(Pictured: James Burkitt)
Family offices are becoming increasingly attractive places to work for investment professionals due to greater flexibility, less bureaucracy and regulation and, often, better remuneration. According to the latest research from James Burkitt, there are now at least 250 families in Australia with more than $200 million to invest, and 50 with more than $1 billion.
Burkitt, a former fund manager and co-founder of the Rainmaker information group, established ‘The Table Club’ in 2009 to research this opaque and often secretive part of the market. He provides connections and discussion points for the families and detailed research on the top 160. In 2011 he expanded to several other countries and has plans to include China.
According to one of his US counterparts, Theodore O’Brien, of the Oregan-based Family Office Group Association, investment professionals from both the public and private sectors are increasingly putting family offices ahead of endowments and pension funds as places to work.
O’Brien, a former hedge fund manager who knows the ultra-high-net-worth space well, said in a blog last week: “At public institutions, such as a non-profit foundation, university endowment, or a state public pension, the compensation for executives is often capped or tightly scrutinized, making it difficult to compensate employees efficiently and discreetly.
“Certain investors, such as large single family offices, may not have to share compensation information with more than the family’s patriarch (or matriarch) and the senior-most executive on the team. That allows for some family offices who choose to do so to award bonuses and performance-based compensation more freely than they would if they knew that the details of that employer-to-employee agreement may someday be scrutinized by a local newspaper, as in the case of a state pension fund, or questioned by employees of a corporate pension.
“This is one of the reasons that many executives I speak with, whether from the private sector or the public sector, are increasingly interested in joining a family office. I don’t see the same enthusiasm for joining an endowment and many professionals who do are motivated in part by a sense of duty or pride in the institution and rarely seek such offices solely for financial gain…
“As the total industry AUM managed by family offices grows, and public scrutiny of finance industry executive compensation intensifies, this contrast in compensation will only become more pronounced.”
According to Burkitt’s latest Family Office Connect (FOC) review of the family office sector in Australia, published this month, there are 350 single family offices (SFOs) with a combined wealth of $259 billion. Most of his research focuses on the top 250 SFOs and also five multi-family offices (MFOs), which are rare in Australia compared, say, with the US.
The demographic profile of the family office sector is interesting. For instance, there are 27 of the top 50 SFOs which are still controlled by the first generation, with the head of most being over 70 years of age. With a generational shift, Burkitt believes there will be further investment diversification away from the “core wealth” and a greater focus on preservation rather than creation.
His report says: “The current head has typically moved to a Chairman position, allowing the son or daughter to assume a lot more day-to-day responsibility. Examples here in the top 50 SFOs include: Lowy, Fox, Oatley and Sarich.
“We have also seen some early allocations of capital to beneficiaries, to allow each sibling to develop their own sub family offices, such as the Besen, Lew, Pratt, Myer, Fairfax, Roberts and Kahlbetzer families.
“FOC believes that this diversification shall be achieved through building of internal investment experience as well as out sourcing to investment managers in areas that the SFOs feel they lack the skill set or resources. A good example of this trend is the increased outsourcing to hedge funds and in particular international hedge funds.”
The big family offices have allowed their cash reserves to build up in the past year or so. The aggregate allocation to cash of the top 100 was 20 per cent, which equates to $16 billion in “firepower”, the report notes. Burkitt says there are a number of SFOs that are waiting for opportunities expected to flow from restructuring in Europe, particularly in debt. They also see opportunities in the US recovery.
As every marketer of alternative investment products knows, family offices are a lot easier to deal with than super funds because of their quick decision-making processes and greater propensity for risk taking.
