Post on 12-Jul-2020
MultifamilyOffice Study
e x e c u t i v e s u m m a r y
r e p o r t
2 0 1 2
e x t e r n a l c i o s t u d y
We Place Families FirstsM
2 n d A n n u a l
Firms confidently
reinvest and expand
offerings to Bolster their
competitive positions
copyright © 2012 Family Wealth alliance, llc. all rights reserved.
Welcomedear Private Family Members and advisors,
Welcome to our 2nd annual external cio study. Just a year ago we reported that a new breed had emerged in the family wealth landscape. it is gaining momentum and continues to have heft and significance in the marketplace. Firms in this study told us that they are confidently reinvesting in themselves – in better reporting solutions, client service enhancements, expanded research and even client education. this is a sign that these firms are in this for the long-run and they feel bullish about their futures.
Here are the highlights of our observations:
Heft continues: these firms experienced moderate growth in a largely sideways market year (their assets grew 5.5% and clients were up 5.4%) yet they managed a respectable share of assets. total taxable assets of the group were $551.1 billion, with the mean size of firm at $11.0 billion. alliance research predicts that the total taxable assets of this universe to be over $1.5 trillion.
Growth Gap noted: We note two main types of firms in this study: the investment firms and the Multifamily office firms who offer their investment services à la carte. this report reveals that their growth rates differed, with the former providers having almost three times as much growth of acquired new clients, with asset growth showing even more of a gap.
opportunity in new landscape: Marketplace awareness is the number one challenge facing this new breed, as one would expect of a nascent industry. the deck continues to shuffle early-on among the list of the most-mentioned competitive firms. We expect both trends to continue in the near-term, as the opportunity for new entrants remains high.
Key trends: We have been predicting for several years that the twin drivers of scalability and human talent would be forcing the outsourcing to the Four scalable Pillars of services: investments, trusts, reporting, and administration. We also foretold that these types of firms would experience higher growth than their full-service counterparts, and that M&a activity would result, once the recovery was under way. While the former predictions have held nicely and are becoming documented in our research, the real-world, recently-announced mergers are getting the most attention.
the purpose of alliance research is to chronicle the family wealth industry and, with what we learn, better serve our constituents. led by our research and consulting, the alliance is known for innovation and adherence to its core value, “We Place Families First.” We invite you to visit our website www.FWalliance.com for updates, as well as information on our newest initiatives such as the alliance report and the alliance security council.
our sponsoring partner firms are a significant part of this annual effort. Without their unique insights and support, this ground-breaking research would not be possible. the alliance is honored by and truly grateful to these outstanding organizations who continue to demonstrate their commitment to education and research.
respectfully submitted,
thomas r. livergoodchief executive office
F r o M t H e P u b l i s H e r
investment consultants, managers of managers, separate
account managers and multifamily offices.
Participating firms reported an overall 5.5% growth in
assets under advisement in 2011, though that figure masks
wide variations among individual firms. thirteen of the 50
participants say their assets declined in 2011, with the larg-
est drop recorded at 11.4% (the biggest gain was 139%). For
purposes of comparison, stocks in the standard & Poor’s 500
index posted a total return of 2.1% last year, while the bond
market, as measured by the barclays capital u.s. aggregate
bond index, showed a gain of 7.8%.
Growth diverged sharply between investment firms—
those calling themselves investment consultants, manag-
ers of managers or separate account managers—on the
e x e c u t i v e S u m m a r y
assets are rising and compe-
tition is intensifying in the
rapidly growing market to
provide private families and
family offices with external
chief investment officer ser-
vices, according to the Fam-
ily Wealth alliance’s 2nd annual external cio study.
a total of 50 external cio firms took part in the study,
with taxable assets under advisement of $551.1 billion as
of yearend 2011. Mean size in terms of taxable assets was
$11.0 billion, up from $9.8 billion in last year’s inaugu-
ral external cio study. Participants represent a range of
firm types all offering external cio services, including
copyright © 2012 Family Wealth alliance, llc. all rights reserved.
F i r M s c o n F i d e n t ly r e i n V e s ta n d e x Pa n d o F F e r i n G s
to b o l s t e r t H e i r c o M P e t i t i V e P o s i t i o n s
one hand, and multifamily offices on the other. invest-
ment firms made up 58% of participants, while the other
42% were multifamily offices. asset growth at the invest-
ment firms was 6.8% on average, compared to just 1.0%
among the multifamily offices. client acquisition rates also
diverged sharply. overall, the private client rosters of partici-
pating firms rose by 5.4%, with investment firms reporting an
11.8% gain, while multifamily office clients were up just 3.9%.
assets at participating firms represent about 35% of
the taxable u.s. external cio market. We estimate total
taxable external cio assets at $1.5 trillion. roughly half
this amount comes from single-family offices, with the
remainder coming from private clients investing directly
without a family-office entity. among the study’s other
preliminary findings:
employee headcount rose by a sharp 7.5% as partici-
pating firms beefed up their professional staffs to bolster
their competitive positions. Headcount grew by 9.4% at in-
vestment firms and 4.4% at multifamily offices. Higher staff
levels and modest asset growth contributed to declines
in assets per employee—$165.2 million at the investment
firms (down 2.4% from the previous year) and $75.6 million
at multifamily offices (down 3.3%).
to stay competitive, external cio firms are investing
heavily in their service offerings. the most frequently cited
service enhancement was introduction of new investment
strategies or products. others mentioned most frequently
include better performance reporting, an expanded lineup
of managers and manager research, and enhanced client
communications and education programs. “our expanded
investor education kit now helps family offices address
market volatility issues with clients,” says one participant.
“We have developed new presentations on past bear mar-
kets, recoveries, the perils of trying to time the market,
volatility cycles, and the merits of sticking with a long-
term investment strategy.”
Fallout from the dodd-Frank financial re-
form law, which threatens some single-family of-
fices with regulation, has been expected to ac-
celerate the existing trend among single-family
offices toward outsourcing their investment function
to external cios. roughly a third of them already
do so, according to Family Wealth alliance research.
Factors behind this trend have been at work for several
years. However, while external cio firms are adding
many family office clients, they say the new business
has little to do with dodd-Frank, at least so far. almost
two-thirds of participants (61%) say they have seen no in-
crease in private-client business because of dodd-Frank.
another 35% say they have had discussions because of
dodd-Frank with prospects but those prospects have not
become clients. only 4% of participants say they have
added clients as a direct result of dodd-Frank.
Many external cio providers started business in the
institutional world of pensions and endowments where
their mandates did not include investment discretion.
copyright © 2012 Family Wealth alliance, llc. all rights reserved.
n
e x e c u t i V e s u M M a r y | e x t e r n a l c i o s t u d y
at a Glance (preliminary results)
Firms Participating 50
taxable assets under advisement $551.1b
Mean asset size (taxable) $11.0b
Mean number of Family clients 206
client Growth year over year 5.4%
total assets under advisement $659.7b
asset Growth year over year 5.5%
year established (Mean) 1988
First offered external cio services 1998
as of year end 2011
assets at tHese FirMs rePresent about 35% oF tHe taxable u.s. external cio MarKet. rouGHly HalF tHis aMount coMes FroM sinGle-FaMily oFFices, WitH tHe rest coMinG FroM PriVate clients
inVestinG directly WitHout a FaMily-oFFice entity.
t H e r o s t e r o F P a r t i c i P at i n G F i r M s
altair advisors chicago, il 2,791.9
arlington Family offices birmingham, al 2,108.0
ascent Private capital Management of u.s. bank san Francisco, ca 3,000.0
atlantic trust atlanta, Ga 15,857.0
balentine atlanta, Ga 923.9
bnr Partners chicago, il 1,500.0
bofa Ml Private bank investment Group new york, ny 143,900.0
brinker capital berwyn, Pa 1,644.6
cambridge associates boston, Ma 59,838.0
constellation Wealth advisors llc new york, ny 3,978.7
ctc consulting llc Portland, or 23,500.0
edge capital Partners atlanta, Ga 1,040.0
Fortigent llc rockville Md 12,000.0
Genspring Family offices Jupiter, Fl 17,446.0
Glenmede Philadelphia, Pa 11,984.0
Greenway Family office st. louis, Mo 115.0
Gresham Partners llc chicago, il 3,228.6
Greycourt Pittsburgh, Pa 7,400.0
Halbert Hargrove long beach, ca 830.4
Hall capital Partners llc san Francisco, ca 21,442.0
Harris associates chicago, il 48,760.9
Harris mycFo chicago, il 13,597.0
Hawthorn Philadelphia, Pa 33,300.0
Hillview capital advisors new york, ny 1,229.1
Hirtle callaghan West conshohocken, Pa 12,000.0
taxaBle assetsunder advisement
in $millionslocationFirm name
in the wealth management industry are not sure what an
external chief investment officer does, so it’s not surprising
that potential clients remain in the dark. says one partici-
pant: “in a world that tries to lump all types of solutions
into one category, it is essential that prospective clients un-
derstand how we differentiate our firm and the outsourced
cio model from other investment alternatives.”
Participants say their no. 2 challenge is difficult invest-
ment markets, which gained in rank from no. 5 the previ-
ous year amid the european crisis and concerns about the
However, private family clients increasingly prefer dis-
cretionary management and most external cios now
offer it. of study participants, 48.1% say their typical cli-
ent arrangement provides for full investment discretion;
19.2% say they typically provide partial discretion (likely
at the manager level); 17.3% typically provide no discre-
tion and 15.4% say they take no typical arrangement and
will offer whatever the client wants.
Marketplace awareness continues to pose the top
challenge for external cio firms, participants say. Many
copyright © 2012 Family Wealth alliance, llc. all rights reserved.
t H e r o s t e r o F P a r t i c i P at i n G F i r M s
Holt capital Partners Forth Worth, tx 135.0
Kinsight llc birmingham, al 323.0
lattice strategies san Francisco, ca 145.0
lGl Partners llc West conshohocken, Pa 803.0
lowenhaupt Global advisors llc st. louis, Mo 878.6
Madison Family offices llc sunrise, Fl 70.0
Mirador Family Wealth advisors Grand rapids, Mi 1,100.0
northern trust investment Program solutions chicago, il 9,400.0
okabena investment services inc. Minneapolis, Mn 890.3
Partners capital investment Group boston, Ma 2,500.0
Pitcairn Jenkintown, Pa 3,714.0
Presidio Group san Francisco, ca 3,030.0
Prima capital denver, co 34,308.0
the Privatebank chicago, il 3,614.0
rcl advisors llc new york, ny 783.9
rockefeller Financial new york, ny 17,900.0
sapere Wealth Management llc Matthews, nc 500.0
scs Financial services llc boston, Ma 7,800.0
silver bridge boston, Ma 2,603.0
silvercrest asset Management Group llc new york, ny 9,148.0
spruce Private investors llc stamford, ct 2,929.0
threshold Group Gig Harbor, Wa 2,133.2
tolleson Wealth Management dallas, tx 300.0
Vogel consulting brookfield, Wi 2,400.0
Zevin asset Management boston, Ma 269.6
taxaBle assetsunder advisement
in $millionslocationFirm name
their competitive positions as perceived by study partici-
pants. Goldman sachs moved up to no. 1 competitor from
second place last year. J.P. Morgan jumped from eighth
place to no. 2 and bessemer trust co. advanced from no. 4
to no. 3. cambridge associates dropped from no. 1 to no.
4, while northern trust co. fell to no. 6 from third place.
the rankings were derived by asking participants to iden-
tify their top three competitors and their responses were
then weighted by whether the firms were identified as no.
1, no. 2 or no. 3.
u.s. economy. no. 3 was managing client relationships
and expectations about investment returns. and no. 4
was managing growth, an issue that was not among the
top concerns cited by participants in last year’s study.
“our biggest challenge is the administrative aspects as-
sociated with managing the growth of the investment
programs we oversee,” says one participant.
a variety of players have converged on this mar-
ketplace, creating a highly competitive environment.
in this year’s study, three brand-name leaders advanced
copyright © 2012 Family Wealth alliance, llc. all rights reserved.
e x e c u t i V e s u M M a r y | e x t e r n a l c i o s t u d y
u.s. Vs. euroPean loans:HiGHliGHtinG relatiVe Value diFFerences
By BaBson capital
in tHe inVestMent coMMunity, it is an
accepted paradigm that by investing globally in a
particular asset class it is possible to improve portfolio
alpha by exploiting relative value across markets.
For u.s. and european loans in particular, relative
value analysis can be straight forward when considering
dual-country loans issued by one company. ignoring
for the moment potential differences in jurisdiction and
governing law, a simple analysis can be made by comparing
the effective three-year spreads between the two loans, and
concluding that the loan with the premium spread would
be over-weighted in the portfolio. this ease of comparison
is due to both loans having the same issuer-level default
rate and leverage multiples. extrapolating this security
level analysis to the market level becomes more complex.
taking into account market level spreads, leverage and
default rates, we believe that the premium in european
loans is compelling on a risk/reward basis.
the notion of relative value between u.s. and european
loans should be placed into context. While corporate credit
fundamentals have improved on a global basis, investors
who prefer a less volatile loan return may favor the u.s.
loan market as some of the macroeconomic factors and
technical dynamics are not as pervasive as in the european
loan market. a less risk averse investor may find the
potential for higher loan returns in the european loan
market appealing as they may feel the additional spread
premium offered in that market compensates for the
additional macroeconomic and market technical risk we
have previously described.
taking a step back to look at both markets holistically,
the u.s. loan market has had an easier time post-crisis, with
a reviving clo market and growing retail and institutional
segments. the european loan market, on the other hand, has
had a tougher time post-crisis, with its clo market yet to
be resuscitated and a non-existent retail market. as a result
of this imbalance in demand for loans, we would expect the
premium in europe to be sustained in the near term.
While europe still has a ways to go to address
macroeconomic concerns and the european loan market
continues to sort through its supply/demand imbalance,
global investors should have an opportunity to benefit from
the higher premium of european loans.
Compliance code: 12/604
W H i t e P a P e r s u M M a r y
copyright © 2012 Family Wealth alliance, llc. all rights reserved.
For u.s. and european loans in
particular, relative value analysis
can be straight forward when
considering dual-country loans
issued by one company.
HiGH conViction inVestinG: tHe beneFits oF actiVe ManaGeMent
By oppenHeimer Funds
in V e s t o r s t o d ay F ac e a c o M P l e x
investment landscape and need to consider
whether active or passive strategies will be more
likely to meet their return objectives. While passive
investment options are often offered at what
appears to be a lower cost, choosing passive investments
for this reason alone may be “penny-wise, pound-foolish”
because the opportunity cost of forgoing the potential to
outperform a passive benchmark may far outweigh the
higher active management fee.
Fundamental, bottom-up research can identify
investment opportunities that may generate solid
returns over time. We believe those portfolio managers
who exhibit high levels of active management, or high
conviction in their investments, have the best opportunity
to outperform. We also believe that portfolio managers
who charge active management fees but do little more
than replicate an index should be avoided. While past
performance does not guarantee future results, measuring
“active share” can help investors evaluate which funds
are actually actively managed, therefore offering greater
potential to outperform the index against which they’re
benchmarked.
active share is one tool investors can use to identify
funds that are focused on active management. We believe
that higher active share is evidence of a consistent, high
conviction approach to investing. With equity markets
likely to continue on a trajectory of higher-than-average
volatility, we believe there will be an opportunity for those
funds with high active share to outperform.
in this paper we identify:
• How active share can be used to differentiate active
managers
• Why active share is important in identifying funds with
potential to generate alpha
• How a boutique-style investment management firm
empowers portfolio managers to shape their investment
strategies and use their highest conviction ideas to bring
value to investors
W H i t e P a P e r s u M M a r y
copyright © 2012 Family Wealth alliance, llc. all rights reserved.
Fundamental, bottom-up
research can identify investment
opportunities that may generate
solid returns over time. We
believe those portfolio managers
who exhibit high levels of active
management, or high conviction
in their investments, have the best
opportunity to outperform.
W H i t e P a P e r s u M M a r y
copyright © 2012 Family Wealth alliance, llc. all rights reserved.
tHe PoWer oF liquidity
By tristate capital
the great financial crisis of 2007-08 was
triggered by a liquidity shortfall in u.s.
banking, brought on by the collapse of the
housing bubble. some of the biggest and
best-known names on Wall street fell victim
to an age-old miscalculation: not enough liquidity. the big
houses were not alone. countless smaller companies and
individuals suffered similar fates.
Financial pain due to insufficient liquidity happens all the
time. that’s why the prudent person of means and the well-
run company understand the power of liquidity: what it is,
why it’s important, and how to build and maintain it.
liquidity, in simplest terms, is the ability to meet your
financial obligations, to cover your interest, principal and
expenses. it is commonly thought of as ready cash or the
ability to convert assets to cash, quickly and without a loss.
Why is liquidity important? Having enough cash to handle
those shocks and surprises that inevitably occur will help
you stave off financial set-backs, even bankruptcy. Good
liquidity cash flow gives you both the wherewithal to take
advantage of opportunities when they occur and the means
to reverse a bad investment decision – an exit strategy.
studies show that, for businesses, liquidity correlates with
higher firm value and a lower cost of capital. in fact, when
banks judge the credit worthiness of lending applicants,
liquidity is the most important factor in their decision,
followed closely by cash flow. not surprisingly, there’s
growing anecdotal evidence that people and companies
with good liquidity fared better during the recent financial
turmoil than those without it.
Financial experts use at least four different ratios to measure
liquidity, all comparing assets to liabilities, or debt to equity.
these are useful calculations that all should understand, because
knowing your liquidity is the first step to strengthening it.
even with these formulas, though, figuring the right
amount of liquidity for you and your circumstances is not a
simple matter. that’s where a trusted financial advisor comes
in. Work with your advisor to determine your liquidity level
for current needs and future contingencies.
banks play an important role in liquidity through
personalized money management and liquidity management
services. Plus, at tristate capital bank, our bankers and
advisors can help you project the liquidity you need to
borrow at good terms and to correlate cash flow liquidity
coverage to your time horizon. this will let you see how
strong your liquidity position is.
bottom line: liquidity lets you take advantage of
opportunities and reduce your risk of financial losses, even
insolvency. liquidity should be central to your financial
plan. tristate capital can help!
studies show that, for businesses, liquidity correlates with higher
firm value and a lower cost of capital. in fact, when banks judge
the credit worthiness of lending applicants, liquidity is the most
important factor in their decision, followed closely by cash flow.
copyright © 2012 Family Wealth alliance, llc. all rights reserved.
The Alliance Thanks Our Premier Partner Firmsof the
Second Annual External CIO Study
n
Without their unique insights and support,this groundbreaking research would not be possible.
The Alliance is truly grateful to these outstanding organizations who demonstrate their
commitment to education and research.
We Place Families First sM
AWe Place Families First sM
240 e. Willow avenue | suite 102 | Wheaton, il 60187-5426 | usaPhone 630-260-1010 | Fax 866-410-5532
www.FWalliance.com