Tag Archives: Family Office Consultants

Historical Investment Trends

Conventionally, a family office has usually taken the conservative route, with a heavy bias towards traditional assets such as equities, bonds, and real estate. This is a slightly deviated trend in the recent year. In fact, during 2023, with the onset of economic uncertainty, more than half of the family offices hiked fixed income and started moving into safer havens, while there was a retreat from public equity, with 38% of the family offices reduced exposure to equities.

Drivers of Change

Our research, where applicable, allowed multiple responses and uncovered some important drivers behind this change in investment trends at a family office: on the back of rising inflation, rising interest rates, and geopolitical conflicts notably US-China relations in the top echelons of concerns for family offices globally. If we rank the major concerns among a family office, these will be the findings:

Currency Risk (70%)
Inflation (56%)
US-China Relation (48%)
Stability of the Global Financial System (38%)
Market Volatility (34%)
Russia-Ukraine War (24%)

 

Deep diving into Emerging Investment Trends in North America

The landscape of North American family office investments is rapidly changing, with a growing appetite for alternative investments such as private equity, venture capital, and hedge funds. Thus, we can see that while Public Equity accounts for 23% of the total investment by a family office, fixed income makes up 11%, and Private equity funds and Private Equity Direct make up 11% and 14%, respectively. The family office has also given considerable funding to real estate, 16% for Real estate direct and 5% to real estate funds. Other minor investments by the family offices were Cash & cash equivalents at 10%, Hedge Funds 4%, private credit 3%, Arts & Commodities 2%.

Regional Perspectives

The regional breakdown of the total investments made by North American Family offices is as follows: 80% are invested in their region, 9% in Europe, 4% in the Asia Pacific excluding China, and 2% in China alone. This accounts for the total investments made by North American Family offices in those regions, while the remaining percent is focused on Latin America at 3%, and the Middle East & Africa at 2%.

Sector Preferences

Technology and Healthcare are the most popular sectors within the public markets, with 60% and 53%, respectively, of investments, suggesting a strategic tilt in favor of growth-oriented industries given the uncertainty presented by wider markets. Other significant investments took place in Real Estate, with 36%, Energy, 27%, Financial Services, 23%, and Industrials, with 21%. Consumer Goods and Materials take 13% and 7%, respectively, in terms of investments made by North American Family offices.

Global Overview

Real Estate Realities

Challenges Amidst Declining Values

While the real estate segment reaches far into history, it is one that is confronting headwinds today with falling deal values and volumes amid broader market conditions. For real estate, the periods of the pandemic immediately created a downward spiral in investments, while volumes failed to reach pre-pandemic levels. This fall further confirms that a family office needs to carefully adapt to the ways of the changing markets in their quest for an alternative way to preserve and grow their wealth.

Real Estate Investments for Family Office

Real Estate Investments for Family Office

US leads Cross-border family office deals

For the year from July 2022 to June 2023, US real estate topped cross-border deals, both in value and volume, with 59 deals valued at $6,949 million. In comparison, while China and Germany, with $4,676 million and $2,577 million deal values, respectively, trailed the US, the number of deals was far lower, being only 20 for China and 36 for Germany. Following the US in several deals were Australia and Sweden with 55 and 53, respectively. However, their transaction value was considerably low, at $1,079 million for Australia and $619 million for Sweden.

Startup Investment Dynamics

Shifting Investment Tides: From Real Estate to Start-ups

Dramatically, the investment landscape changed, as one could almost see a now-induced shift of family office allocations from traditional real estate toward emerging startup hubs. Whereas the second half of 2021 saw record-high investments across all asset classes, periods thereafter saw steady declines to eventually slip below pre-pandemic levels in volume and value. This decline indicates that the strategic push is toward more fleet-footed and innovative investment routes.

Global Family Offices Investment Volume by Asset Class

Global Family Offices Investment Volume by Asset Class

Club Deals and Sectoral Preferences

The landscape of startups has gone through its ups and downs, starting with the negative trend in volume and value of investments since 2022 around the globe. Be that as it may, family offices have continued to turn their bets in the landscape through club deals, placing increasing emphasis on collaboration and the diversification of risks. In terms of sectoral preferences, Software-as-a-Service (SaaS), Artificial Intelligence and Machine Learning (AI & ML), and FinTech have garnered substantial investments.

The USA still holds the top spot when it comes to the cross-border deals of Start-Ups

From July 2022 to June 2023, the US topped the list of destinations for family offices due to its strong ecosystem and easy access to capital. In the US, there were 385 deals valued at US$19.1 billion. India seconded it with 43 deals valued at $2.8 billion, making it still a long way behind the US both in deal number and value.

Direct Investments

Volume and Value in a Balance

Direct investments are a cornerstone of family office portfolios that have slightly decreased in volume and value as a means of recalibrating risk appetites in light of market uncertainty. Notwithstanding the first half of 2023, which recorded significant declines in deal values, direct investments still dominate the lion’s share of the total portfolio of a family office, underlining continuing commitment toward strategic diversification and the creation of value over a long period of time.

Direct Investment Value & Volume

Increasing Popularity of Club Structures and Smaller Deals

Family offices have indeed shown a greater interest for smaller deals. The increasingly relevant club deal structures speak volumes towards a greater takeaway on the collective pursuit of a risk management approach by family offices while maximizing their returns in uncharted territories.

Cross-Border Dynamics: The Rise of India

While the United States remains the top destination for cross-border investments, with 214 deals amounting to US$20.1 billion, India remains a close second, closing the deal-value gap with US$15.6 billion via just 42 deals.

Magistral Consulting Services

Investment Strategy Development

We develop bespoke investment strategies to meet the various needs of family offices. We merge traditional assets with the new alternative assets and seek maximum diversification and risk management. Our team has analyzed market trends and economic factors for a strong investment structure.

Alternative Asset Solutions

Magistral Consulting offers alternative investment opportunities through private equity, venture capital, and hedge funds, as well as all-inclusive management via sourcing, due diligence, and portfolio monitoring to make family offices realize high returns with resilience.

Regional Investment Analysis

Our detailed regional analysis takes it a step further and helps a family office to capitalize on both local and international opportunities. Knowledge of investment prospects in North America, Europe, the Asia Pacific, and other important regions leads to strategic decisions based on market conditions and their growth potential.

Real Estate and Startup Advisory

We offer a variety of consulting services, ranging from market feasibility studies to closing even the most complicated transactions in real estate investment and VC deals in startups. This helps a family office make the right decisions. We also assist with investments in startups, mainly focusing on emerging sectors and cooperation opportunities.

 

About Magistral Consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates, and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modelling, Portfolio Management, and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is authored by the Marketing Department of Magistral Consulting. For any business inquiries, you can reach out to prabhash.choudhary@magistralconsulting.com

About 80% of investments are within North America, with the rest distributed across Europe (9%), Asia-Pacific (4%), China (2%), Latin America (3%), and the Middle East & Africa (2%).

Family offices favor technology and healthcare, making up 60% and 53% of their investments, with significant allocations also in real estate (36%) and energy (27%).

Direct investments are essential for family offices, although there’s a slight decline in volume and value, alongside increased interest in smaller deals and club structures.

Introduction

The demand for family office help has increased as the number of wealthy families continues to rise throughout the world. Private wealth management advice companies known as family offices offer a variety of services to extremely wealthy people and their families. These services may include philanthropic planning, tax planning, estate planning, investment management, and more.

A family office’s main objective is to offer comprehensive and personalized service to accommodate each family’s particular demands. This strategy contrasts with conventional wealth management strategies, which frequently have a transactional mindset and emphasize items more than people.

Family offices can be set up in a variety of ways, including as a single-family office (SFO) or a multi-family office (MFO). SFOs are typically established by a single ultra-high-net-worth family to manage their wealth and affairs. MFOs, on the other hand, provide services to multiple families and can be a more cost-effective option for families with smaller net worths.

One of the main benefits of working with a family office is the level of personalized attention and care that families receive. Family office professionals take the time to get to know each family member, their unique goals and objectives, and the dynamics of the family. This allows them to create customized strategies and solutions that are tailored to the family’s specific needs.

Working with a family office has several other benefits, including the range and depth of services they provide. Families can combine their services with one provider, so they just need to engage with one advisor for all of their financial management needs. Their financial lives may become simpler as a result, and there may be less chance of a breakdown in advisor-client communication.

Family office can also give families access to specialized financial options that might not be accessible to the general public. This can involve making direct investments in private businesses, private equity investments, and more. Family office experts can aid in the development of varied and successful investment portfolios for families by utilizing their networks and specialized knowledge of the market.

Overall, family office offer a comprehensive and personalized approach to wealth management that can help ultra-high-net-worth families to achieve their financial goals and preserve their legacies for future generations. Whether working with a single-family or multi-family office, families can benefit from the customized services, unique investment opportunities, and high level of care that family office professionals provide.

Challenges Involved in Family Offices 

Family offices are faced with many obstacles that can make it difficult for them to achieve their primary goal of managing the wealth and assets of wealthy families. These difficulties may result from shifting family dynamics, technology improvements, and changes in the global economic environment. The top 5 issues that family offices confront will be covered in this post along with solutions.

Challenges in Family Offices

Challenges in Family Offices

Increased Accounting and Reporting Complexity

As family offices become more complex, there is an increased need for accurate and timely accounting and reporting. This can include financial statements, tax filings, performance reports, and other customized reports that meet the unique needs of each family. Family offices may also have to deal with complex tax and regulatory requirements, which can be difficult to navigate. To overcome this challenge, family office can invest in advanced accounting software and engage the services of a qualified accounting and reporting team.

Data Security

Family offices handle sensitive financial information, making them a target for cyber-attacks and data breaches. Data security breaches can have serious consequences for families, including financial loss and reputational damage. Family office can implement a variety of data security measures, such as firewalls, antivirus software, data encryption, and regular employee training to prevent data breaches.

Generational Change

As family offices transition from one generation to the next, there can be significant changes in the family’s investment objectives, risk tolerance, and governance structures. This can create tension between family members and make it difficult for family offices to maintain the trust and confidence of their clients. Family office can overcome this challenge by implementing effective governance structures, fostering communication between family members, and engaging the services of a qualified family advisor to facilitate the transition process.

Staying abreast of Technology

As technology advances, family offices must stay up to date with the latest developments to remain competitive. This can include the use of advanced analytics, artificial intelligence, and other technological tools to improve investment decision-making and portfolio management. Family offices can overcome this challenge by investing in technological infrastructure, hiring skilled professionals with expertise in emerging technologies, and engaging in ongoing training and professional development.

Scaling Staff Resources

Staff resources may become strained when family offices expand and take on more clients. This can involve difficulties in finding, educating, and keeping trained specialists with the requisite experience to satisfy the particular requirements of each family. Family office can overcome this difficulty by implementing successful recruitment and retention methods, such as providing competitive wage packages, flexible work schedules, and ongoing professional development opportunities. Family offices can also contract out some tasks to outside service providers to bolster their internal resources.

Overcoming Family Office Challenges

In managing their wealth, and assets, and meeting the requirements of their families, family offices encounter several difficulties. The top 5 strategies that family offices can use to meet these difficulties are as follows:

Overcoming Challenges

Overcoming Challenges

Accepting the selection procedure

The complexity of accounting and reporting is one of the biggest problems family offices encounter. Family offices should accept the selection process and thoroughly consider the available technological options to address this. Family office can narrow down their list of potential providers, make a thorough RFP (Request for Proposal), and assess the solutions in terms of features, pricing, and other aspects. This makes it easier to decide and identify the best solution to suit the requirements of the family office.

Looking for software that is appropriate for the task at hand and combines with existing solutions

Another key issue for family office is data security. Family office can get around this problem by choosing software that works well with existing systems and is appropriate for the task at hand. This aids in preserving data accuracy and speeding up data flows between various systems. Family offices can reduce security risks by selecting the proper provider with a data security and privacy track record.

Evaluating In-house versus outsourced solutions

Family office often face the challenge of scaling staff resources. They can overcome this by evaluating in-house versus outsourced solutions. Family offices can leverage outsourcing to augment their existing staff and supplement their capabilities. Outsourcing can help family offices tap into specialized expertise and reduce costs associated with hiring and training. On the other hand, in-house solutions provide better control over processes and foster better communication and collaboration among team members.

Considering security measures that go beyond technology

Family office should consider security measures that go beyond technology. They should set up strict policies and practices for handling sensitive data and educate personnel on data security best practices. This promotes safety awareness and culture inside the family office.

Closing the generational gap

Family offices must also contend with the substantial challenge of a generational shift. By fostering an atmosphere that encourages open communication and intergenerational collaboration, family offices can close the generational divide. This can be accomplished by establishing family councils, mentorship programs, and other programs that promote intergenerational sharing of knowledge and ideas. Family offices can equip the following generation to assume leadership roles and successfully manage the family’s wealth and legacy by fostering a culture of learning and development.

Magistral’s Services on Family Offices

Family offices provide a variety of services that help high-net-worth families manage their wealth and achieve their financial goals. We provide the following services to support Family offices:

Direct Investments

A family office can assist with direct investments in private companies, real estate, and other alternative investments. Family offices can provide deal sourcing, due diligence, and investment structuring services. They can also help with the execution of transactions, negotiations, and ongoing management of investments. Family offices with experience and expertise in direct investments can provide value-added services to families seeking to diversify their portfolios.

GPI/Hedge Fund Selection

Family office often work with a variety of investment managers and service providers to help clients achieve their investment objectives. A family office can assist with the selection of GPIs/hedge funds, performing due diligence, and negotiating fees and terms. They can also help with the ongoing monitoring of investment managers and their portfolios, providing regular updates to clients on the status of their investments.

GP/Hedge Fund Performance Monitoring & Reporting

Family office provide ongoing monitoring and reporting of GPI/hedge fund performance. They track and analyze the performance of investment managers, assessing their ability to generate returns and manage risk. Family offices also provide regular reports to clients, summarizing performance, and providing insights into the performance drivers of GPIs/hedge funds.

Portfolio Management

Family office provide portfolio management services to help clients achieve their investment objectives. They work with clients to design investment portfolios that are aligned with their goals, risk tolerance, and time horizon. Family offices can also provide ongoing monitoring and rebalancing of portfolios to ensure they remain aligned with clients’ investment objectives.

Fund Strategy of Family Offices

Family offices provide fund strategy services to help clients develop and implement investment strategies that are aligned with their goals. They work with clients to assess their investment objectives, risk tolerance, and time horizon and then design and implement investment strategies that are tailored to their needs. Family offices can also provide ongoing monitoring and reporting of fund strategies, ensuring that they remain aligned with clients’ objectives.

About Magistral Consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates, and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modelling, Portfolio Management, and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to  prabhash.choudhary@magistralconsulting.com

Introduction

Family offices are the biggest chunk of Limited Partners. They are the chief source of financing for multiple Private Equity, Venture Capital, and Real Estate funds apart from other Limited Partners like Insurance Companies, Sovereign Funds, Pension Funds, etc. The trend of Family Office outsourcing their operations’ activities is fast catching up.

 

Family Offices are now opening to the concept of direct investing and its time for them to be open about the concept of outsourcing too like their General Partners investees

Family Offices and Direct Investments

Private Equity as a new asset class was coming up well and operated under the rules of incentives like 2/20. Simply put it means there would be 2% of management fees of the AUM and 20% would be charged from the profits. Under these arrangements, there was a limited risk for General Partners for the lower than expected returns but had a significant incentive if returns turned out to be positive. This also incentivizes parking money quickly, without proper due diligence as it increases the AUM.

After a cycle of investments, it was evident that the biggest players were investing in hoards in the same assets. Many times it was as simple as investing in companies that everyone else was also investing in. Not only there is an upward risk of diminishing returns, it did not require a huge exercise in due diligence.

Family Offices decided to take away the fun, by just investing in these companies directly rather than parting fixed and variable incentives by involving in a General Partner. With direct investments, Limited Partners still carry the same risk and rewards for the investments but significantly cut the costs of management fees by General Partners. Now Family Offices are increasingly looking to enter into the next wave of investments themselves like evaluating smaller companies.  These evaluations so far have been simpler and formulaic, like a given revenue and profitability in specific industries and they will invest. But it’s just a matter of time that Limited Partners acquire experience and expertise in making these decisions and go for the complex deal-making themselves.

Family Office Outsourcing: How Outsourcing aids, the trend of direct investments by family offices

Outsourcing provides analysts on-demand to take care of activities like finding a deal, providing documentation for that, and supporting manager search and finalization. This works better than getting in touch with multiple private placement players, who may have limited options for investment opportunities that emerge from their personal or professional networks only. Outsourcing helps in organically reaching all the targets and managers that qualify for an investment thesis.

Operations’ activities that could be outsourced by Family Offices

Family Office Operations' Activities that could be outsourced

Family Office Operations Outsourcing Potential

Almost all the operational aspects of fund management could be successfully outsourced by family offices bringing down the operations cost significantly. It also improves the flexibility related to the investment analysis process. Here are the major activities that a player like Magistral can help a family office outsource:

Direct Investments

Family offices are moving towards direct investments more confidently than ever before. Though it’s still limited to general rules of investing and in industries where the comfort of family office lies.  It’s quite common for family offices to be looking for revenue beyond a given threshold, profitable operations, and some years of existence in business. The way Family Offices make these investments are majorly dependent on independent brokers or private placement players bringing in the deal.  They will broadcast their requirements and then get in touch with all brokers who could bring in the deal, mostly on variable broker fees arrangement.

A better way of working would be to proactively reach out to the universe in search of the target company. Outsourcing helps here as it could be done at a fraction of the cost that is payable to a broker on a successful deal. It also ensures that a substantial portion of the target universe has been approached, rather than relying on the breadth of a professional and personal network of brokers and private placement players. Players like Magistral offer services of Deal Sourcing that is immensely useful in this situation and brings the business impact at fraction of the cost

Apart from finding out the direct investment targets, Magistral also provides documentation and deal support for the deals. SEC-compliant documents like pitch decks, Confidential Information Memorandum, Financial Model, Valuation, etc. are produced for a deal to get investment approval or finding co-investors.

Manager Research and Due Diligence

For the areas where the family office does not have the expertise, looking for Fund Managers is still the preferred way of investing. Once the investment thesis has been identified, the major chunk of work involves reaching out to the Fund Managers who satisfy the given criteria. Manager Search can be done in the professional network or again through a private placement player or a database, but none of the methods ensure the reach-out to the almost complete universe. Outsourcing helps in reaching out to all the suitors and that too at fraction of the cost. Reaching out to all the suitors ensures that deal is done with the best fund manager out there and that too after negotiating the best arrangement for fixed fees and incentives.

A typical process here requires understanding the requirement of the family office and its investment strategy. It is then proceeded with an exercise of list generation of all the managers who satisfy criteria in terms of AUM, Geographical Focus, Returns Generated in the past, Quality of Management, etc. Once the shortlist of Fund Managers is drawn, a reach out to undertaken to these managers collecting all the fund related documents for an exhaustive due diligence exercise. Documents and data are then analyzed by an experienced analyst to provide an objective opinion on where the Fund Manager stands. Magistral uses a proprietary tool that carries a weighted average of multiple parameters related to Fund performance to recommend a fund that carries the minimum risk for higher returns.

Magistral has analyzed Funds like Hedge Funds, Real Estate, Private Equity, and Venture Capital in the past. A recent analysis of multiple Hedge Funds across the Middle East and China, by Magistral team, led to an investment of $300 million for a client.

Emerging Investment Opportunities

Investment opportunities have grown in numbers apart from each opportunity growing in terms of complexity. For coming up with an investment thesis that ensures consistent high returns, it’s imperative to scan the universe continuously. Today, a host of family offices evaluate multiple industries and investment opportunities to make the strategy for investments.  Tracking multiple types of Real Estate, Hedge Funds, Crypto Assets, Sovereign Bonds, Equity, and several other types of investments require analyst capacity. Outsourcing provides that capacity so that there is no opportunity that quickly picks up and misses the attention of the Family Office Manager.

Currently, Magistral tracks all global S&P industries for its clients and provide them with quarterly reports apart from their other areas of interest. We also continuously update the returns potential of each tracked industry and investment opportunity.

Finding Co-investors for an Opportunity

As a Family Office, you have found an opportunity that you are sure will generate superlative returns over a period of time, but it requires a minimum ticket size of say $ 25 million to enter. A stake into VC funds like Softbank of Carlyle might require that kind of a sum to invest. It means a Family office will need to reach out to similar investors to pool the money to enter the investment vehicle.

An outsourcing player like Magistral can facilitate the conversation by reaching out to the right co-investors

Risks involved with Family Office Outsourcing Operations

Family Office Operations' Outsourcing Risks

Family Office Operations Outsourcing Risks and Solutions

Even General Partners like Real Estate, Private Equity, and Venture Capital are still warming to the idea of outsourcing which is typically considered low cost and also low quality. Family Offices will require even more time to get comfortable with the idea. The prime reason for Family Offices not outsourcing is not the lack of quality or that outsourcing does not make business sense. It is the fear of the unknown. They have never tried it and they don’t know what it might bring. Well, it might bring sizeable business benefits. For Family Offices to get over their fear of the unknown, Magistral offers a small pilot of all its services at minimal costs before a larger engagement is discussed. It ensures there are no performance-related risks in operations outsourcing deals. If you are a Family Office and are interested in exploring the idea, please drop an inquiry at here

Apart from a general fear of the unknown, several other reasons stop a Family Office from outsourcing. These are:

Data Security

A Family Office fears that details of a deal might leak outside. This fear stems from a lack of understanding as to how a family office service provider works. An outsourced service provider like Magistral takes all the care related to confidentiality. The work happens in a watertight environment digitally by analysts. No information can leave the systems unless otherwise approved. These cloud-based security tools are quite sophisticated.  Apart from this, a workplace that is physically secured is also arranged on the clients’ request. Also, it all becomes safer when understood that an analyst is working only with one client at a time and thus has no incentive to leak any information

Costs

An outsourcing arrangement not only improves the quality and flexibility of operations but also brings with it significant savings in terms of costs. Potentially a 30-70% reduction in cost is a very reasonable expectation.

Quality

Family Offices typically have small teams and thus may not be very comfortable with all the investment avenues available. Outsourcing can provide reinforcements to the existing team in terms of expertise and more hands. Also, investment insights generally lead to better investments and more returns.

Language

All analysts usually have native fluency in English which is good enough to interact with most of the commercial world. If required language expertise can be provided for Spanish, German and Chinese for both spoken and written assignments

Expertise

Expertise is available in specific areas related to fund-raising, fund-strategy, Financial Modeling, Due Diligence, Research, Strategy, Marketing, IT and Portfolio Management is available on demand. The team can be put together quickly as per the needs of a deal and then dismantled once the deal is finalized

About Magistral

Magistral Consulting is a specialized outsourcing player that has helped multiple family offices and limited partners in outsourcing research and operations. For more information check www.magistralconsulting.com

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at prabhash.choudhary@magistralconsulting.com for any queries on the article or any business inquiry