer sees families popping up as investors in the startups it works with. “In the vast majority of cases, they want to build out a strong direct investment book,” she said. “We’re seeing this rapid institutionalization: family offices morphing in both form and function into what looks like a traditional venture fund. We’re seeing family offices recruiting and hiring out of traditional VC funds, and competing with them for opportunities.”
As with wealth managers calling themselves multi-family offices, just signing checks to startups doesn’t make someone a hotshot venture capitalist. “Definitely there are tensions: people who are rich but not necessarily venture experts,” vonReichbauer admitted. “For a lot of families, if a direct opportunity comes across their desk, they’re skeptical: ‘Why am I getting this? It’s probably because everyone else has passed.’”