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Family Offices


Understanding Family Offices

Over the last five or so years almost every new investment manager or Australia financial services business that Global Merces comes across, tell us they have strategically decided to focus marketing efforts on the High Net Worth (HNW) and Family Office sectors of the market.

In many instances where products that have small capacity limits, such as niche hedge fund offerings, then it makes sense not to target the institutional market and often the complexity and costs of tackling the retail market are daunting – which leaves the HNW and Family Office segments looking very attractive.  However, in our experience the HNW and Family Office market is just as rigorous, sophisticated and compliance focused as all other investor segments, and has as many hurdles.

1. A financially astute segment

There are now almost 200,000 Australians with investable funds over $1 million and a large number of advisory firms and specialist Private Banks have set up to service them. The Family Office segment in Australia is growing, and many Family Offices have their own premises with investment staff to advise them. HNW investors and Family Offices have been successful because they have successfully analysed investment opportunities and made money from these. They are usually financially very astute, often entrepreneurial and frequently are in the position where they can make their own decisions. Others though, have grown to the point where they have appointed investment advisers or portfolio managers to manage their assets, or have moved from an individual or Family Office head making decisions to collective decision making.  In all instances they are seeking best of breed investment product which can meet their needs for both risk adjusted returns and fees paid.

2. Existing investment biases

Many HNW individuals and/or families bring substantial individual investment biases to how they want to invest their money, which may be based on a relative lack of sophistication or a great deal of sophistication. Sometimes those biases are to other assets they own – many Family Offices in Australia, for example, have made their money out of property and still have the majority of their assets tied up in that asset class leaving little for investment elsewhere.  Investment managers need to be strategic in their targeting of this sector by offering them something they do not already own.

3. Evolved to professional investors

Family investment offices tend to change over time. There tends to be an evolution that occurs within these families as they invest, in that they become more institutional in their approach, adopting more traditional investment management practices in terms of asset allocation and diversification of risks and processes for identifying managers and evaluating those managers. The (Family Office) and HNW investor ends up acting more like a professional investment institution, for which maximizing investment performance is a primary goal.

4. Employ advisers

HNW individuals are frequently advised to develop a specific investment strategy through a designated committee that includes outsiders. A robust reporting mechanism is also usually in place, and portfolios are rebalanced periodically to evaluate whether they are reaching their investment goals. Family Offices often use third-party managers and firms to advise them when they need it. Often outside firms have a better bird’s-eye perspective on how other people with similar-size pools of money are investing.  Therefore, to get your products through to the HNW individual, their advisors or Family Offices you essentially need to be going through the gatekeepers which are their advisers.  This is no different to dealing with most sectors of the Australian market.

In addition, market conditions have necessitated that even the wealthiest families and individuals take a more critical look at their investment practices.

Wealth preservation is demanding increased focus today, however when you add economic uncertainty to the mix as well as the goal to protect wealth and ensure the family legacy endures, it is clear that High Net Worth investors and Family Offices, like any other segment, need to conduct thorough due diligence, research and analysis on potential investment opportunities.

Often the individuals managing investment on behalf of HNW or Family Offices are subject to the same KPI’s as traditional fund managers and need to have evidence to support their investment decisions in terms of research reports or independent corroboration.

5. Doing things differently

The World Wealth Report 2013 explores the notion that HNWs and Family Offices are moving to a greater interest in “mission driven investing” which they define as “investing for passion and purpose, not just investment growth.” An example of this is investing in assets they called Investments of Passion for example art.  The World Wealth Report states that investment in art has experienced significant growth in recent years.  Especially since the financial crisis, art is increasingly becoming a meaningful element of HNWI portfolios.  Not only can a well-chosen piece of art act as a hedge against inflation, it has the potential to outperform over the long-term, along with a low correlation with traditional asset classes.


Implications for managers

Developments Global Merces has observed in the HNW and Family office space over the past few years include:

  • Appointing independent advisory groups to provide external supporting research/due diligence about the investment opportunities
  • Developing specific objective focused investment approaches
  • Benchmarking existing practices among peers
  • Building strategic relationships with relevant service providers
  • Focus on fees. The old saying, “you get what you pay for” resonates with many wealthy investors. However, in the money management industry it cannot always assumed to be true.


Accessing Family Offices and HNWI

Global Merces’ typical marketing strategy depending on the manager and their size and asset class coverage will be made up of 3 key parts.

  • Internal – positioning, investment story and documentation
  • External – brand positioning, press, PR, industry events, insights, being considered a point of reference
  • External – a distribution program of marketing meetings with both existing investors and prospective investors;

The aim of all three steps at all times should be to build familiarity and ultimately a long term relationship between the investment manager and investors.

Family offices are no different from you and I. They weigh up the risk and reward for any investment the same as we do. What they do look for are close relationships with managers they can trust, investments that deliver and yes, bragging rights. Many family offices also want to invest with managers who they can have a good time with. Investors don’t invest in funds or investment strategies – they invest in people and your promises!

Global Merces works with all their investment managers in providing key insights into both retail and wholesale investors and what drives their decision making.