WealthBriefing: Expect More Family Office Combinations - Tiedemann Constantia

May 19, 2020

By Tom Burroughes | May 18, 2020

The world’s family office industry is modernising and consolidation is likely to crank up due to rising costs and client expectations, according to a Switzerland-based practitioner.

Single and smaller MFOs are merging, driven by the same demand for scale to cope with regulatory requirements and client demands, as in other financial sectors. Last September, to give an Asian example, Hong Kong's Carret Private and Singapore-based Lumen Capital Investors merged into an MFO. Over in Europe, in 2014 Fleming Family & Partners merged with Stonehage. In 2017, Mutual Trust, set up in the 1930s to service the Baillieu family, merged with the Myer Family Company.

“In the next two or so years you are going to see a wave of consolidation,” Rob Weeber, chief executive of Zurich-based Tiedemann Constantia, told this news service. (The business was formed over a year ago from the coming together of US-based Tiedemann Advisors and Constantia Partners, which Weeber founded.)

“More and more they are folding into multifamily offices in the US. Europe is a step behind,” he said.

Weeber’s insights are driven by experience in the financial sector. Prior to founding Constantia Partners, he had various roles within the wealth management industry, including five years at Credit Suisse in Zürich, where he was head of UK International Ultra-High-Net-Worth Group and head of UK Client Management. Before this, he spent seven years in JP Morgan’s Global Investment Opportunities Group in London. In 2016/2017 he wanted to work with ultra-high net worth individuals and families on the basis of an “outsourced” family office….as a “quarterback role”.

Professional

This sector is starting to look different, he said.

“The professionalisation of family offices is happening….it is no longer about a walnut veneer desk and a bottle of claret at lunchtime. The cost of doing business always ends up being higher than people anticipated,” Weeber said.

A related issue comes down to what is the minimum size of assets that FOs need to be financially viable. And benchmarking the sector to measure value for money is not yet within sight. The industry is some way off being able to reach a tight definition of what family offices are, he said.

In terms of minimum assets under management, it starts to make sense to create a single family office from $250 million and some would even say $500 million, Weeber continued.

This news service has looked at family offices from a variety of angles, probing into how they invest and change their operations, helped by data exclusively provided by Highworth Research (see an example here). There is no exact figure for what is the total AuM of family offices, but however one measures it, the figure is in the trillions (see an example of estimates here).

In-house or outsourced?

A constant theme in family offices, particularly with single family offices, is the judgment of when to farm out certain functions and what to keep under the roof. As a rule of thumb, the smaller the organisation, the more likely it is that it must outsource.

Tiedemann Constantia works with offices in a variety of ways, such as working on investments, Weeber said. “Generally there is a limit to the capacity of what a family office can successfully do in-house, and what they shouldn’t. In the future, banks are going to increasingly play the back-office role…typically there will be a core FO staff and a structure of providers for the rest.”

A related question is hiring quality staff. SFOs’ expertise in hiring top talent creates a difficulty. Persuading a hot-shot investment banker to work for a smaller SFO is not easy.

Working in a family office should be on the radar of bright finance and business graduates; however, for a graduate, it is good to get the kind of exposure to all aspects of finance and investment that one gets at a large bank, for example.

Regional variations

The sector varies considerably around the world – making it sometimes tough to arrive at benchmarks of performance and value.

“In the US a decade ago everyone wanted to establish a single family office but that term as a definition was so very vague and operations were questionably a family office and sometimes just vanity projects,” Weeber said. A notable feature of family offices in Asia, he said, is that they are often “an extension of the operating companies that generate the wealth. That market is changing enormously."

To read the article on Professional Wealth Management click here.

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