CampdenFB: Family Office Sector Consolidates
By James Beech | September 28, 2020
The acquisition of the $2.8 billion London-based multifamily office Sandaire by the $645 billion global investment manager Schroders could signal a new phase of consolidation in the world’s $5.9 trillion family office space in an uncertain era of rising costs and coronavirus, geopolitical and technological disruption.
Schroders obtained Sandaire, for an undisclosed sum, as part of the group’s efforts to grow its stake in the UK’s ultra-high net worth community. The FTSE 100 company, still largely owned by the family who founded it more than two centuries ago, wanted to offer a global service to multi-jurisdictional families and their advisers through its wealth management businesses in the Channel Islands, Switzerland and, significantly, Asia.
If regulators approved the acquisition, Schroders will dovetail the “boutique-style service” of Sandaire with Cazenove Capital, the wealth adviser to families of wealth, family offices and endowments Schroders secured in 2013. Sandaire was responsible for £2.2 billion ($2.8 billion) of client assets and Cazenove Capital was accountable for £35.6 billion ($45.7 billion) of client assets, both as of 30 June. Schroders assets under management totalled £500.2 billion ($645 billion) in 2019.
The Scott family founded Sandaire in 1996 when Provincial Insurance, the family business originally founded by Sir James William Scott in 1903, was sold. Sandaire was originally set-up to manage the wealth of the family and, under the leadership of its founder, fourth-generation principal Alex Scott (pictured above), grew to advise 20 families.
Scott said in a statement his family “has chosen to partner with Schroders in recognition that by combining Sandaire’s specialist expertise in the family office field, Cazenove Capital’s leading position as adviser to families of significant wealth in the UK, and Schroder’s impressive global reach and investment capability, there is the opportunity to deliver a truly distinctive proposition to our family members and fellow clients.”
Scott was set to become chairman of Schroders family office services.
“We are proud of the business we have built over the last two decades and look forward to seeing our family and clients flourish under Sandaire’s new ownership,” he said.
“I look forward to working with Schroders Wealth to help it enhance and grow the services it offers in the family office sector.”
Campden Wealth estimated last year the total assets under management of family offices stood at $5.9 trillion, while the wealth of the families behind them totalled $9.4 trillion. It estimated there were 7,300 single family offices worldwide in 2019, up a notable 38% from 2017.
Zurich-based multi-family office Tiedemann Constantia was launched by Rob Weeber (pictured below), chief executive, in September 2019 as a joint venture with Tiedemann Advisors, one of the largest independent US investment and wealth advisors, and his firm Constantia Partners AG.
Weeber told CampdenFB there was certainly a drive towards consolidation in the multifamily office space to broaden and deepen the service offering, achieve economies of scale and better serve families.
“It is also important to carve out a core area of expertise and differentiation, such as impact investing, technology, geographic reach or research, for example, Tiedemann has $3.4 billion invested in impact strategies,” Weeber said.
“However, as most business owners will know, increasing scale comes with its own inherent set of challenges. Important in the Sandaire transaction will be to ensure a seamless integration, whilst still remaining true to the core values that its clients initially found attractive.”
Throughout the 2010s, family offices rose in number, scale, and sophistication however, a turning point was identified in 2019 by the Campden Wealth Global Family Office Report, even before the catastrophic coronavirus outbreak. Family offices’ average investment portfolio struggled to meet expectations in nine out of 13 asset classes last year, with the global average portfolio performance sitting at 5.4%.
More than half (55%) of the family office principals surveyed last year before the outbreak believed an economic recession would be entered into by 2020. In readiness for the anticipated downturn, 45% were their realigning their investment strategies to mitigate risk and 12% were cutting or limiting their operational costs.
A fifth of families reduced their borrowing while 42% increased their war chest of cash reserves and/or said they were preparing to capitalise on opportunistic investments (also 42%).
The Global Family Office Report said the average operating cost for a single family office in 2019 was $5.7 million, up from $5.2 million in 2018. However, the average operating cost for a multifamily office in 2019 was $9.8 million, less than $10.4 million in 2018.
In its full year results in October 2019, losses at Sandaire escalated dramatically to £1.6 million ($2.06 million), up from £145,000 ($187,000) the previous year, as assets in the business slipped and it hired in new talent, reported Citywire.
Assets under management at the firm fell 11.1% through the period, from £1.8 billion ($2.3 billion) in 2019 to £1.6 billion ($2.06 billion) in 2018, following a 6.7% slide in 2017.
Mutually beneficial deals have been made before between families and multifamily offices before. In 2018, Caledonia Investments, 48% owned by the UK’s sixth-generation Cayzer family, acquired a notable 37% minority stake for £92 million ($118 million) in Stonehage Fleming, another London-based multifamily office that also traces its origins back six generations.
CampdenFB asked Weeber if the Sandaire deal was a sign of consolidation among family offices under pressure into larger, more powerful entities with a variety of expertise on staff. Or would families always want the dedicated, nimble and discreet deal-making vehicle of their own single family office?
Weeber said the definition of a single family office was as broad as it was varied.
“Internal capabilities diverge greatly. Indeed, the industry dictum is that, ‘If you’ve met one family office, then you’ve met one family office’. Generally though, single family offices have no imperative to grow and are therefore able to make a pragmatic decision about which capabilities to retain in-house, and which to outsource.
“At Tiedemann for example, we serve many single family offices as clients, supporting the core team selectively in areas where they feel they need additional resource or expertise. In essence, creating and SFO/MFO hybrid, where the core SFO team retains discretion, control and flexibility, whilst also benefitting from our scale and expertise.
“Ultimately however, more important than scale is culture, alignment and independence. We are in the business of trust. The ability to sit on the same side of the table as our clients and provide genuinely unconflicted advice is paramount. It is the differentiator that can be imitated, but never fully replicated by larger financial institutions.”
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