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December 2014 | www.bloombergbriefs.com 
FAMILY 
OFFICE 
Rankings 
Alternative 
Investments 
Philanthropy & 
Impact Investing 
Traditional 
Investments 
Crunching the 
Numbers 
2015 Outlook 
Investment Horizons 
Private Equity 
Venture Capital 
Research 
Wine 
Hedge Funds Property
December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 2 
Welcome to 
Bloomberg Brief’s 
Special Report on 
Family Offices 
DARSHINI SHAH, BLOOMBERG BRIEF EDITOR 
A family office is, simply put, an office that caters to a family of 
significant wealth. Worldwide, the number of people with $30 
million or more to invest — the kind of folks who would hire a 
family office — rose 15.6 percent to 128,300 in 2013, according 
to an annual report compiled by Capgemini and RBC Wealth 
Management. 
One of the greatest challenges a family office faces is build-ing 
a diversified portfolio capable of prudent growth yet resilient 
enough to withstand large swings in asset valuations so that 
wealth can be passed to the next generation. 
With that in mind, Bloomberg Brief brings you insights from 
managers about their investment decisions and philanthropic 
endeavors, along with rankings of the 50 biggest multi-family 
offices. 
Read outlooks for the year ahead from Paul Sedgwick of 
Frank Investments, Charles Gowlland and Chris Bates of Smith 
& Williamson, Lorne Baring of B Capital and Gautam Batra of 
Signia Wealth. Marcuard Heritage says it will manage a high 
allocation to credit hedge fund managers. Tom Gauterin talks 
about the tax benefits of investing in wine. Find out what types 
of property investment in the U.S., London and Middle East 
might offer the best returns. Finally, read about the benefits and 
challenges of philanthropy, and how family offices are using 
some of their fortune to help ease some of society's ills while 
aiming to profit through impact investing. 
SUBSCRIBE TO 
BLOOMBERG BRIEFS 
MaRkET LEadInG InTELLIGEnCE 
Bloomberg Briefs publishes 18 newsletters to help you stay ahead of the markets. Individual 
and group subscriptions available. Visit www.bloombergbriefs.com to subscribe or take a trial. 
Or call Annie Gustavson at +1-212-617-0544. BRIEF 
Index | Previous | Next
December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 3 
Family Office Rankings page 5 
Traditional Investments 
By the Numbers page 9 
Bessemer CIO Braces Families for Geopolitical to Fed Upheavals page 10 
Equities 'Attractive Enough to Warrant Optimism,' Frank Investments' Sedgwick Says page 11 
Wealthy Families Move Toward Stock Investments, UBS Survey Shows page 11 
Smith & Williamson Bullish on U.S., European Equities page 12 
B Capital's Baring Bullish on U.S. Equities, Bearish on Precious Metals, Commodities page 13 
2015 to Be a 'Rocky Road' for Fixed Income, Signa Wealth's Batra Says page 14 
How Family Offices Differ From Other Institutional Investors page 15 
Alternative Investments 
Private Equity: Family Offices Join Forces to Make Direct Investments page 17 
Private Equity/Venture Capital: World’s Rich Bullish on U.S. as Family Offices Open Outposts page 19 
Hedge Funds: Marcuard Heritage to Maintain a 'High Allocation' to Credit Managers page 21 
Wine: Taylor Wessing's Gauterin Says Wine 'Attractive' From a Tax Point of View page 22 
Property: U.S. Commercial Real Estate Property Revival Gets Boost From Overseas Investors page 23 
Property: London's Hotels 'Ripe' for Investment by Family Offices page 24 
Property: Dubai a 'Growing Hub' for Global Property Investment Flows page 25 
Philanthropy & Impact Investing 
By the Numbers page 27 
Taylor Wessing's Hussain, Hine Discuss the Benefits and Challenges of Philanthropy page 28 
Impact Investing Forms Part of a Long-Term Investment Strategy, ClearlySo's Mompi Says page 29 
Case Backs Brain Device as Wealthy Push Do-Good Investing page 30 
Family Office | December 2014 
Ted Merz 
Bloomberg Brief Executive Editor 
tmerz@bloomberg.net 
+1-212-617-2309 
Jennifer Rossa 
Bloomberg Brief Managing Editor 
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+1-212-617-8074 
Darshini Shah 
Editor 
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+44-20-7392-0790 
Margaret Collins 
Contributing Reporter 
mcollins45@bloomberg.net 
+1-212-617-8925 
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INSIDE 
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Rankings
December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 5 
RANKINGS 
Top 50 Family Offices 
2014 
RANK FIRM NAME LOCATION 
2013 
AUA 
($B)1 
YOY % 
CHANGE 
NUMBER 
OF MULTI-GENERATIONAL 
FAMILIES 
AUA PER 
MULTI-GENERATIONAL 
FAMILY ($M) 
MINIMUM 
AUM OF NEW 
CLIENT ($M) 
MFO OR FAMILY 
OFFICE WITHIN 
PRIVATE BANK 
INCLUDES 
SFO AS 
CLIENTS 
(Y/N) 
1 HSBC Private Wealth 
Solutions Hong Kong 143.5 3% 334 $430 
No minimum, 
$50 included 
here2 
PB Y 
2 Northern Trust Chicago, U.S. 116.4 3% 4,340 $27 $20 PB Y 
3 Citi Private Bank New York, U.S. 100.5 8% NA NA $25 net worth PB Y 
4 Bessemer Trust New York, U.S. 96.6 10% >2,2003 $44 $10 MFO Y 
5 BNY Mellon Wealth 
Management New York, U.S. 81.2 8% 424 $192 $100 PB Y 
6 UBS Global Family Office 
Zurich, London, 
Singapore, Hong Kong, 
New York 
67.6 29%4 NA NA No minimum PB Y 
7 Pictet Geneva, Switzerland 55.0 -4% >150 $360 $100 PB Y 
8 CTC | myCFO 
(BMO Financial Group) Chicago, U.S. 40.4 11% 335 $120 $25 PB Y 
9 Abbot Downing 
(Wells Fargo) Minneapolis, U.S. 37.4 9% 617 $61 $50 PB Y 
10 U.S. Trust Family Office 
(Bank of America) New York, U.S. 36.2 9% 191 $190 $25 PB Y 
11 Hawthorn (PNC Financial) Philadelphia, U.S. 28.2 13% 682 $41 $20 PB Y 
12 Wilmington Trust 
(M&T Bank) Wilmington, U.S. 26.0 -7% 440 $59 $10 PB Y 
13 Glenmede Philadelphia, U.S. 24.4 9% 240 $102 $25 for UHNW; 
$3 for HNW MFO Y 
14 Atlantic Trust (CIBC) Atlanta, U.S. 23.6 16% 2,121 $11 $5 PB Y 
15 Rockefeller & Co. New York, U.S. 18.5 13% 258 $72 $30 MFO Y 
16 Fiduciary Trust 
(Franklin Templeton) New York, U.S. 16.5 13% 1,623 $10 $5 MFO Y 
17 GenSpring Family Offices 
(affiliate of SunTrust Banks) Jupiter, Florida, U.S. 13.7 -13% 357 $38 $10 MFO Y 
18 Veritable Newtown Square, 
Pennsylvania, U.S. 13.1 6% 206 $64 $20 MFO Y 
19 Oxford Financial Group Indianapolis, U.S. 13.0 25% 314 $41 $2 MFO Y 
19 Silvercrest Asset 
Management Group New York, U.S. 13.0 21% 420 $31 $5 MFO Y 
21 Commerce Family Office 
(Commerce Trust Company) St. Louis, U.S. 11.2 31% 94 $119 No minimum PB Y 
22 Whittier Trust South Pasadena, U.S. 10.0 12% 314 $32 $10 MFO Y 
23 ATAG Private & Corporate 
Services Basel, Switzerland 8.4 5% 52 $162 No minimum MFO Y 
23 TAG Associates New York, U.S. 8.4 19% 110 $76 $10 MFO N 
25 Tiedemann Wealth 
Management New York, U.S. 8.3 4% 116 $71 $20 investable 
assets MFO Y 
26 Bedrock Geneva, Switzerland 8.0 14% 82 $98 $10 MFO Y 
27 Spudy & Co. Family Office Hamburg, Germany 7.9 19% 95 $83 $45 MFO Y 
28 Fleming Family and Partners London, U.K. 6.9 22% 60 $114 $15 MFO Y 
29 Ascent Private Capital Man-agement 
(U.S. Bancorp) San Francisco, U.S. 6.4 24% 80 $80 $50 net worth PB Y 
continued on next page… 
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December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 6 
RANKINGS… 
2014 
RANK FIRM NAME LOCATION 
2013 
AUA 
($B)1 
YOY % 
CHANGE 
NUMBER 
OF MULTI-GENERATIONAL 
FAMILIES 
AUA PER 
MULTI-GENERATIONAL 
FAMILY ($M) 
MINIMUM 
AUM OF NEW 
CLIENT ($M) 
MFO OR FAMILY 
OFFICE WITHIN 
PRIVATE BANK 
INCLUDES 
SFO AS 
CLIENTS 
(Y/N) 
30 Baker Street Advisors San Francisco, U.S. 6.2 16% 50 $123 $5 MFO Y 
31 FS Finance Suisse Zurich, Switzerland 5.8 21% 11 $527 $50 MFO N 
32 1875 Finance Geneva, Switzerland 5.5 6% 12 $458 $5 MFO N 
33 Bollard Group Boston, U.S. 5.0 0% 8 $625 $100 MFO Y 
33 Constellation Wealth 
Advisors New York, U.S. 5.0 9% 165 $31 $10 MFO Y 
33 Laird Norton Wealth 
Management Seattle, U.S. 5.0 3% 431 $12 $1 MFO Y 
36 Gresham Partners Chicago, U.S. 4.6 18% 71 $64 $24 MFO Y 
37 Synovus Family Asset 
Management Columbus, Georgia, U.S. 4.5 8% 44 $102 $10 MFO Y 
38 Clarfeld Financial Advisors Tarrytown, New York, U.S. 4.4 7% 230 $19 $5 MFO N 
38 Presidio Group San Francisco, U.S. 4.4 13% 128 $34 $10 MFO Y 
40 Athena Capital Advisors Lincoln, Massachusetts, 
U.S. 4.3 0% 28 $153 $25 MFO N 
40 Federal Street Advisors Boston, U.S. 4.3 9% 23 $185 $2 MFO Y 
42 Aspiriant Los Angeles, U.S. 4.2 13% 88 $47 $5 MFO N 
42 Tolleson Wealth Manage-ment 
Dallas, U.S. 4.2 14% 133 $31 $10 MFO Y 
44 St. Louis Trust St. Louis, U.S. 4.1 18% 42 $97 $25 MFO N 
45 Monitor Capital Partners Antwerp, Belgium 4.0 7% 79 $50 $25 MFO N 
46 Seven Post Investment 
Office San Francisco, U.S. 3.8 19% 35 $107 $50 MFO N 
47 Ballentine Partners Waltham, Massachusetts, 
U.S. 3.7 23% 74 $49 $20 MFO Y 
48 CV Advisors Miami, U.S. 3.5 40% 50 $70 $25 MFO Y 
49 Signature. Norfolk, Virginia, U.S. 3.3 14% 67 $49 $5 MFO N 
50 Marcuard Family Office Zurich, Switzerland 3.2 -1% 44 $72 $20 MFO N 
Source: Bloomberg 
1. Assets under advisement as of March 31 or most recent available. 2. Data provided by HSBC provided was only for clients with assets of $50 million or more 
3. The majority of family relationships are multigenerational. 4. Includes transfers from within the bank. NA = not available. 
Our ranking is based on data compiled by Bloomberg from infor-mation 
self-reported by multifamily offices. The list was assembled 
through research by the Bloomberg Rankings team via a survey 
of more than 1,000 firms worldwide, using a database of contacts 
obtained from Portland, Oregon-based FamilyOffices.com. 
We received responses from 97 firms. 
We requested data as of the end of the first quarter of 2014; some 
data is for year-end 2013. Change in year-over-year assets under 
advisement was calculated using the data supplied by the firms. 
Single-family offices are excluded. Family offices that are part of 
private banks are included if the bank has a family-office unit that 
offers direct and comprehensive investment and noninvestment 
services to high-net-worth families. 
Figures for assets under advisement include only assets man-aged 
by the family-office unit of the bank. For nonbank family offices, 
AUA includes wealth directly managed by the offices and funds 
outsourced to money-management firms. 
Money managed for private foundations is included. Money man-aged 
for pension funds is excluded. Insurance policies and trusts 
on which advice is provided are included. The ranked firms provide 
both investment and noninvestment services. The latter may include 
family meetings, financial education, art consulting, estate planning, 
family governance, foundation management, business consulting, 
property management, travel arrangement and shopping assistance. 
— Bloomberg Rankings 
How We Crunched the Numbers 
Index | Previous | Next 
continued from previous page
December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 7 
RANKINGS 
Fastest-Growing Family Office in Miami Rides Rise in Ultra-Rich 
BY ANTHONY EFFINGER 
Elliot Dornbusch runs a family office in Miami for a select group 
of clients — and he wants to keep it small. 
That’s gotten harder in the past two years. Dornbusch is chief 
executive officer of CV Advisors LLC. CV beat the behemoth 
family offices for a second year in a row to become the fastest-growing 
firm in the Bloomberg Markets annual ranking of the 
richest family offices. The firm saw assets under advisement grow 
40 percent in the year ended on March 31, to $3.5 billion. In the 
prior year, its assets had doubled. 
Dornbusch says the firm does no marketing and gets all its 
clients by word of mouth. This year, CV Advisors added nine 
wealthy clans, for a total of 50. 
“Our families tend to recommend their friends,” Dornbusch says. 
In terms of total assets, CV is No. 48 
in the Bloomberg Markets ranking, which 
was compiled through a survey of more 
than 1,000 firms worldwide. The No. 1 
firm, HSBC Private Wealth Solutions, 
has $143.5 billion under advisement. It 
grew 3 percent, as did No. 2 Northern 
Trust Corp. The next three, Citigroup 
Inc.’s Citi Private Bank, Bessemer Trust 
Co. and Bank of New York Mellon Corp.’s 
BNY Mellon Wealth Management, each 
grew 8 percent or more, as the world’s 
rich got richer. They were helped by rising 
financial markets in the 12 months ended on March 31. 
"The families are highly 
sophisticated and discerning. 
There’s no margin for error." 
— Thom Melcher, PNC Financial Services Group Inc. 
Worldwide, the number of people with $30 million or more to 
invest — the kind of folks who would hire a family office like CV or 
HSBC — rose 15.6 percent to 128,300 in 2013, according to an 
annual report compiled by Capgemini and RBC Wealth Manage-ment. 
Their fortunes accounted for 34.6 percent of assets held by 
all millionaires, or $18.2 trillion. 
Many of CV’s clients are from Latin America. Dornbusch was 
born in Colombia and raised in Venezuela, where he met co-founder 
Alex Mann. Partner Matthew Storm is from Connecticut. 
Their firm topped the growth chart even though the region was 
a laggard in 2013. Fortunes held by the $30 million-or-more crowd 
in Latin America rose just 1.7 percent. By comparison, assets 
held by the ultrarich in North America rose 19.4 percent. 
CV’s growth matches that trend. Its new families were mostly 
from the U.S. 
The second-fastest-growing firm is in the U.S. heartland, a 
region being rejuvenated by the shale energy boom and new 
manufacturing. Commerce Family Office, a unit of Commerce 
Trust Co. in St. Louis, saw assets jump 31 percent to $11.2 billion 
for the year ended on March 31. 
“There’s a lot of good entrepreneurial spirit in the Midwest,” 
says David Krauss, the family office’s managing director. 
CV’s Dornbusch says he beat the big firms by promising a per-sonal 
touch. Clients always talk to a principal: himself or one of 
his partners. The wealthy these days are almost always entrepre-neurs, 
or descended from one, and they like to do business with 
people who share the same spirit, he says. 
“I don’t know how any family would go anywhere and not deal 
with the owner,” Dornbusch says. 
Once a real estate developer in Venezuela, Dornbusch has 
been managing money since 2002. He started CV Advisors — CV 
stands for “Clear View” — in 2009. His clients are most interested 
in preserving capital, not making tons more of it. With that in mind, 
CV aims to return 6 percent to 9 percent a year. 
Lately, CV has been buying invest-ment- 
grade bonds to get there, sticking 
with fixed income while other managers 
warn that inflation will return and destroy 
performance. 
CV is also winning clients because 
so many are concerned about computer 
security, Dornbusch says. JPMorgan 
Chase & Co. disclosed in October that 
hackers had gained access to the contact 
information for 76 million households. 
CV has built its own financial-reporting 
software in-house, including an iPhone 
application that shows stock and bond positions. 
At Chicago-based Northern Trust, many clients won’t allow 
money transfers without a multistep process, says David 
Blowers, president of wealth management for the company’s 
eastern region. For example, a client will send an e-mail or fax or 
make a phone call requesting a transaction. Then Northern Trust 
must call back and run through a series of security questions 
before any money moves. 
With more and more families seeking the guidance of a family 
office, attracting clients by catering to their every whim is a growth 
industry. Thom Melcher, head of No. 11 Hawthorn, part of Pitts-burgh- 
based PNC Financial Services Group Inc., has added 90 
employees in three and a half years, for a total of 186. 
“The families are highly sophisticated and discerning,” Melcher 
says. “There’s no margin for error.” 
Dornbusch is hiring too. Yet he and his co-founders will always 
handle direct communication with clients, he says, and that limits 
future growth. He has already had to turn some prospects away. 
There are worse problems to have. 
With assistance from Margaret Collins and Judith Sjo-Gaber 
THE NEW HUB FOR PRIVATE EQUITY PE 
<GO> 
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Traditional 
Investments
December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 9 
BY THE NUMBERS BY DARSHINI SHAH & PEKKA AALTO 
TOTAL BUDGET ALLOCATED TO 
INVESTMENT ACTIVITIES (%) 
GLOBAL 
NORTH 
AMERICA 
EUROPE 
ASIA-PACIFIC 
DEVELOPING 
ECONOMIES 
47% 44% 45% 
52% 
42% 
TYPICAL INVESTMENT PORTFOLIO, BY REGION (%) 
Equities 
Fixed Income 
Real Estate Direct Investment 
Direct Venture Capital/Private Equity 
Private Equity Funds 
Hedge Funds 
Co-investing 
Cash or Equivalent 
Alternative Asset Classes 
30 10 12 8 10 11 3 7 9 
23 14 16 9 8 5 6 10 9 
23 16 14 11 6 5 6 10 9 
18 17 15 7 5 12 5 13 8 
100% 
Global 
North America 
Europe 
Asia-Pacific 
Developing Economies 
25 14 14 9 8 7 5 9 9 
AVERAGE 2013 FAMILY OFFICE 
OPERATING BUSINESS REVENUE ($M) 
GLOBAL 
NORTH 
AMERICA 
EUROPE 
ASIA-PACIFIC 
DEVELOPING 
ECONOMIES 
314 
248 
360 
288 
380 
North America 
Europe 
Asia-Pacific 
Developing Economies 
21 27 21 31 
<3 Years 
3-5 Years 
6-10 Years 
>10 Years 
27 25 26 22 
33 33 23 11 
34 25 26 15 
100% 
PORTFOLIO HORIZON (%) 
Source: Global Family Office Report 2014 
Family offices allocate roughly half of their total budget 
to investment activities, regardless of where they are 
based, according to the Global Family Office 2014 report 
published by Campden Wealth in association with UBS. 
The report also showed that the typical family office 
portfolio was diversified across asset classes, with 
developed-market equities and real estate comprising the 
most allocations. 
Families from Asia-Pacific have a much shorter invest-ment 
horizon than their North American and European 
counterparts. About a third of a typical North American 
portfolio had an investment horizon of 10 years of more, 
compared with a typical portfolio of an Asia-Pacific family, 
which had only 10 percent of its assets invested with that 
time horizon in mind. 
Index | Previous | Next
December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 10 
2015 OUTLOOK 
Bessemer CIO Braces Families for Geopolitical to Fed Upheavals 
BY MARGARET COLLINS 
Rebecca Patterson is preparing the investments of the 1 percent 
for upheaval. 
From her corner office in New York’s Rockefeller Center, the 
chief investment officer of Bessemer Trust Co. is putting $55.2 
billion in client assets under geopolitical and economic stress. In 
July that meant plotting returns against prior spikes in oil prices 
as conflicts escalated in Gaza and along Russian-Ukraine trade 
routes. By October, she was mapping out returns from different 
asset classes when interest rates rise. 
"Our biggest focus right now is thinking through the coming Fed 
rate-hike cycle," said Patterson. "You know it's coming. You don't 
know when, or how quick it will be, but you know it probably won't 
be exactly what the market is pricing in." 
Stress testing portfolios is one of the changes Patterson has 
made since joining Bessemer, the world’s fourth-largest multi-family 
office, from JPMorgan Chase & Co. two years ago. The 
strategy means it won't take her team days or weeks to respond 
when there's a crisis, she said. 
“We know history won’t repeat but it might rhyme,” said Patterson. 
The average family at Bessemer 
has $45 million in assets under the 
firm's supervision and the wealth of its 
founder, steel-mogul Henry Phipps and 
his descendants, remains the largest 
relationship. 
“My owner is a client,” Patterson said. 
Such proximity is why chief invest-ment 
officers at family offices require 
“nerves of steel,” especially following 
the 2008-2009 credit crisis, said Dan 
Farrell, chairman and chief execu-tive 
officer of Privos Capital, a global 
family office advisory firm based in 
New York. 
“The CIO carries the weight of the 
family’s world on his or her shoulders,” Farrell said. 
Patterson sets asset allocation recommendations in gen-eral 
and the firm’s managers pick the companies in which to 
invest. Bessemer’s main model allocation, which has a risk 
profile of 70 percent equities and 30 percent bonds, last year 
returned 14.8 percent, beating its benchmark’s 12.6 percent 
gain, according to the company. That allocation returned 7.9 
percent compared with 6.9 percent for the benchmark in the 12 
months through September. 
The benchmark is a composite Bessemer created using the 
Bank of America Merrill Lynch 1-10 Year AAA-A U.S. Corporate & 
Government Index, the Standard & Poor’s Global Broad Market 
Index and Dow Jones-UBS Commodity Index. 
This year Patterson trimmed a portion of the investments to 
small-cap stocks while adding to large-cap equities and commod-ities 
such as oil and agriculture because she thinks U.S. inflation 
is showing signs that it will rise over the next several years. 
She saw the market 
downturn in October as a 
buying opportunity. 
"We did go out directly to 
our clients after Treasuries 
hit 1.86 percent," Patterson 
said. "For investors wait-ing 
for the dip, we believed 
it was an opportunity, so 
we recommended adding 
stocks, mainly in large cap." 
While Patterson expects 
the U.S. to lead global 
growth next year, she’s also 
increased allocations to 
emerging market equities 
this year, mainly through 
emerging Asian economies 
in recent months. 
“I’m increasingly biased to having more global exposure,” she said. 
Phipps founded Bessemer in 1907 to manage his wealth after 
selling his interest in Carnegie Steel to J.P. Morgan. The company 
is named after Henry Bessemer, the inventor of the steel-making 
process that was instrumental to the success of Carnegie Steel, 
according to Bessemer’s website. The closely held firm opened to 
other families in 1974 and now has about 2,200 clients, according 
to the website. It offers services including investments, estate plan-ning 
and tax advice, and supervised $97.5 billion in total assets as 
of June. 
Bessemer ranked fourth by assets under advisement among 
firms worldwide that cater to wealthy families, behind HSBC Pri-vate 
Wealth Solutions, Northern Trust Corp. and Citi Private Bank, 
according to data compiled by Bloomberg. 
Bessemer uses a combination of internal and external invest-ment 
managers. The firm runs its own mutual funds including 
those that invest in small-and-mid cap stocks and global equities. 
“There are so many benefits to having some money run inter-nally 
so you are touching the market every day,” she said. She 
also judges Bessemer’s performance against external managers. 
Investments in alternatives such as private equity and 
hedge funds are managed by other firms such as Bain Capi-tal 
LLC and Anchorage Capital Group, Patterson said. Last 
year she recommended exiting U.S. high yield bonds, which 
were another asset class that Bessemer invested in for clients 
using outside managers. 
The main goal is limiting risk for families’ investments, Patter-son 
said. 
“Our clients have spent a significant part of their lives building 
their wealth and don’t want to have to start over,” she said. “The 
more I can anticipate and plan for what can go wrong, the faster 
I’m going to be able to react and make sure we do protect their 
irreplaceable capital.” 
Source: Bessemer Trust/ 
Callie Lipkin 
Rebecca Patterson 
"The more I can 
anticipate and plan for 
what can go wrong, the 
faster I’m going to be 
able to react and make 
sure we do protect their 
irreplaceable capital." 
— Rebecca Patterson, Bessemer Trust 
Index | Previous | Next
December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 11 
2015 OUTLOOK 
Equities 'Attractive Enough to Warrant Optimism': Frank Investments' Sedgwick 
Paul Sedgwick, chief in-vestment 
officer of Frank 
Investments, says that 
equity valuations remain 
attractive enough to war-rant 
optimism when com-pared 
with both history 
and other asset prices. 
The conundrum facing investors again in 
2015 is what asset class is going to give 
the best risk-adjusted return. 
Some take the view that bonds offer no 
income and are expensive when compared 
with history, unless one takes a very bleak 
view of the global economic outlook. 
Others say stock valuations, driven by 
central banks’ ultra-loose monetary poli-cies, 
have risen to unsustainable levels, 
particularly in the U.S. They believe that 
as the Federal Reserve removes this 
stimulus, risk assets will no longer have 
the artificial crutch they need and are thus 
vulnerable, a view expressed recently by 
the Bank of International Settlements. 
We believe that although equity valua-tions 
have rerated substantially in the past 
couple of years, they remain attractive 
enough to warrant optimism, when com-pared 
with both history and other asset 
prices. 
Historically, equity markets tend not 
to crash when governments and central 
bankers are pursuing pro-growth strategies, 
as is currently the case. When one stands 
back and looks at the world today, there 
are many reasons to be worried — the 
euro area economy, geopolitical tensions 
and emerging market growth are at top of 
the list. Indeed, concerns many had that 
central bank policies would lead to rampant 
inflation have now turned more to worries 
that deflationary pressures could return. The 
silver lining is that central banks are accom-modative, 
and will remain so for a while. 
As a result, we expect equities to make 
up 70 percent of our portfolio next year, 
as it has been during the past few years. 
The balance of the portfolio is held in 
cash and corporate bonds with maturities 
extending approximately five years. We do 
not invest in structured products or use 
derivatives as a form of leverage. 
Frank Investments’ philosophy is based 
around diversification, global reach and 
sustainable dividend policies. Hence, our 
philosophy going into 2015 is very much 
to stick with these type of companies. 
Examples include Reckitt Benckiser Plc, 
Melrose Plc and Vodafone Plc in the U.K., 
and in Siemens AG and Sanofi in conti-nental 
Europe. 
We avoid the highly operationally 
geared sectors, such as airlines and steel 
manufacturers. Our investment philosophy 
is that these are sectors you rent during 
periods of strong economic growth, which 
is not the case at present, and not buy for 
the long term. 
We tend not to invest directly in emerg-ing 
markets as it exposes the portfolio 
to greater currency and political risk. 
Liquidity can also be an issue as can poor 
corporate governance. Instead, we get 
our emerging market exposure from com-panies 
with an emerging market presence, 
but whose foundations are in the devel-oped 
market. Prime examples would be 
Standard Chartered Plc and Procter and 
Gamble Co. The downside is you don’t get 
the gearing from a direct investment into 
the emerging market itself. 
Frank Investments was established in 
2005 in the style of a family office. It 
offers its clients the opportunity to invest 
alongside the founder's portfolio. 
RESEARCH 
Wealthy Families Move Toward Stock Investments, UBS Survey Shows 
BY ELENA LOGUTENKOVA 
Wealthy families around the globe have started shifting assets 
into stocks from bonds, reflecting increasing optimism about 
the outlook, according to a survey by UBS AG and Campden 
Wealth Research. 
Family offices in North America and in Asia-Pacific regions, 
which represented about half of those surveyed, shifted toward 
growth investment from more balanced and preservation strate-gies, 
UBS and Campden said in the annual report published in 
September. Some 205 family offices with more than $180 billion 
in private wealth were surveyed in the first half. 
“When you speak to the family offices there is a perception of 
taking more risk than in prior years,” Philip Higson, vice chairman 
of UBS’s global family office group, said in an interview in Zurich. 
“We’re discussing equities and alternatives to fixed income more.” 
A typical family office serves a family with seven households 
across three generations, according to the report. The average 
portfolio returned 9 percent in 2013, driven largely by investment 
in developed-market stocks, it estimated. 
In Europe, family offices have remained more cautious, with 
about 17 percent pursuing growth strategies compared with 44 
percent in North America, 33 percent in Asia Pacific and 20 per-cent 
in developing economies, according to the survey. 
“Europe is a step behind,” said Andrew Porter, director of 
research at Campden Wealth, which is a family-owned business. 
“Europe has always been more conservative and it faces different 
geopolitical and macroeconomic challenges.” 
An investment portfolio of a European family office typically 
holds about 23 percent in equities, 16 percent in direct real 
estate investments, 14 percent in fixed-income products and 
10 percent in cash. That compares with North American family 
offices, which typically have 30 percent in equities, 12 percent 
in real estate, 10 percent in fixed income and 7 percent in cash, 
according to the survey. 
Index | Previous | Next
12 December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 
2015 OUTLOOK 
Charles Gowlland, investment management 
partner, and Chris Bates, investment strate-gist, 
Smith & Williamson, say an improving 
U.S. economy will take over from quantita-tive 
easing as a key driver for markets and 
that there is potential for euro-area policy to 
surprise on the upside. 
As we enter the winter months, the focus 
for markets appears to have shifted to the 
loss of economic momentum outside the 
Anglo-Saxon world. This was highlighted 
by the latest World Economic Outlook 
published by the IMF, an organization well 
known for being fashionably late for the 
party, in which it slashed its global growth 
forecasts for 2014 and 2015, with the 
spotlight on the ongoing woes in the euro 
area. This acted as a catalyst for a notable 
pick-up in volatility, a global stock market 
sell-off during October and the 10-year U.S. 
Treasury yield slipping below 2 percent. 
For markets globally, the main elephant 
in the room is the euro area. This has 
been magnified by a European Central 
Bank that continues to dither and disap-point 
with its underwhelming "Diet QE" 
policy response. Initial take-up by banks 
of the Targeted Long Term Refinancing 
Operations came in well below expec-tations 
and the ECB’s plan to grow its 
balance sheet through Asset Backed 
Securities purchases is likely to be a non-starter. 
All this has left markets feeling like 
Oliver Twist asking: “Please, sir, I want 
some more!” 
Europe remains in a deflationary 
vortex of low growth, weak demand and 
CPI inflation that teeters precariously on 
the edge of falling into full-blown defla-tion. 
This is a risk that must be avoided 
at all costs, with government debt levels 
remaining highly elevated, as the real 
value of debt rises in a deflationary envi-ronment. 
A key difference between now 
and 2012, the peak of the euro area crisis, 
is that back then, the concerns were 
contained to the periphery economies 
of Greece, Ireland, Portugal and Spain. 
What’s clear now is that the region’s core 
countries including Italy, France and even 
Germany are being dragged into the 
downward spiral. 
The message from the bond markets, 
where German bund yields have contin-ued 
to decline and decouple from their 
U.K. and U.S. equivalents, is eerily remi-niscent 
of the deflationary spiral Japan 
found itself in for the past two decades. 
Whilst financial conditions in the euro area 
have improved in recent years, yields on 
peripheral sovereign debt are no longer 
into the stratosphere and the euro has 
weakened, yet the region’s major struc-tural 
problems remain unaddressed. 
ECB President Mario Draghi has 
stressed the need for an Abenomics-style 
“three arrows” approach to tackling 
the euro area’s problems. This is all well 
and good, but Draghi is finding his wings 
being increasingly clipped by German 
policymakers, scarred by history. The 
Germans have been firmly saying “nein” to 
signing off on any full-fat QE program. The 
divergence in the views of Mario Draghi 
and the Bundesbank is halting any prog-ress 
for the region. Draghi’s hands may 
be tied, but the frustration for markets is 
that they are at the mercy of an increas-ingly 
dysfunctional European system and 
politicians are not tackling the necessary 
domestic structural reforms. 
Still, the recent market shake-out 
throughout asset classes has presented 
both Wall Street and the High Street with 
a number of significant positives. The fall 
in the oil price has lowered the cost of 
fuel and energy at both a household and 
corporate level. Lower bond yields reduce 
the cost of borrowing for governments 
and corporations and, in the U.S., should 
feed through to lower mortgage rates. 
Subdued inflation levels not only boost 
disposable incomes, but take much of 
the pressure off both the Fed and the 
Monetary Policy Committee in the U.K. to 
raise interest rates. Below-target inflation 
levels and the gravitational pull of the 
euro area’s problems mean rate tighten-ing 
expectations continue to be pushed 
out even further. This continued finan-cial 
repression remains a positive for 
equities markets. 
So, what does all this mean for asset 
allocation? Although U.S. equity valua-tions 
look higher on a relative basis, we 
prefer to follow the economic growth. An 
improving U.S. economy, where growth of 
3 percent plus is still achievable, should 
help support corporate earnings that 
need to take over from QE as a key driver 
for markets. The continued upward trajec-tory 
of U.S. earnings per share will also 
help to alleviate some valuation concerns. 
A strengthening dollar would be a 
mild negative for the U.S. economy, but 
with just 7 percent of S&P 500 revenues 
coming from the euro area (against 70 
percent domestically), the U.S. market 
remains relatively insulated from weak 
demand elsewhere in the world. Non-dollar 
based investors would also benefit 
from a tailwind from dollar appreciation. 
In Europe, equity markets appear to 
have discounted an ECB that will continue 
to underwhelm. However, with expecta-tions 
so low there is potential for policy to 
surprise on the upside. There are signs 
that the Germans are warming to the idea 
of a full-fat version of QE, or a big take-up 
of the next tranche of Targeted LTROs in 
December which could potentially rein-vigorate 
markets. 
We don’t believe the recent rise in 
volatility is the start of a major change in 
direction for equity markets, indeed the 
dips so far have proven good entry points 
for active investment managers. However, 
with markets starting to wean themselves 
off the Fed’s liquidity, this remains a major 
transitional phase where volatility is likely 
to persist. With bond yields at historic lows 
we don’t see much here in terms of capital 
growth, but with so many unknowns and 
existential risks still out there, a well-diversified, 
balanced portfolio seems the 
sturdiest ship in which to navigate these 
choppy waters. 
Smith & Williamson is an independently 
owned private client house. A major part of 
the business has been the provision of wealth 
management to ultra-high-net-worth fami-lies, 
their trusts and their family companies. 
Smith & Williamson Bullish on U.S., European Equities 
Charles Gowlland Chris Bates 
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December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 13 
2015 OUTLOOK 
B Capital's Baring Bullish on U.S. Equities, Bearish on Precious Metals, Commodities 
Lorne Baring, manag-ing 
director of B Capital, 
outlines how concern 
about a slowdown in 
China and dollar strength 
affects allocations in the 
firm's 'balanced' model 
portfolio. 
2015 is likely to be a year of marginally 
slower growth than this year and we 
expect global gross domestic product to be 
around 3.8 percent. 
Within that number, we forecast that 
the U.S. will continue to enjoy a broad-based 
expansion relative to Europe and 
Asia, which will see a patchier path to 
growth. Europe may bump along the 
economic flatline as the region adjusts to 
a perennially high debt burden, coupled 
with troublesome unemployment levels. 
Asia will reflect sensitivity to China which 
is attempting the tricky balancing act to 
switch from an export-led economy to one 
that encompasses broad consumption as 
well. The property market in China is wor-risome 
and could unhinge growth, which 
currently stands at about 7.3 percent per 
annum, but which is vulnerable to a hous-ing 
market correction. 
So, what are the asset classes to con-sider 
when constructing a global port-folio? 
B Capital separates the pack into 
seven categories: cash, precious metals, 
bonds, equities, alternatives, commodi-ties 
and property. 
The following model weightings relate 
to our 'balanced' strategy for clients with 
a moderate risk profile and who aim for a 
combination of capital growth and income 
to make up the total return. We exclude 
private equity, which we cover separately 
at B Capital, and which is not part of our 
liquid investment portfolio models. 
■■ Equities, 53%: Equities react well if 
there is regional growth and we see this 
as a U.S. story in the year ahead, while 
being tactically underweight Europe. 
Earning valuations for the developed mar-kets 
are not expensive in general follow-ing 
the recent correction in stocks, so we 
see potential for both capital appreciation 
as well a dividend yield component to the 
total expected return. The world economic 
stage is still fraught with risks and central 
banks are keeping monetary policy loose 
for fear of sending economies back into 
recession, however global companies 
with a strong export franchise should per-form 
well and can more easily withstand 
local wobbles back home. The developing 
world has much potential and a perceived 
dynamism which attracts capital despite 
the reduced transparency and increased 
volatility along the way. In the long term, 
we believe that emerging markets will out-perform 
the developed world. Valuations 
are significantly cheap at the moment 
but possible U.S. dollar strength, a China 
slowdown and commodities under pres-sure 
leads us to temper our enthusiasm in 
the short term. 
■■ Bonds, 33%: Bonds offer a return, 
albeit low, while interest rates hover at 
multi-decade lows. Investment-grade sov-ereign 
debt looks expensive. Lower-rated 
corporates offer some attraction so long 
as investors understand that the stellar 
performance of bonds during the crisis 
will not be repeated in the coming years. 
In fact, rates will rise at some point which 
will be a negative for fixed income. We 
hold 2- to 4-year issues which will mature 
as yields pick up. In the meantime, it is a 
low-return environment for bond investors 
and is a "smoother" of overall portfolio risk 
in our models. 
■■ Alternatives, 10%: Alternatives are 
a wide description for many types of 
strategies and we look for managers that 
can demonstrate returns that are truly 
uncorrelated to financial markets. That 
excludes funds which trade on the finan-cial 
markets. With fixed income offering 
low returns and likely to underperform in 
the medium term, we seek an alternative 
asset that can add value to the income 
component of the portfolio. A direct 
lending fund which works with operat-ing 
businesses meets this objective as 
market volatility has no correlation to the 
loans issued. 
■■ Property, 7%: Property can be a useful 
portfolio asset class as it exhibits ele-ments 
of capital growth which protects 
from inflation, as well as providing a 
fixed-income type return from rental yields. 
There are cyclical forces that affect prop-erty 
and in a period of economic growth, 
it is a useful inflation-linked investment. 
We favor commercial property ownership 
through a fund with a long track record 
which covers upturns and importantly 
downturns in the economy. 
■■ Cash, 2%: It's an era of near-zero 
interest rates and sub-optimal global 
growth. Governments have made it clear 
that short-term monetary policy is going 
to remain loose. That means that cash 
will pay nothing for the foreseeable future 
and so, with no return expected and infla-tion 
to subtract, we don't see the point in 
cash except to act as a holding pot during 
market volatility. 
■■ Precious Metals, Zero Weighting: 
Precious metals such as gold and silver, 
as well as platinum and palladium, have 
done well during the early years after 
the global financial crisis. Haven require-ments, 
cheap money, falling interest 
rates, lack of confidence in the bank-ing 
system and general panic sent the 
shiny metals roaring ahead. Following 
a 40 percent fall in prices over the last 
few years, some are tempted to buy, but 
we are not convinced about the merits 
of precious metals in a commodity bear 
market, coupled with low inflation and 
a China slowdown. Who would buy gold 
if the world economy is healing itself? It 
doesn't make sense when compared to 
most asset classes and the volatile price 
action over the last three years dispels 
the myth that gold is a safe haven. In fact, 
we consider it as just another currency 
pair to trade like cable or eurodollar. 
■■ Commodities, Zero Weighting: Com-modities 
are under pressure due to the 
slowing China story and, in some cases, 
a significant increase in supply. Commodi-ties 
are priced in U.S. dollars and with a 
strong dollar expected into 2015, we are 
bearish of the asset class. 
B Capital is a multifamily office invest-ment 
manager with a global macro man-date 
and an absolute return focus. 
Index | Previous | Next
14 December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 
2015 OUTLOOK 
2015 to Be a 'Rocky Road' for Fixed Income, Signia Wealth's Batra Says 
Gautam Batra, investment 
strategist at Signia Wealth, 
says that while longer-term 
rates will resume their 
rise, they will be kept in 
check by emerging market 
turmoil, geopolitical turbu-lence 
and equity market 
volatility. Treasuries will 
also retain investor interest. 
2014 began with a brightening outlook 
for global growth and a sense that some 
of the noisiest of geopolitical risks were 
starting to quiet down. It had become de 
rigueur in some circles to forecast clouds 
on the horizon for fixed income, until we 
saw the big bond market bull run of 2014, 
and the well-documented capitulation on 
Oct. 15. The price action in October was 
a shock to Wall Street analysts, and many 
are still straining to uncover all of the 
events that led to the run. 
In the light of the year just gone, it’s 
tempting to see bonds continuing to pres-ent 
us with positive performance, as after 
all, the Bank of Japan and the European 
Central Bank are still in fully fledged 
easing mode. 
However, fundamentals still suggest 
2015 will be a rocky road for fixed income 
as the Federal Reserve and the Bank of 
England commence normalizing policy in 
response to firming economic growth and 
dwindling spare capacity. Consequently, 
we forecast that longer-term rates will 
resume their rise, but will be kept in check 
by emerging market turmoil, geopolitical 
turbulence and equity market volatility. 
As an asset class, bonds tend to do well 
when the rest of the world is having a bad 
time, and the global investment landscape 
is contoured by a number of hazards that 
will be hard for investors to navigate. 
In terms of economic headwinds, 
China’s growth continues to slow, and 
the prospect of defaults is the elephant in 
the room when looking east. Geopolitical 
concerns are also reaching something 
close to boiling point in several places 
around the world and the impact of these 
on trade and energy are yet to be fully real-ized. 
We’re seeing a wait-and-see mentality 
from corporations with respect to potential 
disruptions to growth in Europe resulting 
from the Russian standoff. In response to 
deflation concerns, the ECB also seems 
to have fired the last shot with monetary 
policy, with sovereign quantitative easing 
likely to require drastic deterioration. Japan 
is facing the prospect of a consumption tax 
hike at a time when consumer spending 
remains sluggish. 
All of these stimuli could cause people 
to turn to treasuries as a safe haven and 
a stable source of income in the face of 
economic turbulence. In such an environ-ment, 
fixed income treasury securities will 
retain investor interest. 
As the prospects for global economic 
growth improve, fixed income markets will 
also keep a keen eye on the outlook for 
U.S. monetary policy following the recent 
end of the Fed’s balance sheet expan-sion 
and any subsequent normalization 
of policy. Investors know that while we are 
unlikely to see rate rises for some months, 
any additional QE will face a very high 
hurdle to be restarted. 
This is made all the more likely as vari-ous 
indicators suggest that benign inflation 
may not be with us for much longer, which 
will force policymakers out of easy money 
policies and could hurt economic growth 
prospects and risk assets. With global eco-nomic 
growth bumping along the bottom, 
a 10 percent correction in equity markets 
should not be seen as unlikely, as equity 
market volatility increases around inflection 
points in the Fed’s monetary policy. 
Despite the risks, however, there is 
some cause for optimism. The global eco-nomic 
recovery is showing signs of broad-ening, 
with global growth expected to reach 
2.5 percent in 2014, and 2.9 percent in 
2015. The BOJ governor Haruhiko Kuroda 
has reiterated that stimulus plans remain 
on track and that the central bank can 
seek to counteract the impact of the sales 
tax hike yet further if needed. The ECB has 
committed to balance sheet expansion as 
needed to avoid a deflationary outcome 
in Europe. Equity valuations remain in line 
with 25-year averages, and dividend yields 
remain supportive in the current very low 
interest rate environment. In our view, Fed 
policy will remain highly accommodative 
even with the proposed reduction in stimu-lus, 
and we are seeing signs of moderate 
growth in China, though growth in broader 
emerging markets remains weak. 
Signia Wealth currently holds a neutral 
position in equities and runs a regionally 
neutral strategy. Our focus in the equity 
space is generating alpha through man-ager 
selection, direct equities and sector 
selection. We are underweight in fixed 
income securities and the duration on 
our fixed income portfolio is shorter than 
the benchmark. 
It’s true that emerging market debt 
valuations look attractive, but the downside 
risks remain. Relatively low nominal yields 
on high yield and emerging market debt 
don’t currently offer sufficient compensa-tion 
for potential defaults if interest rates 
were to move towards normalisation, so 
at Signia Wealth we are currently under-weight 
in these areas. 
To find an alternative to the diminishing 
returns available on fixed income securi-ties, 
we have increased hedge fund expo-sure. 
In the current climate, they provide us 
with an asset with low volatility and stable 
returns, and the funds that meet these cri-teria 
are becoming a more significant part 
of our strategic focus at Signia Wealth. 
Across Signia Wealth, a number of our 
clients’ investment strategies have seen 
their hedge fund exposure increased by 
about 10 percent, with the focus being 
largely nondirectional, using specialist 
strategies such as merger arbitrage and 
equity long-short. In particular, we’ve 
increased allocations to market neutral 
and relative value hedge funds that help us 
limit portfolio directionality and protect port-folios 
against the “shock” of rising yields 
and greater volatility. 
Signia Wealth is a wealth-management 
boutique specializing in strategic wealth 
management for individuals, families and trusts. 
<GO> 
BTCA Transaction Cost Analysis >fo>r> F>i>x>e>d Income 
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December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 15 
INVESTMENT HORIZONS 
How Family Offices Differ From Other Institutional Investors 
Martin Graham, chair-man 
of Oracle Capital 
Group, speaks to 
Bloomberg's Darshini 
Shah about how family 
offices tend to be more 
flexible than institutional 
investors when it comes 
to investment horizons, 
which can be helpful in 
the pursuit of attractive returns. 
Q: Do investment horizons or returns 
matter to family offices? 
A: Family wealth is known for drying up 
over three generations. So, returns matter. 
Refreshingly, for those accustomed to the 
city’s obsession with short-term reporting, 
family offices are more focused on long-term 
value generation and wealth preser-vation. 
Many wealthy individuals remain 
skeptical about the prospects for large 
scale growth and very few family offices 
are looking for capital growth, as opposed 
to capital preservation. Our clients would 
rate investment returns in their top five 
priorities, but not usually as number one. 
This means clients tend to be happy to 
lock money up on a medium- to long-term 
basis, but they need enough cash to live 
on and this must be taken into account by 
their advisers. 
Q: How does this differ from institu-tional 
investors, e.g. pension funds? 
A: Family offices tend to be more flexible 
in what they’ll consider than institutional 
investors, which can be helpful in the 
pursuit of attractive returns. A family 
knows it’s got the responsibility to not 
just preserve the wealth, but also to take 
care of the next generation. So, families 
are very happy to be in three- to five-year 
projects. They’re almost custodians of 
assets. Generally, families are very happy 
to look over their portfolio once a year. 
Pension funds on the other hand look at 
quarterly performance figures. So these 
sort of institutions have a different, more 
short-term type of thinking. 
Q: So what would a typical portfolio for 
a family look like? 
Average Investment Horizon of a Family Office Portfolio 
100 
90 
80 
70 
60 
50 
40 
30 
20 
10 
0 
Europe North America Asia-Pacific Developing 
Economies 
>10 years 
6-10 years 
3-5 years 
<3 years 
Source: Global Family Office Report 2014 
A: Many of our clients tend to be self-made 
entrepreneurs and have made their 
money in a particular sector or country. 
So, they tend to want to diversify their 
wealth globally. They are very cautious 
about preserving the money they’ve made. 
They’re also looking for absolute returns 
rather than relative returns. For those who 
are focused on capital growth the choice 
is obvious — the main asset classes pro-viding 
long-term capital appreciation are 
equity, real estate and high yield bonds. 
Those asset classes performed well, 
particularly in developed markets, until 
recently. Family offices had to invest in 
these areas if they were interested in posi-tive 
real returns. Now the focus is shifting 
ever more towards emerging markets. 
So, what we see in most portfolios 
would be 80 percent of assets in public 
fixed income and equities, utilizing options 
to manage some of the risk around that. 
They’re looking for fairly safe returns and 
so the kind of equities we will invest in 
will be those with established franchises, 
good growth, strong balance sheets. 
Families are also looking for things with 
quite a high level of income to finance 
their lives. So they’ll use corporate bonds 
for the income. 
Q: What about the remainder of 
the portfolio? 
A: About 10 to 20 percent of the portfolio 
will be in alternative investments. These 
will be things like co-investments and 
private equity funds. We even have a wine 
fund that some clients invest in. 
Q: What do you mean by 
co-investments? 
A: For example, we have some property 
development projects we do and our 
clients invest in those projects. Our clients 
are very happy to re-invest some of the 
money, often in the industry they initially 
made their money in — they like to keep 
some skin in the game. They’ll invest in a 
sector where they’ve got deep knowledge. 
Q: But investment portfolios are not 
the only way to realize meaningful 
returns on assets. 
A: No. Careful wealth structuring can 
itself lead to significant savings and tax 
efficiencies as well as helping to preserve, 
distribute and pass on wealth. Another 
secure option clients may opt for is the 
use of trusts or foundations in order to 
provide maximum protection for the 
assets involved. 
Index | Previous | Next
Alternative 
Investments
December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 17 
PRIVATE EQUITY 
Family Offices Join Forces to Make Direct Investments 
BY MARGARET COLLINS 
Katie Kalvoda’s interest was piqued 
when the 40-year-old money manager for 
a group of ultra-wealthy families heard 
about a startup urban farm that grows 
produce in vertical greenhouses. 
Kalvoda knew early-stage investments 
in private companies can be risky. She 
eventually took a stake in the venture this 
year with some reassurance. The chief 
investment officer at Newport Wealth 
Management in Newport Beach, Cali-fornia, 
joined a handful of fellow family 
offices in an alliance that gave them more 
muscle to get a better price, expanded 
access to research and broader expertise 
to track the investment. 
“We don’t have this wall of secrecy that 
we had at one time,” said Kalvoda, who 
previously worked at fund-of-hedge- funds 
Collins Associates Inc. and Citigroup 
Inc. “We’re a block of investors working 
together with more scale.” 
The deal illustrates a recent trend among 
family offices to team up with like-minded 
peers for direct investments in companies. 
They’re trading in some of their traditional 
secrecy, pooling assets and knowledge to 
make venture capital and private-equity 
deals much like buyout firms do in so-called 
club deals, while circumventing the 
fees charged by those firms. 
Sometimes, the companies they back 
are local business seeking to make a 
difference in the community, other times 
they’re purely financial investments. 
It’s a departure from how family offices 
traditionally invested outside the public 
markets, which was by committing capital 
to intermediary fund managers who 
picked the opportunities, set the terms 
of a purchase or sale and oversaw the 
progress. Such third-party firms usually 
charge management fees of 1.5 percent to 
2 percent, keep 20 percent of profits and 
require lockups of committed money for 
as long as 10 years. 
“This is a relatively new phenomenon,” 
Raffi Amit, a professor of entrepreneurship 
at the University of Pennsylvania, said of 
families that collaborate in direct deals. 
“The jury is still out on whether this will lead 
to higher returns on investment capital.” 
Single-family offices in the U.S. hold 
about $1.2 trillion in assets and multi- 
Average Allocations by SFOs to Select Investment Types (%) 
14 
12 
10 
8 
6 
4 
2 
0 
2009 
2011 
Direct Investments Real Estate Private Equity Hedge Funds 
Source: 2012 Wharton Global Family Alliance study 
family ones manage about $500 billion, 
according to Bob Casey, senior managing 
director for research at consulting firm 
Family Wealth Alliance. 
Many made their money by building 
their own businesses and are big enough 
to operate like a pension fund or endow-ment, 
with a staff to pick investments. 
Family offices also typically provide 
additional services including accounting, 
estate planning and concierge products. 
There’s little data available yet on the 
investment returns of these collaborative 
deals by family offices, said Amit, who 
is chairman of the university’s Wharton 
Global Family Alliance, which researches 
family-wealth management. Families 
usually don’t publicize their stakes or 
performance. 
According to a 2012 Wharton study of 
about 100 single- family offices, about 16 
percent said they had 10-year returns, net 
of taxes and fees, of more than 10 percent 
annually. About 18 percent of respondents 
had returns between 7 percent and 9 
percent. Among the group surveyed, 42 
percent didn’t answer questions about 
their performance, the data showed. The 
Standard & Poor’s 500 Index of stocks 
gained 2.9 percent annually while the 
Barclays U.S. Aggregate bond index saw 
annualized returns of 5.8 percent. 
The appeal of investing together or 
forming a partnership to take a stake 
is that fees are lower and families can 
better understand the business they 
invest in, Casey of the Family Wealth 
Alliance said. Family offices involved will 
divide the due diligence by interest and 
expertise to increase efficiency and maxi-mize 
their resources. 
“Since the financial crisis there’s been 
a question about whether the value-add 
from an intermediary fund is worth the 
cost,” said Ashby Monk, executive director 
of the Global Projects Center at Stanford 
University, which studies the movement 
of financial assets globally. “For these big 
families there was this perception that they 
were often getting screwed by Wall Street.” 
Kalvoda, whose firm serves as the 
investment office for a group of related 
family members, can rattle off the details 
of the San Diego farming company 
including how its vertical- greenhouse 
technology isn’t dependent on soil, how 
it offers Californians local food they love 
like cilantro, and how it creates jobs in the 
community and benefits the environment. 
For this investment, two family offices 
analyzed the marketplace and the busi-ness 
model, while a third office deter-mined 
the fair value of the company. 
Continued on next page… 
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December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 18 
Kalvoda’s firm did a background check 
on the start-up’s managers even though 
some of families knew the entrepreneurs 
personally, she said. Kalvoda declined to 
name the startup or her co-investors. The 
families she invests with usually have at 
least $500 million in assets, she said. 
Since May, Kalvoda said she's been 
approached by a billion-dollar corporate 
pension plan, a Fortune 500 family and 
an investment consulting firm to co-invest 
with her family office group as the trend 
gains momentum. 
Ward McNally, whose family founded 
mapmaker Rand McNally, has been 
advising family offices on joint invest-ments 
as managing partner of Chicago-based 
McNally Capital, which serves as 
a merchant bank to family offices. One 
of the biggest challenges is reviewing 
enough deals to find an attractive one, 
said McNally, whose firm in 2010 helped 
12 family offices create an alliance called 
the Cleantech Syndicate with $1.2 billion 
to invest in clean-energy companies. 
About 22 percent of family offices 
had three or more people in their office 
tasked with the sourcing, screening, 
monitoring and exiting of direct invest-ments 
in 2010, according to a survey 
by McNally’s firm. That percentage has 
almost doubled as of this year to 35 
percent, said McNally. 
Even with added staff dedicated to 
direct deals, families are finding alliances 
valuable — especially to locate invest-ments 
globally. SandAire, a multi-family 
office that manages about 3.5 billion 
pounds ($5.6 billion), formed the Wig-more 
Association with other family offices 
in 2011 to share research. The eight 
members are based in the U.S., Brazil, 
Germany, Canada, Australia, the United 
Kingdom and Mexico. 
Some Wigmore members joined last 
year on two deals in private companies in 
"With like-minded and friendly 
investors along for the ride, 
you can leverage each other’s 
strengths. When it comes to 
negotiating, you ultimately 
carry a bigger stick." 
— Katie Kalvoda, Newport Wealth Management 
the U.S. and U.K. investing more than $20 
million combined. Due diligence was first 
done by the family based in the region 
of the investment opportunity and then 
each member interested does follow-up 
research themselves, said Marc Hen-driks, 
chief investment officer at London-based 
SandAire. The investments are in 
early-stage businesses in the technology 
industry or startups based on a new pat-ents, 
said Hendriks, who declined to give 
the companies’ names. 
“We are strong believers in investing in 
pre-IPO companies,” said Hendriks, who 
was previously chief economist at firms 
including Societe Generale and Swiss 
Bank Corp. 
The challenges of direct deals don’t 
end with due diligence, said Stephen 
McCarthy, who helps manage his family’s 
investments as senior vice president of 
New York-based KCG Capital Advisors. 
Families also must come up with a plan 
for management post-investing and 
appoint a leader because many of the 
investments may not see profits or an 
initial public offering for years. 
Families participating in direct invest-ments 
generally haven’t abandoned 
funds altogether. They usually allocate 12 
percent to 14 percent of their portfolio to 
them, according to data compiled by the 
Family Office Exchange, a network of pri-vate 
families with an average of $450 mil-lion 
in investable assets. They also have 
10 percent to 12 percent of their assets in 
private equity funds and the same propor-tion 
in real estate. 
Kalvoda said families should consider 
setting up a separate entity for these 
co-investments as she did to make 
sure their entire family offices aren’t 
forced to register as investment advis-ers 
and therefore reveal financial details. 
The registration requirement stems 
from the Dodd-Frank Act of 2010 and 
exempts family offices that are owned 
and controlled by family members, don’t 
advertise or provide investment advice to 
nonfamily investors. 
The added effort to do direct invest-ments 
is worth it because of the ability 
to create scale and tap into each other’s 
expertise, Kalvoda said. 
“With like-minded and friendly inves-tors 
along for the ride, you can leverage 
each other’s strengths,” she said. “When it 
comes to negotiating, you ultimately carry 
a bigger stick.” 
PRIVATE EQUITY… 
Continued from previous page 
private equity 
Fundraising trends, expert 
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December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 19 
PRIVATE EQUITY AND VENTURE CAPITAL 
World’s Rich Bullish on U.S. as Family Offices Open Outposts 
BY MARGARET COLLINS 
As the U.S. powers the global economic 
expansion in its fifth year, the world’s rich 
are counting on American companies to 
help increase their fortunes. 
At least a dozen family offices, with 
fortunes made in Europe, Asia and South 
America, have opened U.S. outposts in the 
past two years or are making direct invest-ments 
in corporations from Silicon Valley 
to the East Coast. Their view is that the 
Federal Reserve’s aggressive monetary 
easing, a shale oil boom that’s lowered 
energy costs, and improving corporate 
balance sheets give the world’s largest 
economy an edge over other regions. 
Peca Ltd., a London-based firm 
started in the 1990s by a family that made 
its wealth mainly in financial services, has 
made about two-thirds of its private-equity 
and venture capital investments in the U.S. 
while reducing investments in Europe, 
said Anselm Adams, who oversees the 
firm’s alternative investments. A German 
family that founded an automotive com-pany 
opened an investment office in New 
York this year to find deals in the automo-bile, 
textile or luxury industries, according 
to a person familiar with the matter. 
“They are looking for diversification 
and more exposure to the U.S.,” Patrick 
McCloskey, managing partner at Aeterna 
Capital Partners, said of the firms. “Many 
family groups are trying to manufacture 
yield in a very low-interest-rate environ-ment 
and are looking for unique and 
customized ways to do so.” 
McCloskey’s firm last year opened a 
New York office for a rich European family 
looking for deals in the U.S. In September, 
he helped his client finance a video-distribution 
company with a loan that pays 
the London interbank offered rate plus as 
much as 11 percent. 
Family offices manage $4 trillion in 
assets globally, about 55 percent of which 
is based outside of North America, accord-ing 
to a 2014 study by London-based 
researcher Campden Wealth. Affluence 
has grown fastest since 2013 in the U.K., 
Korea and Denmark, according to a report 
this month by Credit Suisse Group AG. 
The U.S. is “a big bright spot in the 
world,” said Stephen Cecchetti, professor 
of international economics at Brandeis 
Average Family Office AUM and Total Family Net Worth 
1,600 
1,400 
1,200 
1,000 
800 
600 
400 
200 
- 
Assets Under Management 
($M) 
Total Family Net Worth ($M) 
Global Europe North America Asia-Pacific Developing 
Economies 
Source: The Global Family Office Report 2014 
International Business School in Waltham, 
Massachusetts. As the Fed winds down 
unprecedented stimulus, the European 
Central Bank is contemplating its own 
quantitative-easing program to tackle the 
weakest inflation in five years, and Japan 
is continuing purchases. 
Peca has been attracted to venture-capital 
deals in the U.S., said Adams, who 
declined to name the family he works for, 
citing privacy reasons. The firm has taken 
stakes this year in The Bouqs Co., an 
online flower-delivery business, and Circa, a 
mobile news service, Adams said. Both are 
closely held companies based in California. 
The family office generally invests $1 
million to $3 million, working alongside 
private-equity firms rather than through 
funds because it pays no fees or carried 
interest on co-investments. 
“One of the things we’ve been very 
active in, in the last two years, is the 
venture capital scene,” Adams said in an 
interview via Skype. 
McCloskey’s firm usually seeks equity 
and lending transactions in companies 
with enterprise values of $5 million to $100 
million, he said, declining to name the 
family sponsoring him for privacy reasons. 
Aeterna helped finance RLJ Entertain-ment 
Inc., a Silver Spring, Maryland-based 
video content distributor founded 
by Robert L. Johnson, because it liked the 
business, management and risk-reward 
profile, McCloskey said. Four other lend-ers 
were involved in the $70 million deal, 
according to an RLJ filing. 
“There’s so much cash on the sidelines 
ready to be put to work by families that 
took money out in the financial crisis or 
that have operating businesses generat-ing 
a lot of income that they haven’t put 
in the market yet,” said John Benevides, 
president of Chicago-based CTC myCFO 
LLC, which advises family offices and is 
a unit of the Bank of Montreal. “They are 
giving us a shopping list.” 
That capital has made finding bar-gains 
a challenge. Price multiples for U.S. 
private-equity deals are the highest since 
2007, and some transactions are being 
done with less leverage as more equity 
is being contributed to the average deal, 
said Andrew Lee, head of alternative 
investments for the chief investment office 
at UBS AG’s wealth-management unit, 
which oversees $1 trillion. Those factors 
may make it harder to see returns as 
attractive as in the recent past, he said. 
“We’re more cautious on allocating 
aggressively to U.S.-focused private-equity 
opportunities,” Lee said. “On a 
one-off basis there may be situations that 
may make sense.” 
Valuations have also risen in U.S. 
Continued on next page… 
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December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 20 
venture-capital deals, particularly for later-stage 
companies, Lee said. 
One area where family offices find 
opportunities are private companies look-ing 
for a new, private owner, said Francois 
de Visscher, whose Greenwich, Connecti-cut- 
based firm advises single family offices 
and family-owned businesses. 
Every day, about 10,000 Americans 
born between 1946 and 1964 reach retire-ment 
age. Many of them have built busi-nesses, 
don’t have an heir to take over 
and want to sell, said Robert Elliott, vice 
chairman at Market Street Trust Co., a 
multi-family office established to manage 
the wealth of the Houghtons, founders of 
glassmaker Corning Inc. 
The U.S. is “a good hunting ground, 
particularly with this generational shift,” 
Elliott said in an interview. 
“Some wealthy families from countries 
like Colombia, Chile and Belgium have 
even established single-family offices in 
the U.S. with the intent of accelerating 
their American direct investment activities,” 
said de Visscher. 
More than 40 percent of the 330 
members in the Family Office Exchange 
are buying at least one private company a 
year, said Sara Hamilton, founder of the 
Chicago-based group. 
The deals are part of a larger trend 
among family offices to find investments 
themselves. The number of family offices 
seeking equity stakes or lending oppor-tunities 
directly grew 45 percent this year 
at Axial, an online network that connects 
companies to capital, said Peter Leh-rman, 
the New York-based firm’s CEO. 
“We get at least one call a month from 
a family company that is ready to sell and 
wants to sell to another like-minded family 
instead of a private-equity firm,” said Ham-ilton, 
whose group is a network of private 
families around the world with an average 
of $450 million in investable assets. 
The New York firm that’s been investing 
money for the German automotive family 
was in talks earlier this year to buy a 
family-owned business based in Califor-nia, 
said the person familiar. The family is 
looking for public or private companies in 
the automobile, textile or luxury industries 
with enterprise values between $250 mil-lion 
and $300 million. The transaction fell 
through, the person said, because of the 
seller’s lack of speed in closing the deal. 
“It doesn’t come without risks,” Aeterna’s 
McCloskey said of international invest-ments. 
“It’s easier said than done.” 
PRIVATE EQUITY AND VENTURE CAPITAL… 
Continued from previous page 
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December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 21 
HEDGE FUNDS 
Marcuard Heritage to Maintain a 'High Allocation' to Credit Managers 
Hansjoerg Borutta, group 
executive committee 
member of wealth man-ager 
Marcuard Heritage, 
discusses why he has 
a "strong" preference for 
credit, globally-focused 
long-short, and event-driven 
managers. 
There is a growing uncertainty about the 
real state of the global economy and the 
development of their asset values. There 
is no doubt that the global economy is 
weak despite the pursued zero interest 
rate policy by many central banks. Inves-tors 
and consumers alike increasingly 
have the impression that the transmission 
mechanism in the developed economies 
is broken. Additionally, geopolitical risks 
have started to trouble minds as well. 
Given the fragility of the global econ-omy, 
we are confident that the U.S. inter-est 
rates will remain low for longer. As the 
corporate balance sheets are strong and 
default rates low, we continue to like credit 
and loans to yield-enhanced cash flows. 
We are aware that leverage in balance 
sheets has slightly increased, notably in 
the U.S., but the interest coverage ratio is 
reassuringly high. Based on this assess-ment, 
we aim to benefit from still-inter-esting 
spreads in the credit space, while 
paying attention to duration risk. 
We remain positive that the U.S. 
economy will continue to grow at a 
moderate pace over the next few quarters 
and believe that the rest of the devel-oped 
world will muddle through with little 
support from emerging markets. We do 
not foresee a strong beta market in the 
coming quarters. Therefore, Marcuard 
Heritage continues to prefer exposure in 
equity long-short managers with a prefer-ence 
for managers who will have shown 
stock selection skills. We expect also that 
corporate action will increase as compa-nies, 
notably those in Europe, will need to 
reshape their businesses. 
For a typical asset allocation, this 
translates into a strong preference for credit 
managers, long-short managers with a 
global focus, event-driven managers and, to 
a lesser extent, macro managers. 
As a result, a model portfolio will main-tain 
a high allocation to credit managers 
with exposures to U.S. dollar, euro and 
British pound credits and loans. In fact, 
we overweight European loans as their 
spread levels are more attractive when 
compared with the respective U.S. loans. 
Alongside long-only exposures to short-term, 
lower volatility, high-yield debt and 
investments with managers who focus on 
senior secured loans, Marcuard Heritage 
also invests in funds that utilize long-short 
credit, event-driven and capital-structure-arbitrage 
strategies regarding U.S. and 
European companies. The beauty of 
the latter is that these funds can quickly 
adjust their net exposures dependent on 
the prevailing market environment as the 
managers trade actively. 
In addition, we keep our exposure to 
emerging market debt in hard currency 
which — as an exception to our general 
view — has longer duration risk as higher 
yield levels (i.e. above 5 percent) should 
compensate for the risk we take. 
Secondly, we prefer equity long-short 
and event-driven managers over straight 
beta long-only equity managers, whose 
allocation in the model portfolios are 
minor. We prefer the versatility of active 
hedge fund managers in this current 
environment of increased volatility. The 
chosen long-short managers run with 
positive net-long exposures, i.e. we have 
not selected a market neutral equity 
manager for the time being. In addition, at 
least some managers are willing to run 
their books with a pronounced long bias 
when deemed appropriate. We decided to 
utilize the experience of seasoned Asian 
fund selectors to cover our need for Asian 
equity exposure. 
The event-driven funds focus primarily 
on mergers and acquisitions and special 
situation equities. They have typically a 
lower correlation to broad equity markets. 
The geographical focus is also the U.S. 
and Europe. If Europe should finally wit-ness 
a stronger wave of corporate actions 
with respect to mergers and restructuring, 
we will be ready to deploy an additional 
special situations fund. 
Macro exposure via a discretionary 
global macro fund allows us to better face 
sudden shifts in the markets which we 
witnessed over the last quarters, as we 
assume that the markets will still undergo 
further adjustments in the relative asset 
pricing. Obviously, this investment capital-izes 
on fundamental trends in currencies, 
interest rates, credit and equity markets in 
both developed and emerging markets. 
We currently still refrain from adding 
CTAs or similar quantitative strategies. We 
are still cautious that the massive price 
distortions inflicted by the zero interest rate 
policies of central banks may continue to 
hamper their price signal algorithms. Having 
said that, we have also noted that perfor-mances 
of managed futures recently started 
to recover as market volatility increased. 
Likewise, we do not allocate to commod-ity- 
related funds as sluggish global growth 
and secular excess supply tend to hamper 
any price advances. 
With the current allocation, we are confi-dent 
to achieve our goals for our customers 
with rather conservative risk profiles, i.e. 
to continue to provide positive compound 
return while managing the downside risk. 
Marcuard Heritage is a globally operating 
wealth manager offering discretionary portfolio 
management and wealth planning to high-net-worth 
clients. All the funds proposed for the 
model portfolios go through a stringent due 
diligence process with equal emphasis on the 
investment content and on the fund manager’s 
risk management setup at all levels. Once 
approved, the funds will be constantly monitored. 
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December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 22 
WINE 
Taylor Wessing's Gauterin Says Wine 'Attractive' From a Tax Point of View 
Tom Gauterin, senior as-sociate 
in the private client 
practice at international 
law firm Taylor Wessing, 
says wine can represent 
an investing opportunity 
for those with a little knowl-edge 
and enthusiasm. 
In 1982, Robert Parker published his 
assessment of that year's Bordeaux 
vintage in his Wine Advocate magazine. 
Contrary to prevailing opinion, Parker 
claimed that 1982 was a stellar year — 
and, as he was proved spectacularly 
right, made his name as a result. Of more 
significance was that his 100-point scor-ing 
system became widely recognized 
and, after years of esoteric, confusing 
and sometimes downright peculiar tasting 
notes, made it possible for wines to be 
compared with a simple number. 
A key side effect of attaching numbers 
to wine was that, almost immediately, 
wine became much easier to trade. Thirty 
years on, the sophistication of today's 
fine wine market has surely exceeded 
anything that Parker — or indeed anyone 
else — could have foreseen. 
This has particularly been the case with 
Bordeaux, partly a product of the 'Parker 
Effect' and partly because the various 
chateaux produce enough wine to generate 
meaningful secondary trading. Fine wine 
even has its own market, the LivEx Fine 
Wine 100. In recent years, a number of spe-cialist 
wine funds have been established. 
Following ever-greater interest from 
China, and with two superb Bordeaux vin-tages 
in 2009 and 2010, the index peaked 
at 365 in June 2011. However, after poor 
growing conditions leading to less attrac-tive 
wines in 2011 and 2012, the LivEx has 
plunged about 35 percent and is currently 
trading at the 237 mark. 
Confidence in the secondary market 
also took a knock, with the revelations 
at the New York trial of Rudy Kurniawan, 
recently convicted of selling counterfeit 
wine valued at millions of dollars. Savvy 
collectors had paid significant sums to 
buy from Kurniawan's collection, and 
the industry was shocked to find that the 
bottles of such legends as Mouton-Roth-schild 
1945 and Petrus and Cheval Blanc 
1947 were, in fact, a cocktail of other less 
exalted wines. Caveat emptor indeed. 
While claims that a holding in fine wine 
is an essential part of any self-respecting 
investor's portfolio can be taken with a 
pinch of salt, wine nevertheless repre-sents 
an opportunity for those with a 
little knowledge and enthusiasm. For the 
wine-lover who can afford to ride out the 
ups and downs (and who might be willing 
to drink up if they incur a loss!), an invest-ment 
in wine is in fact very attractive from 
a tax point of view. 
Fine wine is usually purchased "in 
bond" i.e. retained in HM Revenue & 
Customs-approved warehouses rather 
than delivered direct to buyers. No excise 
duty (2.04 pounds, or $3.30, on a bottle 
of table wine) or value-added tax (paid on 
the wine and the excise duty) are payable 
until final delivery. So, if wine is sold while 
it remains in bond, then neither excise 
duty nor VAT is ever paid by the seller. 
Even if in bond, though, wine still forms 
part of a person's estate for inheritance 
tax purposes. A wine costing 40 pounds 
in bond would incur total tax of 10.45 
pounds on withdrawal, an effective cost of 
more than 25 percent. This saving is thus 
clearly worth securing. 
Most wine is likely to be exempt from 
capital gains tax on any increase in its 
value. CGT is not charged on wasting 
assets which, for tax purposes, means 
anything with a 'useful life' of less than 
50 years. This is calculated from the point 
at which it is first owned by the seller; so 
a mature Bordeaux (1970, say) bought 
today would be unlikely to last another 
50 years. If one were to buy a top wine 
from a great recent vintage then it prob-ably 
would have a useful life of at least 
50 years, in which case any growth in its 
value could be subject to CGT on sale. 
Even then, there are exemptions avail-able 
before any CGT becomes payable. 
If one bottle of wine is sold for less than 
6,000 pounds, no CGT is due. 
Since there are very few that will 
change hands for anything like that sum 
(most of which will be rare red burgundies 
made in miniscule quantities), single 
bottles can usually be sold tax-free. 
Several bottles sold to the same 
individual may, on the other hand, be 
treated as a set and assessed on their 
collective value if they are "similar and 
complementary" i.e. from the same vine-yard 
and made in the same vintage. Fine 
wine tends to be sold by the case, so for 
some prestigious wines, the 6,000-pound 
threshold may easily be exceeded. A 
12-bottle case of any of the most famous 
wines of Bordeaux, Burgundy and Califor-nia 
(think of Screaming Eagle, a collec-tor's 
item that generally changes hands 
for 2,000 pounds a bottle) would normally 
sell for at least this sum, certainly in a 
good vintage. Collectors tend to prefer to 
buy wine by the case since that tends to 
indicate better storage, and so the pre-mium 
price it attracts could outweigh any 
tax disadvantage. Even if a taxable gain 
is realized, each person has an annual 
exemption of 11,000 pounds to use before 
any CGT is payable. A canny seller could 
therefore spread his really valuable sales 
over a few years if necessary. 
Things become less certain when work-ing 
out how to tell if your wine (bonded or 
not, individual or case) actually will last 50 
years, depending on: 
■■ The type of wine (sweet and fortified 
wines last longer; drinkable Sauternes from 
1811 can occasionally be found at tastings); 
■■ The quality of the vintage (there is 
plenty of Rioja still going strong from as 
long ago as 1925); and 
■■ The quality of the wine itself (anyone 
fortunate enough to taste Hermitage La 
Chapelle 1961 will quickly realize that it 
may very well outlive them). 
HMRC's view is that a wine "is not a 
wasting asset if it appears to be fine wine, 
which not unusually is kept (or some 
samples of which are kept) for substantial 
periods sometimes well in excess of 50 
years". Sometimes this will be obvious but, 
in any case where there is room for doubt, 
it would be wise to seek specialist advice 
from a reputable wine merchant. 
Taylor Wessing is an international law firm, offering 
legal services to individuals, families and family 
offices who require multijurisdictional advice 
on personal wealth structures, international tax 
planning, commercial and real estate invest-ments, 
reputation management and immigration. 
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December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 23 
PROPERTY 
U.S. Commercial Real Estate Property Revival Gets Boost from Overseas Investors 
The rebirth in U.S. real 
estate is being fueled by 
overseas investors such 
as pension funds, insur-ers 
and wealthy families 
looking for an inflation 
hedge and drawn by de-mographic 
trends that are 
expected to stoke demand 
for multifamily housing, says Tim Ng, manag-ing 
director and head of research at Clearbrook 
Global Advisors. Some of the deals are novel 
transactions that involve leasing the land under 
a building to insurers. Buyers of commercial 
properties are looking beyond gateway cities, 
Ng tells Bloomberg’s Aleksandrs Rozens. 
Q: In your work with family offices, are 
you seeing more investors from over-seas 
buying New York City property? 
What’s drawing them? 
A: The investors are sovereign wealth 
funds, corporate pension funds and high-net- 
worth families. In Asia, family offices 
would be the families behind the conglom-erates 
such as industrial 
and technology companies 
in Korea. They are looking 
at commercial buildings. 
They are looking at both the 
typical commercial building 
you will find in a gateway 
city — Los Angeles, San 
Francisco, Boston, New 
York, Washington, D.C. — or 
multifamily, apartment-type 
buildings because of inter-esting 
demographics we are 
"Investors are seeing this wall coming and that is 
rising interest rates. Instead of taking a hit with 
rising interest rates, they are looking at real estate 
as a bond surrogate, particularly where they can 
get cash flow or an interest payment like a bond. 
beginning to see. 
There is not a lot of office 
space that is coming online. 
It is projected over the next 
two or three years that the 
overall growth in supply 
in the commercial office market is only 
going to be around one percent. In the 
early 2000s, 40 percent of first-time home 
buyers were buying single-family homes 
in the suburbs. Now with the increase in 
the cost of single-family homes, higher 
unemployment rates, all of the kids out of 
school saddled with student debt, that 40 
percent has dropped to 27 percent. Those 
are the dynamics driving the multifamily 
and the commercial marketplace. 
Investors are buying because the 
market technicals are positive in terms of 
occupancy, consistency of cash flow and 
eventual price appreciation. Investors are 
seeing this wall coming and that is rising 
interest rates. Instead of taking a hit with 
rising interest rates, they are looking at 
real estate as a bond surrogate, particu-larly 
where they can get cash flow or an 
interest payment like a bond. They see it 
as an inflation hedge. They firmly believe 
that interest rates will be rising here in the 
U.S. versus other countries and therefore 
the dollar will be much stronger than their 
own home country currencies. 
Q: Are they interested only in Manhat-tan? 
What other boroughs and cities 
are they looking at? 
A: Manhattan is what they understand. 
We once asked that question and they 
said ‘I fly into JFK, I take a taxi and I 
stay in Manhattan. I won’t take a train or 
subway to Queens or the Bronx. I under-stand 
Manhattan.’ They feel it is a very 
stable area. Boston, Washington. They are 
looking at San Francisco. They are begin-ning 
to branch out into other cities they 
would consider major cities and/or growth 
cities such as Chicago, Austin, Texas. 
Q: Investment in the properties — does 
it come in the form of purchasing a 
hard asset, or does it take the form of 
buying securities backed by commer-cial 
real estate debt? Or is it something 
else, like construction financing? 
A: They will not do construction financ-ing. 
What they really want and care about 
more so than anything else is the ability 
to extract the cash flow. They want the 
coupon element. If they have the ability, 
they can get a combination of an equity-like 
return on a portion of their investment, 
plus the coupon. It is an established 
building they care about. They care about 
the rent roll and they care about the loan 
to value so that the underlying transaction 
when they do buy a building has enough 
cash flow to effectively cover the interest 
cost of the financing. Their rule of thumb 
is 1.3 times in terms of cash flow versus 
what the interest cost would be. 
Q: Have we had all-cash deals? 
A: Yes. The transactions we are looking 
at — one in the Washington D.C. area and 
a second one that we’re in the process 
of getting agreements for — are all cash. 
Now what does that mean? All cash 
means that the investors themselves are 
providing the capital for the 
purchase of the building. 
There is no bank financing 
whatsoever. 
Q: Do you expect more 
banks to sell off their 
buildings and physical 
properties in response to 
changes in the regulatory 
environment? Will these 
be mostly in the form of 
lease-backed deals? 
A: A number of banks and 
financial institutions are 
under tremendous pressure 
from regulators to lower the 
overall risk on their balance 
sheets and are raising tier 
one and tier two capital. So, what is an 
easy way for them to do so? It is to look 
at all of the real estate they own around 
the country and have selected buildings 
they can sell and take off of their bal-ance 
sheets. What the buyers like is that 
the bank has owned the building for two 
decades; they want to make sure the bank 
is still the main tenant and they may hire 
them as a property manager to manage 
the building as well. 
They see it as an inflation hedge." 
— Tim Ng, Clearbrook Global Advisors 
Index | Previous | Next
December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 24 
PROPERTY 
Elaine Dobson, head of residential prop-erty, 
and Paul Lawrence, partner in the real 
estate team, at Taylor Wessing, speak to 
Bloomberg’s Darshini Shah about why family 
offices are still being drawn to London’s prop-erty 
market and how hotels are moving from 
a “purchase” to an “investment.” 
Q: Are family offices interested in 
buying property in London? 
A: Interest in prime London residential 
property has remained constantly high 
over the last 12 months. We are also 
seeing a prevailing trend on the commer-cial 
side, with several new high-net-worth 
investors looking to enter this market. 
London continues to remain the city of 
choice for international investors on the 
lookout for prime commercial, residen-tial 
and mixed use assets. This trend is 
reflected in recent research by CBRE, 
which attributed 72 percent of all invest-ment 
in central London office space over 
the last quarter to overseas investors. We 
regularly see investment coming into the 
capital from across the globe, with prime 
assets being purchased by Asian, Middle 
Eastern and North American buyers. 
Q: What is drawing them to London? 
A: Global geopolitical risk is on the 
increase and high-net-worth individuals 
wish to place their assets and families 
in safe jurisdictions. London is a lead-ing 
global city — financially, culturally 
and socially — and the U.K. benefits 
from a stable political landscape along 
with a world renowned legal system and 
transparent tax codes. Unlike some of our 
European competitors, there is no tradi-tion 
of introducing retrospective legislation 
to increase the overall tax burden. 
Q: Is the demand in residential? 
A: We are now seeing investment being 
spread from the purchase of high-end 
residential properties for personal use, 
to value add opportunities. Investors are 
seeking retail, office, hotel and residential 
development opportunities where capital 
growth is predicted over a three- to five-year 
period. 
When it comes to investment strat-egies, 
global investors differ in their 
thinking. Middle Eastern investors are 
relatively unique in that once they have 
acquired a property they tend to hold 
onto it for many years and generations. 
The Far East and China markets are not 
yet in the same league as the Middle 
East or Russian markets, and have yet 
to embrace the concept of a family office 
and/or structuring. There is though still a 
significant appetite for commercial real 
estate from these markets — whether 
due to portfolio diversification or in some 
cases political instability. 
Q: You mentioned investments in 
hotels — Why this particular type 
of asset? 
A: Hotels is a sector ripe for international 
investment. However there has been a 
notable change in the type of asset being 
acquired. In days gone by, the stereo-typical 
high-net-worth investor from the 
Middle East would acquire a luxury hotel 
in one of the key cities, such as London, 
Paris or New York as part of their global 
portfolio of luxury assets with yachts, 
mansions and private jets. The purchase 
was driven more by the kudos of owning 
a five star hotel — perhaps operated by 
one of the luxury brands such as Four 
Seasons or an iconic landmark hotel 
such as the Ritz in Paris — rather than 
focusing on the underlying commercial 
rationale. Often these purchases would be 
spontaneous, ad hoc and not part of any 
defined strategy. 
Q: And that's not the case anymore? 
A: No. Whilst this clichéd view may still 
be true in a limited number of cases, it is 
now very much the exception to the rule. 
Today's high-net-worth investor looking to 
invest in a London hotel will, one, come 
from a wide geographical base. Qatari 
and Asian investors have been particularly 
active purchasers of hotels over the past 
couple of years. 
Secondly, they are far more discern-ing 
and views the acquisition of a luxury 
hotel as an investment and not just a 
purchase. Today's high-net-worth investor 
is savvy and well-advised; they are able 
to invest in a multiple of asset classes. 
Along with many other sophisticated 
investors, they view hotels as an attrac-tive 
option, since it is an investment in 
both the real estate asset as well as the 
underlying hotel business. 
Thirdly, they are willing to play the role 
of the developer as well as the ulti-mate 
purchaser. And last, they will also 
consider investing in hotels outside the 
traditional gateway cities of London, New 
York and Paris, to many European cities, 
as well as European resorts and second-ary 
regional locations 
It is also fair to say that one thing still 
holds true. High-net-worth buyers of hotels 
are not active sellers. They are purchas-ing 
the assets as a long term hold and 
perhaps also for future generations. This 
has in turn, led to a shortage of supply for 
purchase in a number of destinations, and 
possibly helped to promote the develop-ment 
of even more luxury hotels. 
Q: Does the investment come in the 
form of buying the actual property? 
A: The investment in residential prop-erty 
tends to be the outright purchase of 
the actual property, although once the 
purchase price exceeds 5 million pounds, 
and if the current ownership is a corporate 
vehicle, this is an attractive option for the 
sophisticated purchaser to save on Stamp 
Duty Land Tax. It has been known for the 
Far East buyers to "flip" the contract on a 
new build before actual completion and 
therefore this could be seen to be a form 
of investment. The developers have got 
wind of this and are now, if the contract 
allows, requiring the buyer to seek con-sent 
to any assignment of the contract 
and, in some cases, a share in the uplift. 
On the commercial side, whilst typically 
direct investment has been the trend, 
there is an increasing number of investors 
who are looking to invest by way of provid-ing 
alternative forms of finance. 
London's Hotels 'Ripe' for Investment by Family Offices 
Elaine Dobson Paul Lawrence 
Index | Previous | Next
Bloomberg Brief Family Office Special
Bloomberg Brief Family Office Special
Bloomberg Brief Family Office Special
Bloomberg Brief Family Office Special
Bloomberg Brief Family Office Special
Bloomberg Brief Family Office Special
Bloomberg Brief Family Office Special
Bloomberg Brief Family Office Special

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Bloomberg Brief Family Office Special

  • 1. December 2014 | www.bloombergbriefs.com FAMILY OFFICE Rankings Alternative Investments Philanthropy & Impact Investing Traditional Investments Crunching the Numbers 2015 Outlook Investment Horizons Private Equity Venture Capital Research Wine Hedge Funds Property
  • 2. December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 2 Welcome to Bloomberg Brief’s Special Report on Family Offices DARSHINI SHAH, BLOOMBERG BRIEF EDITOR A family office is, simply put, an office that caters to a family of significant wealth. Worldwide, the number of people with $30 million or more to invest — the kind of folks who would hire a family office — rose 15.6 percent to 128,300 in 2013, according to an annual report compiled by Capgemini and RBC Wealth Management. One of the greatest challenges a family office faces is build-ing a diversified portfolio capable of prudent growth yet resilient enough to withstand large swings in asset valuations so that wealth can be passed to the next generation. With that in mind, Bloomberg Brief brings you insights from managers about their investment decisions and philanthropic endeavors, along with rankings of the 50 biggest multi-family offices. Read outlooks for the year ahead from Paul Sedgwick of Frank Investments, Charles Gowlland and Chris Bates of Smith & Williamson, Lorne Baring of B Capital and Gautam Batra of Signia Wealth. Marcuard Heritage says it will manage a high allocation to credit hedge fund managers. Tom Gauterin talks about the tax benefits of investing in wine. Find out what types of property investment in the U.S., London and Middle East might offer the best returns. Finally, read about the benefits and challenges of philanthropy, and how family offices are using some of their fortune to help ease some of society's ills while aiming to profit through impact investing. SUBSCRIBE TO BLOOMBERG BRIEFS MaRkET LEadInG InTELLIGEnCE Bloomberg Briefs publishes 18 newsletters to help you stay ahead of the markets. Individual and group subscriptions available. Visit www.bloombergbriefs.com to subscribe or take a trial. Or call Annie Gustavson at +1-212-617-0544. BRIEF Index | Previous | Next
  • 3. December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 3 Family Office Rankings page 5 Traditional Investments By the Numbers page 9 Bessemer CIO Braces Families for Geopolitical to Fed Upheavals page 10 Equities 'Attractive Enough to Warrant Optimism,' Frank Investments' Sedgwick Says page 11 Wealthy Families Move Toward Stock Investments, UBS Survey Shows page 11 Smith & Williamson Bullish on U.S., European Equities page 12 B Capital's Baring Bullish on U.S. Equities, Bearish on Precious Metals, Commodities page 13 2015 to Be a 'Rocky Road' for Fixed Income, Signa Wealth's Batra Says page 14 How Family Offices Differ From Other Institutional Investors page 15 Alternative Investments Private Equity: Family Offices Join Forces to Make Direct Investments page 17 Private Equity/Venture Capital: World’s Rich Bullish on U.S. as Family Offices Open Outposts page 19 Hedge Funds: Marcuard Heritage to Maintain a 'High Allocation' to Credit Managers page 21 Wine: Taylor Wessing's Gauterin Says Wine 'Attractive' From a Tax Point of View page 22 Property: U.S. Commercial Real Estate Property Revival Gets Boost From Overseas Investors page 23 Property: London's Hotels 'Ripe' for Investment by Family Offices page 24 Property: Dubai a 'Growing Hub' for Global Property Investment Flows page 25 Philanthropy & Impact Investing By the Numbers page 27 Taylor Wessing's Hussain, Hine Discuss the Benefits and Challenges of Philanthropy page 28 Impact Investing Forms Part of a Long-Term Investment Strategy, ClearlySo's Mompi Says page 29 Case Backs Brain Device as Wealthy Push Do-Good Investing page 30 Family Office | December 2014 Ted Merz Bloomberg Brief Executive Editor tmerz@bloomberg.net +1-212-617-2309 Jennifer Rossa Bloomberg Brief Managing Editor jrossa@bloomberg.net +1-212-617-8074 Darshini Shah Editor dshah165@bloomberg.net +44-20-7392-0790 Margaret Collins Contributing Reporter mcollins45@bloomberg.net +1-212-617-8925 To subscribe via the Bloomberg Terminal type BRIEF<GO> or on the web at www.bloombergbriefs.com. To contact the editors: econbrief@ bloomberg.net. This newsletter and its contents may not be forwarded or redistributed without the prior consent of Bloomberg. Please contact our reprints and permissions group listed above for more information. © 2014 Bloomberg LP. All rights reserved. Edward Evans Bloomberg News Managing Editor eevans3@bloomberg.net +44-20-3525-319 Elena Logutenkova Contributing Reporter elogutenkova@bloomberg.net +41-44-224-4101 Anthony Effinger Contributing Reporter aeffinger@bloomberg.net +1-503-471-1358 Judith Sjo-Gaber Bloomberg Rankings jsjogaber@bloomberg.net +1-212-617-8764 Nick Ferris Newsletter Business Manager nferris2@bloomberg.net +1-212-617-6975 Adrienne Bills Advertising abills1@bloomberg.net +1-212-617-6073 Lori Husted Reprints & Permissions lori.husted@theygsgroup.com +1-717-505-9701 Pekka Aalto Graphic Design pekka2@bloomberg.net +852-2977-6013 INSIDE Index | Previous | Next
  • 5. December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 5 RANKINGS Top 50 Family Offices 2014 RANK FIRM NAME LOCATION 2013 AUA ($B)1 YOY % CHANGE NUMBER OF MULTI-GENERATIONAL FAMILIES AUA PER MULTI-GENERATIONAL FAMILY ($M) MINIMUM AUM OF NEW CLIENT ($M) MFO OR FAMILY OFFICE WITHIN PRIVATE BANK INCLUDES SFO AS CLIENTS (Y/N) 1 HSBC Private Wealth Solutions Hong Kong 143.5 3% 334 $430 No minimum, $50 included here2 PB Y 2 Northern Trust Chicago, U.S. 116.4 3% 4,340 $27 $20 PB Y 3 Citi Private Bank New York, U.S. 100.5 8% NA NA $25 net worth PB Y 4 Bessemer Trust New York, U.S. 96.6 10% >2,2003 $44 $10 MFO Y 5 BNY Mellon Wealth Management New York, U.S. 81.2 8% 424 $192 $100 PB Y 6 UBS Global Family Office Zurich, London, Singapore, Hong Kong, New York 67.6 29%4 NA NA No minimum PB Y 7 Pictet Geneva, Switzerland 55.0 -4% >150 $360 $100 PB Y 8 CTC | myCFO (BMO Financial Group) Chicago, U.S. 40.4 11% 335 $120 $25 PB Y 9 Abbot Downing (Wells Fargo) Minneapolis, U.S. 37.4 9% 617 $61 $50 PB Y 10 U.S. Trust Family Office (Bank of America) New York, U.S. 36.2 9% 191 $190 $25 PB Y 11 Hawthorn (PNC Financial) Philadelphia, U.S. 28.2 13% 682 $41 $20 PB Y 12 Wilmington Trust (M&T Bank) Wilmington, U.S. 26.0 -7% 440 $59 $10 PB Y 13 Glenmede Philadelphia, U.S. 24.4 9% 240 $102 $25 for UHNW; $3 for HNW MFO Y 14 Atlantic Trust (CIBC) Atlanta, U.S. 23.6 16% 2,121 $11 $5 PB Y 15 Rockefeller & Co. New York, U.S. 18.5 13% 258 $72 $30 MFO Y 16 Fiduciary Trust (Franklin Templeton) New York, U.S. 16.5 13% 1,623 $10 $5 MFO Y 17 GenSpring Family Offices (affiliate of SunTrust Banks) Jupiter, Florida, U.S. 13.7 -13% 357 $38 $10 MFO Y 18 Veritable Newtown Square, Pennsylvania, U.S. 13.1 6% 206 $64 $20 MFO Y 19 Oxford Financial Group Indianapolis, U.S. 13.0 25% 314 $41 $2 MFO Y 19 Silvercrest Asset Management Group New York, U.S. 13.0 21% 420 $31 $5 MFO Y 21 Commerce Family Office (Commerce Trust Company) St. Louis, U.S. 11.2 31% 94 $119 No minimum PB Y 22 Whittier Trust South Pasadena, U.S. 10.0 12% 314 $32 $10 MFO Y 23 ATAG Private & Corporate Services Basel, Switzerland 8.4 5% 52 $162 No minimum MFO Y 23 TAG Associates New York, U.S. 8.4 19% 110 $76 $10 MFO N 25 Tiedemann Wealth Management New York, U.S. 8.3 4% 116 $71 $20 investable assets MFO Y 26 Bedrock Geneva, Switzerland 8.0 14% 82 $98 $10 MFO Y 27 Spudy & Co. Family Office Hamburg, Germany 7.9 19% 95 $83 $45 MFO Y 28 Fleming Family and Partners London, U.K. 6.9 22% 60 $114 $15 MFO Y 29 Ascent Private Capital Man-agement (U.S. Bancorp) San Francisco, U.S. 6.4 24% 80 $80 $50 net worth PB Y continued on next page… Index | Previous | Next
  • 6. December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 6 RANKINGS… 2014 RANK FIRM NAME LOCATION 2013 AUA ($B)1 YOY % CHANGE NUMBER OF MULTI-GENERATIONAL FAMILIES AUA PER MULTI-GENERATIONAL FAMILY ($M) MINIMUM AUM OF NEW CLIENT ($M) MFO OR FAMILY OFFICE WITHIN PRIVATE BANK INCLUDES SFO AS CLIENTS (Y/N) 30 Baker Street Advisors San Francisco, U.S. 6.2 16% 50 $123 $5 MFO Y 31 FS Finance Suisse Zurich, Switzerland 5.8 21% 11 $527 $50 MFO N 32 1875 Finance Geneva, Switzerland 5.5 6% 12 $458 $5 MFO N 33 Bollard Group Boston, U.S. 5.0 0% 8 $625 $100 MFO Y 33 Constellation Wealth Advisors New York, U.S. 5.0 9% 165 $31 $10 MFO Y 33 Laird Norton Wealth Management Seattle, U.S. 5.0 3% 431 $12 $1 MFO Y 36 Gresham Partners Chicago, U.S. 4.6 18% 71 $64 $24 MFO Y 37 Synovus Family Asset Management Columbus, Georgia, U.S. 4.5 8% 44 $102 $10 MFO Y 38 Clarfeld Financial Advisors Tarrytown, New York, U.S. 4.4 7% 230 $19 $5 MFO N 38 Presidio Group San Francisco, U.S. 4.4 13% 128 $34 $10 MFO Y 40 Athena Capital Advisors Lincoln, Massachusetts, U.S. 4.3 0% 28 $153 $25 MFO N 40 Federal Street Advisors Boston, U.S. 4.3 9% 23 $185 $2 MFO Y 42 Aspiriant Los Angeles, U.S. 4.2 13% 88 $47 $5 MFO N 42 Tolleson Wealth Manage-ment Dallas, U.S. 4.2 14% 133 $31 $10 MFO Y 44 St. Louis Trust St. Louis, U.S. 4.1 18% 42 $97 $25 MFO N 45 Monitor Capital Partners Antwerp, Belgium 4.0 7% 79 $50 $25 MFO N 46 Seven Post Investment Office San Francisco, U.S. 3.8 19% 35 $107 $50 MFO N 47 Ballentine Partners Waltham, Massachusetts, U.S. 3.7 23% 74 $49 $20 MFO Y 48 CV Advisors Miami, U.S. 3.5 40% 50 $70 $25 MFO Y 49 Signature. Norfolk, Virginia, U.S. 3.3 14% 67 $49 $5 MFO N 50 Marcuard Family Office Zurich, Switzerland 3.2 -1% 44 $72 $20 MFO N Source: Bloomberg 1. Assets under advisement as of March 31 or most recent available. 2. Data provided by HSBC provided was only for clients with assets of $50 million or more 3. The majority of family relationships are multigenerational. 4. Includes transfers from within the bank. NA = not available. Our ranking is based on data compiled by Bloomberg from infor-mation self-reported by multifamily offices. The list was assembled through research by the Bloomberg Rankings team via a survey of more than 1,000 firms worldwide, using a database of contacts obtained from Portland, Oregon-based FamilyOffices.com. We received responses from 97 firms. We requested data as of the end of the first quarter of 2014; some data is for year-end 2013. Change in year-over-year assets under advisement was calculated using the data supplied by the firms. Single-family offices are excluded. Family offices that are part of private banks are included if the bank has a family-office unit that offers direct and comprehensive investment and noninvestment services to high-net-worth families. Figures for assets under advisement include only assets man-aged by the family-office unit of the bank. For nonbank family offices, AUA includes wealth directly managed by the offices and funds outsourced to money-management firms. Money managed for private foundations is included. Money man-aged for pension funds is excluded. Insurance policies and trusts on which advice is provided are included. The ranked firms provide both investment and noninvestment services. The latter may include family meetings, financial education, art consulting, estate planning, family governance, foundation management, business consulting, property management, travel arrangement and shopping assistance. — Bloomberg Rankings How We Crunched the Numbers Index | Previous | Next continued from previous page
  • 7. December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 7 RANKINGS Fastest-Growing Family Office in Miami Rides Rise in Ultra-Rich BY ANTHONY EFFINGER Elliot Dornbusch runs a family office in Miami for a select group of clients — and he wants to keep it small. That’s gotten harder in the past two years. Dornbusch is chief executive officer of CV Advisors LLC. CV beat the behemoth family offices for a second year in a row to become the fastest-growing firm in the Bloomberg Markets annual ranking of the richest family offices. The firm saw assets under advisement grow 40 percent in the year ended on March 31, to $3.5 billion. In the prior year, its assets had doubled. Dornbusch says the firm does no marketing and gets all its clients by word of mouth. This year, CV Advisors added nine wealthy clans, for a total of 50. “Our families tend to recommend their friends,” Dornbusch says. In terms of total assets, CV is No. 48 in the Bloomberg Markets ranking, which was compiled through a survey of more than 1,000 firms worldwide. The No. 1 firm, HSBC Private Wealth Solutions, has $143.5 billion under advisement. It grew 3 percent, as did No. 2 Northern Trust Corp. The next three, Citigroup Inc.’s Citi Private Bank, Bessemer Trust Co. and Bank of New York Mellon Corp.’s BNY Mellon Wealth Management, each grew 8 percent or more, as the world’s rich got richer. They were helped by rising financial markets in the 12 months ended on March 31. "The families are highly sophisticated and discerning. There’s no margin for error." — Thom Melcher, PNC Financial Services Group Inc. Worldwide, the number of people with $30 million or more to invest — the kind of folks who would hire a family office like CV or HSBC — rose 15.6 percent to 128,300 in 2013, according to an annual report compiled by Capgemini and RBC Wealth Manage-ment. Their fortunes accounted for 34.6 percent of assets held by all millionaires, or $18.2 trillion. Many of CV’s clients are from Latin America. Dornbusch was born in Colombia and raised in Venezuela, where he met co-founder Alex Mann. Partner Matthew Storm is from Connecticut. Their firm topped the growth chart even though the region was a laggard in 2013. Fortunes held by the $30 million-or-more crowd in Latin America rose just 1.7 percent. By comparison, assets held by the ultrarich in North America rose 19.4 percent. CV’s growth matches that trend. Its new families were mostly from the U.S. The second-fastest-growing firm is in the U.S. heartland, a region being rejuvenated by the shale energy boom and new manufacturing. Commerce Family Office, a unit of Commerce Trust Co. in St. Louis, saw assets jump 31 percent to $11.2 billion for the year ended on March 31. “There’s a lot of good entrepreneurial spirit in the Midwest,” says David Krauss, the family office’s managing director. CV’s Dornbusch says he beat the big firms by promising a per-sonal touch. Clients always talk to a principal: himself or one of his partners. The wealthy these days are almost always entrepre-neurs, or descended from one, and they like to do business with people who share the same spirit, he says. “I don’t know how any family would go anywhere and not deal with the owner,” Dornbusch says. Once a real estate developer in Venezuela, Dornbusch has been managing money since 2002. He started CV Advisors — CV stands for “Clear View” — in 2009. His clients are most interested in preserving capital, not making tons more of it. With that in mind, CV aims to return 6 percent to 9 percent a year. Lately, CV has been buying invest-ment- grade bonds to get there, sticking with fixed income while other managers warn that inflation will return and destroy performance. CV is also winning clients because so many are concerned about computer security, Dornbusch says. JPMorgan Chase & Co. disclosed in October that hackers had gained access to the contact information for 76 million households. CV has built its own financial-reporting software in-house, including an iPhone application that shows stock and bond positions. At Chicago-based Northern Trust, many clients won’t allow money transfers without a multistep process, says David Blowers, president of wealth management for the company’s eastern region. For example, a client will send an e-mail or fax or make a phone call requesting a transaction. Then Northern Trust must call back and run through a series of security questions before any money moves. With more and more families seeking the guidance of a family office, attracting clients by catering to their every whim is a growth industry. Thom Melcher, head of No. 11 Hawthorn, part of Pitts-burgh- based PNC Financial Services Group Inc., has added 90 employees in three and a half years, for a total of 186. “The families are highly sophisticated and discerning,” Melcher says. “There’s no margin for error.” Dornbusch is hiring too. Yet he and his co-founders will always handle direct communication with clients, he says, and that limits future growth. He has already had to turn some prospects away. There are worse problems to have. With assistance from Margaret Collins and Judith Sjo-Gaber THE NEW HUB FOR PRIVATE EQUITY PE <GO> Index | Previous | Next
  • 9. December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 9 BY THE NUMBERS BY DARSHINI SHAH & PEKKA AALTO TOTAL BUDGET ALLOCATED TO INVESTMENT ACTIVITIES (%) GLOBAL NORTH AMERICA EUROPE ASIA-PACIFIC DEVELOPING ECONOMIES 47% 44% 45% 52% 42% TYPICAL INVESTMENT PORTFOLIO, BY REGION (%) Equities Fixed Income Real Estate Direct Investment Direct Venture Capital/Private Equity Private Equity Funds Hedge Funds Co-investing Cash or Equivalent Alternative Asset Classes 30 10 12 8 10 11 3 7 9 23 14 16 9 8 5 6 10 9 23 16 14 11 6 5 6 10 9 18 17 15 7 5 12 5 13 8 100% Global North America Europe Asia-Pacific Developing Economies 25 14 14 9 8 7 5 9 9 AVERAGE 2013 FAMILY OFFICE OPERATING BUSINESS REVENUE ($M) GLOBAL NORTH AMERICA EUROPE ASIA-PACIFIC DEVELOPING ECONOMIES 314 248 360 288 380 North America Europe Asia-Pacific Developing Economies 21 27 21 31 <3 Years 3-5 Years 6-10 Years >10 Years 27 25 26 22 33 33 23 11 34 25 26 15 100% PORTFOLIO HORIZON (%) Source: Global Family Office Report 2014 Family offices allocate roughly half of their total budget to investment activities, regardless of where they are based, according to the Global Family Office 2014 report published by Campden Wealth in association with UBS. The report also showed that the typical family office portfolio was diversified across asset classes, with developed-market equities and real estate comprising the most allocations. Families from Asia-Pacific have a much shorter invest-ment horizon than their North American and European counterparts. About a third of a typical North American portfolio had an investment horizon of 10 years of more, compared with a typical portfolio of an Asia-Pacific family, which had only 10 percent of its assets invested with that time horizon in mind. Index | Previous | Next
  • 10. December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 10 2015 OUTLOOK Bessemer CIO Braces Families for Geopolitical to Fed Upheavals BY MARGARET COLLINS Rebecca Patterson is preparing the investments of the 1 percent for upheaval. From her corner office in New York’s Rockefeller Center, the chief investment officer of Bessemer Trust Co. is putting $55.2 billion in client assets under geopolitical and economic stress. In July that meant plotting returns against prior spikes in oil prices as conflicts escalated in Gaza and along Russian-Ukraine trade routes. By October, she was mapping out returns from different asset classes when interest rates rise. "Our biggest focus right now is thinking through the coming Fed rate-hike cycle," said Patterson. "You know it's coming. You don't know when, or how quick it will be, but you know it probably won't be exactly what the market is pricing in." Stress testing portfolios is one of the changes Patterson has made since joining Bessemer, the world’s fourth-largest multi-family office, from JPMorgan Chase & Co. two years ago. The strategy means it won't take her team days or weeks to respond when there's a crisis, she said. “We know history won’t repeat but it might rhyme,” said Patterson. The average family at Bessemer has $45 million in assets under the firm's supervision and the wealth of its founder, steel-mogul Henry Phipps and his descendants, remains the largest relationship. “My owner is a client,” Patterson said. Such proximity is why chief invest-ment officers at family offices require “nerves of steel,” especially following the 2008-2009 credit crisis, said Dan Farrell, chairman and chief execu-tive officer of Privos Capital, a global family office advisory firm based in New York. “The CIO carries the weight of the family’s world on his or her shoulders,” Farrell said. Patterson sets asset allocation recommendations in gen-eral and the firm’s managers pick the companies in which to invest. Bessemer’s main model allocation, which has a risk profile of 70 percent equities and 30 percent bonds, last year returned 14.8 percent, beating its benchmark’s 12.6 percent gain, according to the company. That allocation returned 7.9 percent compared with 6.9 percent for the benchmark in the 12 months through September. The benchmark is a composite Bessemer created using the Bank of America Merrill Lynch 1-10 Year AAA-A U.S. Corporate & Government Index, the Standard & Poor’s Global Broad Market Index and Dow Jones-UBS Commodity Index. This year Patterson trimmed a portion of the investments to small-cap stocks while adding to large-cap equities and commod-ities such as oil and agriculture because she thinks U.S. inflation is showing signs that it will rise over the next several years. She saw the market downturn in October as a buying opportunity. "We did go out directly to our clients after Treasuries hit 1.86 percent," Patterson said. "For investors wait-ing for the dip, we believed it was an opportunity, so we recommended adding stocks, mainly in large cap." While Patterson expects the U.S. to lead global growth next year, she’s also increased allocations to emerging market equities this year, mainly through emerging Asian economies in recent months. “I’m increasingly biased to having more global exposure,” she said. Phipps founded Bessemer in 1907 to manage his wealth after selling his interest in Carnegie Steel to J.P. Morgan. The company is named after Henry Bessemer, the inventor of the steel-making process that was instrumental to the success of Carnegie Steel, according to Bessemer’s website. The closely held firm opened to other families in 1974 and now has about 2,200 clients, according to the website. It offers services including investments, estate plan-ning and tax advice, and supervised $97.5 billion in total assets as of June. Bessemer ranked fourth by assets under advisement among firms worldwide that cater to wealthy families, behind HSBC Pri-vate Wealth Solutions, Northern Trust Corp. and Citi Private Bank, according to data compiled by Bloomberg. Bessemer uses a combination of internal and external invest-ment managers. The firm runs its own mutual funds including those that invest in small-and-mid cap stocks and global equities. “There are so many benefits to having some money run inter-nally so you are touching the market every day,” she said. She also judges Bessemer’s performance against external managers. Investments in alternatives such as private equity and hedge funds are managed by other firms such as Bain Capi-tal LLC and Anchorage Capital Group, Patterson said. Last year she recommended exiting U.S. high yield bonds, which were another asset class that Bessemer invested in for clients using outside managers. The main goal is limiting risk for families’ investments, Patter-son said. “Our clients have spent a significant part of their lives building their wealth and don’t want to have to start over,” she said. “The more I can anticipate and plan for what can go wrong, the faster I’m going to be able to react and make sure we do protect their irreplaceable capital.” Source: Bessemer Trust/ Callie Lipkin Rebecca Patterson "The more I can anticipate and plan for what can go wrong, the faster I’m going to be able to react and make sure we do protect their irreplaceable capital." — Rebecca Patterson, Bessemer Trust Index | Previous | Next
  • 11. December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 11 2015 OUTLOOK Equities 'Attractive Enough to Warrant Optimism': Frank Investments' Sedgwick Paul Sedgwick, chief in-vestment officer of Frank Investments, says that equity valuations remain attractive enough to war-rant optimism when com-pared with both history and other asset prices. The conundrum facing investors again in 2015 is what asset class is going to give the best risk-adjusted return. Some take the view that bonds offer no income and are expensive when compared with history, unless one takes a very bleak view of the global economic outlook. Others say stock valuations, driven by central banks’ ultra-loose monetary poli-cies, have risen to unsustainable levels, particularly in the U.S. They believe that as the Federal Reserve removes this stimulus, risk assets will no longer have the artificial crutch they need and are thus vulnerable, a view expressed recently by the Bank of International Settlements. We believe that although equity valua-tions have rerated substantially in the past couple of years, they remain attractive enough to warrant optimism, when com-pared with both history and other asset prices. Historically, equity markets tend not to crash when governments and central bankers are pursuing pro-growth strategies, as is currently the case. When one stands back and looks at the world today, there are many reasons to be worried — the euro area economy, geopolitical tensions and emerging market growth are at top of the list. Indeed, concerns many had that central bank policies would lead to rampant inflation have now turned more to worries that deflationary pressures could return. The silver lining is that central banks are accom-modative, and will remain so for a while. As a result, we expect equities to make up 70 percent of our portfolio next year, as it has been during the past few years. The balance of the portfolio is held in cash and corporate bonds with maturities extending approximately five years. We do not invest in structured products or use derivatives as a form of leverage. Frank Investments’ philosophy is based around diversification, global reach and sustainable dividend policies. Hence, our philosophy going into 2015 is very much to stick with these type of companies. Examples include Reckitt Benckiser Plc, Melrose Plc and Vodafone Plc in the U.K., and in Siemens AG and Sanofi in conti-nental Europe. We avoid the highly operationally geared sectors, such as airlines and steel manufacturers. Our investment philosophy is that these are sectors you rent during periods of strong economic growth, which is not the case at present, and not buy for the long term. We tend not to invest directly in emerg-ing markets as it exposes the portfolio to greater currency and political risk. Liquidity can also be an issue as can poor corporate governance. Instead, we get our emerging market exposure from com-panies with an emerging market presence, but whose foundations are in the devel-oped market. Prime examples would be Standard Chartered Plc and Procter and Gamble Co. The downside is you don’t get the gearing from a direct investment into the emerging market itself. Frank Investments was established in 2005 in the style of a family office. It offers its clients the opportunity to invest alongside the founder's portfolio. RESEARCH Wealthy Families Move Toward Stock Investments, UBS Survey Shows BY ELENA LOGUTENKOVA Wealthy families around the globe have started shifting assets into stocks from bonds, reflecting increasing optimism about the outlook, according to a survey by UBS AG and Campden Wealth Research. Family offices in North America and in Asia-Pacific regions, which represented about half of those surveyed, shifted toward growth investment from more balanced and preservation strate-gies, UBS and Campden said in the annual report published in September. Some 205 family offices with more than $180 billion in private wealth were surveyed in the first half. “When you speak to the family offices there is a perception of taking more risk than in prior years,” Philip Higson, vice chairman of UBS’s global family office group, said in an interview in Zurich. “We’re discussing equities and alternatives to fixed income more.” A typical family office serves a family with seven households across three generations, according to the report. The average portfolio returned 9 percent in 2013, driven largely by investment in developed-market stocks, it estimated. In Europe, family offices have remained more cautious, with about 17 percent pursuing growth strategies compared with 44 percent in North America, 33 percent in Asia Pacific and 20 per-cent in developing economies, according to the survey. “Europe is a step behind,” said Andrew Porter, director of research at Campden Wealth, which is a family-owned business. “Europe has always been more conservative and it faces different geopolitical and macroeconomic challenges.” An investment portfolio of a European family office typically holds about 23 percent in equities, 16 percent in direct real estate investments, 14 percent in fixed-income products and 10 percent in cash. That compares with North American family offices, which typically have 30 percent in equities, 12 percent in real estate, 10 percent in fixed income and 7 percent in cash, according to the survey. Index | Previous | Next
  • 12. 12 December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 2015 OUTLOOK Charles Gowlland, investment management partner, and Chris Bates, investment strate-gist, Smith & Williamson, say an improving U.S. economy will take over from quantita-tive easing as a key driver for markets and that there is potential for euro-area policy to surprise on the upside. As we enter the winter months, the focus for markets appears to have shifted to the loss of economic momentum outside the Anglo-Saxon world. This was highlighted by the latest World Economic Outlook published by the IMF, an organization well known for being fashionably late for the party, in which it slashed its global growth forecasts for 2014 and 2015, with the spotlight on the ongoing woes in the euro area. This acted as a catalyst for a notable pick-up in volatility, a global stock market sell-off during October and the 10-year U.S. Treasury yield slipping below 2 percent. For markets globally, the main elephant in the room is the euro area. This has been magnified by a European Central Bank that continues to dither and disap-point with its underwhelming "Diet QE" policy response. Initial take-up by banks of the Targeted Long Term Refinancing Operations came in well below expec-tations and the ECB’s plan to grow its balance sheet through Asset Backed Securities purchases is likely to be a non-starter. All this has left markets feeling like Oliver Twist asking: “Please, sir, I want some more!” Europe remains in a deflationary vortex of low growth, weak demand and CPI inflation that teeters precariously on the edge of falling into full-blown defla-tion. This is a risk that must be avoided at all costs, with government debt levels remaining highly elevated, as the real value of debt rises in a deflationary envi-ronment. A key difference between now and 2012, the peak of the euro area crisis, is that back then, the concerns were contained to the periphery economies of Greece, Ireland, Portugal and Spain. What’s clear now is that the region’s core countries including Italy, France and even Germany are being dragged into the downward spiral. The message from the bond markets, where German bund yields have contin-ued to decline and decouple from their U.K. and U.S. equivalents, is eerily remi-niscent of the deflationary spiral Japan found itself in for the past two decades. Whilst financial conditions in the euro area have improved in recent years, yields on peripheral sovereign debt are no longer into the stratosphere and the euro has weakened, yet the region’s major struc-tural problems remain unaddressed. ECB President Mario Draghi has stressed the need for an Abenomics-style “three arrows” approach to tackling the euro area’s problems. This is all well and good, but Draghi is finding his wings being increasingly clipped by German policymakers, scarred by history. The Germans have been firmly saying “nein” to signing off on any full-fat QE program. The divergence in the views of Mario Draghi and the Bundesbank is halting any prog-ress for the region. Draghi’s hands may be tied, but the frustration for markets is that they are at the mercy of an increas-ingly dysfunctional European system and politicians are not tackling the necessary domestic structural reforms. Still, the recent market shake-out throughout asset classes has presented both Wall Street and the High Street with a number of significant positives. The fall in the oil price has lowered the cost of fuel and energy at both a household and corporate level. Lower bond yields reduce the cost of borrowing for governments and corporations and, in the U.S., should feed through to lower mortgage rates. Subdued inflation levels not only boost disposable incomes, but take much of the pressure off both the Fed and the Monetary Policy Committee in the U.K. to raise interest rates. Below-target inflation levels and the gravitational pull of the euro area’s problems mean rate tighten-ing expectations continue to be pushed out even further. This continued finan-cial repression remains a positive for equities markets. So, what does all this mean for asset allocation? Although U.S. equity valua-tions look higher on a relative basis, we prefer to follow the economic growth. An improving U.S. economy, where growth of 3 percent plus is still achievable, should help support corporate earnings that need to take over from QE as a key driver for markets. The continued upward trajec-tory of U.S. earnings per share will also help to alleviate some valuation concerns. A strengthening dollar would be a mild negative for the U.S. economy, but with just 7 percent of S&P 500 revenues coming from the euro area (against 70 percent domestically), the U.S. market remains relatively insulated from weak demand elsewhere in the world. Non-dollar based investors would also benefit from a tailwind from dollar appreciation. In Europe, equity markets appear to have discounted an ECB that will continue to underwhelm. However, with expecta-tions so low there is potential for policy to surprise on the upside. There are signs that the Germans are warming to the idea of a full-fat version of QE, or a big take-up of the next tranche of Targeted LTROs in December which could potentially rein-vigorate markets. We don’t believe the recent rise in volatility is the start of a major change in direction for equity markets, indeed the dips so far have proven good entry points for active investment managers. However, with markets starting to wean themselves off the Fed’s liquidity, this remains a major transitional phase where volatility is likely to persist. With bond yields at historic lows we don’t see much here in terms of capital growth, but with so many unknowns and existential risks still out there, a well-diversified, balanced portfolio seems the sturdiest ship in which to navigate these choppy waters. Smith & Williamson is an independently owned private client house. A major part of the business has been the provision of wealth management to ultra-high-net-worth fami-lies, their trusts and their family companies. Smith & Williamson Bullish on U.S., European Equities Charles Gowlland Chris Bates Index | Previous | Next
  • 13. December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 13 2015 OUTLOOK B Capital's Baring Bullish on U.S. Equities, Bearish on Precious Metals, Commodities Lorne Baring, manag-ing director of B Capital, outlines how concern about a slowdown in China and dollar strength affects allocations in the firm's 'balanced' model portfolio. 2015 is likely to be a year of marginally slower growth than this year and we expect global gross domestic product to be around 3.8 percent. Within that number, we forecast that the U.S. will continue to enjoy a broad-based expansion relative to Europe and Asia, which will see a patchier path to growth. Europe may bump along the economic flatline as the region adjusts to a perennially high debt burden, coupled with troublesome unemployment levels. Asia will reflect sensitivity to China which is attempting the tricky balancing act to switch from an export-led economy to one that encompasses broad consumption as well. The property market in China is wor-risome and could unhinge growth, which currently stands at about 7.3 percent per annum, but which is vulnerable to a hous-ing market correction. So, what are the asset classes to con-sider when constructing a global port-folio? B Capital separates the pack into seven categories: cash, precious metals, bonds, equities, alternatives, commodi-ties and property. The following model weightings relate to our 'balanced' strategy for clients with a moderate risk profile and who aim for a combination of capital growth and income to make up the total return. We exclude private equity, which we cover separately at B Capital, and which is not part of our liquid investment portfolio models. ■■ Equities, 53%: Equities react well if there is regional growth and we see this as a U.S. story in the year ahead, while being tactically underweight Europe. Earning valuations for the developed mar-kets are not expensive in general follow-ing the recent correction in stocks, so we see potential for both capital appreciation as well a dividend yield component to the total expected return. The world economic stage is still fraught with risks and central banks are keeping monetary policy loose for fear of sending economies back into recession, however global companies with a strong export franchise should per-form well and can more easily withstand local wobbles back home. The developing world has much potential and a perceived dynamism which attracts capital despite the reduced transparency and increased volatility along the way. In the long term, we believe that emerging markets will out-perform the developed world. Valuations are significantly cheap at the moment but possible U.S. dollar strength, a China slowdown and commodities under pres-sure leads us to temper our enthusiasm in the short term. ■■ Bonds, 33%: Bonds offer a return, albeit low, while interest rates hover at multi-decade lows. Investment-grade sov-ereign debt looks expensive. Lower-rated corporates offer some attraction so long as investors understand that the stellar performance of bonds during the crisis will not be repeated in the coming years. In fact, rates will rise at some point which will be a negative for fixed income. We hold 2- to 4-year issues which will mature as yields pick up. In the meantime, it is a low-return environment for bond investors and is a "smoother" of overall portfolio risk in our models. ■■ Alternatives, 10%: Alternatives are a wide description for many types of strategies and we look for managers that can demonstrate returns that are truly uncorrelated to financial markets. That excludes funds which trade on the finan-cial markets. With fixed income offering low returns and likely to underperform in the medium term, we seek an alternative asset that can add value to the income component of the portfolio. A direct lending fund which works with operat-ing businesses meets this objective as market volatility has no correlation to the loans issued. ■■ Property, 7%: Property can be a useful portfolio asset class as it exhibits ele-ments of capital growth which protects from inflation, as well as providing a fixed-income type return from rental yields. There are cyclical forces that affect prop-erty and in a period of economic growth, it is a useful inflation-linked investment. We favor commercial property ownership through a fund with a long track record which covers upturns and importantly downturns in the economy. ■■ Cash, 2%: It's an era of near-zero interest rates and sub-optimal global growth. Governments have made it clear that short-term monetary policy is going to remain loose. That means that cash will pay nothing for the foreseeable future and so, with no return expected and infla-tion to subtract, we don't see the point in cash except to act as a holding pot during market volatility. ■■ Precious Metals, Zero Weighting: Precious metals such as gold and silver, as well as platinum and palladium, have done well during the early years after the global financial crisis. Haven require-ments, cheap money, falling interest rates, lack of confidence in the bank-ing system and general panic sent the shiny metals roaring ahead. Following a 40 percent fall in prices over the last few years, some are tempted to buy, but we are not convinced about the merits of precious metals in a commodity bear market, coupled with low inflation and a China slowdown. Who would buy gold if the world economy is healing itself? It doesn't make sense when compared to most asset classes and the volatile price action over the last three years dispels the myth that gold is a safe haven. In fact, we consider it as just another currency pair to trade like cable or eurodollar. ■■ Commodities, Zero Weighting: Com-modities are under pressure due to the slowing China story and, in some cases, a significant increase in supply. Commodi-ties are priced in U.S. dollars and with a strong dollar expected into 2015, we are bearish of the asset class. B Capital is a multifamily office invest-ment manager with a global macro man-date and an absolute return focus. Index | Previous | Next
  • 14. 14 December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 2015 OUTLOOK 2015 to Be a 'Rocky Road' for Fixed Income, Signia Wealth's Batra Says Gautam Batra, investment strategist at Signia Wealth, says that while longer-term rates will resume their rise, they will be kept in check by emerging market turmoil, geopolitical turbu-lence and equity market volatility. Treasuries will also retain investor interest. 2014 began with a brightening outlook for global growth and a sense that some of the noisiest of geopolitical risks were starting to quiet down. It had become de rigueur in some circles to forecast clouds on the horizon for fixed income, until we saw the big bond market bull run of 2014, and the well-documented capitulation on Oct. 15. The price action in October was a shock to Wall Street analysts, and many are still straining to uncover all of the events that led to the run. In the light of the year just gone, it’s tempting to see bonds continuing to pres-ent us with positive performance, as after all, the Bank of Japan and the European Central Bank are still in fully fledged easing mode. However, fundamentals still suggest 2015 will be a rocky road for fixed income as the Federal Reserve and the Bank of England commence normalizing policy in response to firming economic growth and dwindling spare capacity. Consequently, we forecast that longer-term rates will resume their rise, but will be kept in check by emerging market turmoil, geopolitical turbulence and equity market volatility. As an asset class, bonds tend to do well when the rest of the world is having a bad time, and the global investment landscape is contoured by a number of hazards that will be hard for investors to navigate. In terms of economic headwinds, China’s growth continues to slow, and the prospect of defaults is the elephant in the room when looking east. Geopolitical concerns are also reaching something close to boiling point in several places around the world and the impact of these on trade and energy are yet to be fully real-ized. We’re seeing a wait-and-see mentality from corporations with respect to potential disruptions to growth in Europe resulting from the Russian standoff. In response to deflation concerns, the ECB also seems to have fired the last shot with monetary policy, with sovereign quantitative easing likely to require drastic deterioration. Japan is facing the prospect of a consumption tax hike at a time when consumer spending remains sluggish. All of these stimuli could cause people to turn to treasuries as a safe haven and a stable source of income in the face of economic turbulence. In such an environ-ment, fixed income treasury securities will retain investor interest. As the prospects for global economic growth improve, fixed income markets will also keep a keen eye on the outlook for U.S. monetary policy following the recent end of the Fed’s balance sheet expan-sion and any subsequent normalization of policy. Investors know that while we are unlikely to see rate rises for some months, any additional QE will face a very high hurdle to be restarted. This is made all the more likely as vari-ous indicators suggest that benign inflation may not be with us for much longer, which will force policymakers out of easy money policies and could hurt economic growth prospects and risk assets. With global eco-nomic growth bumping along the bottom, a 10 percent correction in equity markets should not be seen as unlikely, as equity market volatility increases around inflection points in the Fed’s monetary policy. Despite the risks, however, there is some cause for optimism. The global eco-nomic recovery is showing signs of broad-ening, with global growth expected to reach 2.5 percent in 2014, and 2.9 percent in 2015. The BOJ governor Haruhiko Kuroda has reiterated that stimulus plans remain on track and that the central bank can seek to counteract the impact of the sales tax hike yet further if needed. The ECB has committed to balance sheet expansion as needed to avoid a deflationary outcome in Europe. Equity valuations remain in line with 25-year averages, and dividend yields remain supportive in the current very low interest rate environment. In our view, Fed policy will remain highly accommodative even with the proposed reduction in stimu-lus, and we are seeing signs of moderate growth in China, though growth in broader emerging markets remains weak. Signia Wealth currently holds a neutral position in equities and runs a regionally neutral strategy. Our focus in the equity space is generating alpha through man-ager selection, direct equities and sector selection. We are underweight in fixed income securities and the duration on our fixed income portfolio is shorter than the benchmark. It’s true that emerging market debt valuations look attractive, but the downside risks remain. Relatively low nominal yields on high yield and emerging market debt don’t currently offer sufficient compensa-tion for potential defaults if interest rates were to move towards normalisation, so at Signia Wealth we are currently under-weight in these areas. To find an alternative to the diminishing returns available on fixed income securi-ties, we have increased hedge fund expo-sure. In the current climate, they provide us with an asset with low volatility and stable returns, and the funds that meet these cri-teria are becoming a more significant part of our strategic focus at Signia Wealth. Across Signia Wealth, a number of our clients’ investment strategies have seen their hedge fund exposure increased by about 10 percent, with the focus being largely nondirectional, using specialist strategies such as merger arbitrage and equity long-short. In particular, we’ve increased allocations to market neutral and relative value hedge funds that help us limit portfolio directionality and protect port-folios against the “shock” of rising yields and greater volatility. Signia Wealth is a wealth-management boutique specializing in strategic wealth management for individuals, families and trusts. <GO> BTCA Transaction Cost Analysis >fo>r> F>i>x>e>d Income Index | Previous | Next
  • 15. December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 15 INVESTMENT HORIZONS How Family Offices Differ From Other Institutional Investors Martin Graham, chair-man of Oracle Capital Group, speaks to Bloomberg's Darshini Shah about how family offices tend to be more flexible than institutional investors when it comes to investment horizons, which can be helpful in the pursuit of attractive returns. Q: Do investment horizons or returns matter to family offices? A: Family wealth is known for drying up over three generations. So, returns matter. Refreshingly, for those accustomed to the city’s obsession with short-term reporting, family offices are more focused on long-term value generation and wealth preser-vation. Many wealthy individuals remain skeptical about the prospects for large scale growth and very few family offices are looking for capital growth, as opposed to capital preservation. Our clients would rate investment returns in their top five priorities, but not usually as number one. This means clients tend to be happy to lock money up on a medium- to long-term basis, but they need enough cash to live on and this must be taken into account by their advisers. Q: How does this differ from institu-tional investors, e.g. pension funds? A: Family offices tend to be more flexible in what they’ll consider than institutional investors, which can be helpful in the pursuit of attractive returns. A family knows it’s got the responsibility to not just preserve the wealth, but also to take care of the next generation. So, families are very happy to be in three- to five-year projects. They’re almost custodians of assets. Generally, families are very happy to look over their portfolio once a year. Pension funds on the other hand look at quarterly performance figures. So these sort of institutions have a different, more short-term type of thinking. Q: So what would a typical portfolio for a family look like? Average Investment Horizon of a Family Office Portfolio 100 90 80 70 60 50 40 30 20 10 0 Europe North America Asia-Pacific Developing Economies >10 years 6-10 years 3-5 years <3 years Source: Global Family Office Report 2014 A: Many of our clients tend to be self-made entrepreneurs and have made their money in a particular sector or country. So, they tend to want to diversify their wealth globally. They are very cautious about preserving the money they’ve made. They’re also looking for absolute returns rather than relative returns. For those who are focused on capital growth the choice is obvious — the main asset classes pro-viding long-term capital appreciation are equity, real estate and high yield bonds. Those asset classes performed well, particularly in developed markets, until recently. Family offices had to invest in these areas if they were interested in posi-tive real returns. Now the focus is shifting ever more towards emerging markets. So, what we see in most portfolios would be 80 percent of assets in public fixed income and equities, utilizing options to manage some of the risk around that. They’re looking for fairly safe returns and so the kind of equities we will invest in will be those with established franchises, good growth, strong balance sheets. Families are also looking for things with quite a high level of income to finance their lives. So they’ll use corporate bonds for the income. Q: What about the remainder of the portfolio? A: About 10 to 20 percent of the portfolio will be in alternative investments. These will be things like co-investments and private equity funds. We even have a wine fund that some clients invest in. Q: What do you mean by co-investments? A: For example, we have some property development projects we do and our clients invest in those projects. Our clients are very happy to re-invest some of the money, often in the industry they initially made their money in — they like to keep some skin in the game. They’ll invest in a sector where they’ve got deep knowledge. Q: But investment portfolios are not the only way to realize meaningful returns on assets. A: No. Careful wealth structuring can itself lead to significant savings and tax efficiencies as well as helping to preserve, distribute and pass on wealth. Another secure option clients may opt for is the use of trusts or foundations in order to provide maximum protection for the assets involved. Index | Previous | Next
  • 17. December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 17 PRIVATE EQUITY Family Offices Join Forces to Make Direct Investments BY MARGARET COLLINS Katie Kalvoda’s interest was piqued when the 40-year-old money manager for a group of ultra-wealthy families heard about a startup urban farm that grows produce in vertical greenhouses. Kalvoda knew early-stage investments in private companies can be risky. She eventually took a stake in the venture this year with some reassurance. The chief investment officer at Newport Wealth Management in Newport Beach, Cali-fornia, joined a handful of fellow family offices in an alliance that gave them more muscle to get a better price, expanded access to research and broader expertise to track the investment. “We don’t have this wall of secrecy that we had at one time,” said Kalvoda, who previously worked at fund-of-hedge- funds Collins Associates Inc. and Citigroup Inc. “We’re a block of investors working together with more scale.” The deal illustrates a recent trend among family offices to team up with like-minded peers for direct investments in companies. They’re trading in some of their traditional secrecy, pooling assets and knowledge to make venture capital and private-equity deals much like buyout firms do in so-called club deals, while circumventing the fees charged by those firms. Sometimes, the companies they back are local business seeking to make a difference in the community, other times they’re purely financial investments. It’s a departure from how family offices traditionally invested outside the public markets, which was by committing capital to intermediary fund managers who picked the opportunities, set the terms of a purchase or sale and oversaw the progress. Such third-party firms usually charge management fees of 1.5 percent to 2 percent, keep 20 percent of profits and require lockups of committed money for as long as 10 years. “This is a relatively new phenomenon,” Raffi Amit, a professor of entrepreneurship at the University of Pennsylvania, said of families that collaborate in direct deals. “The jury is still out on whether this will lead to higher returns on investment capital.” Single-family offices in the U.S. hold about $1.2 trillion in assets and multi- Average Allocations by SFOs to Select Investment Types (%) 14 12 10 8 6 4 2 0 2009 2011 Direct Investments Real Estate Private Equity Hedge Funds Source: 2012 Wharton Global Family Alliance study family ones manage about $500 billion, according to Bob Casey, senior managing director for research at consulting firm Family Wealth Alliance. Many made their money by building their own businesses and are big enough to operate like a pension fund or endow-ment, with a staff to pick investments. Family offices also typically provide additional services including accounting, estate planning and concierge products. There’s little data available yet on the investment returns of these collaborative deals by family offices, said Amit, who is chairman of the university’s Wharton Global Family Alliance, which researches family-wealth management. Families usually don’t publicize their stakes or performance. According to a 2012 Wharton study of about 100 single- family offices, about 16 percent said they had 10-year returns, net of taxes and fees, of more than 10 percent annually. About 18 percent of respondents had returns between 7 percent and 9 percent. Among the group surveyed, 42 percent didn’t answer questions about their performance, the data showed. The Standard & Poor’s 500 Index of stocks gained 2.9 percent annually while the Barclays U.S. Aggregate bond index saw annualized returns of 5.8 percent. The appeal of investing together or forming a partnership to take a stake is that fees are lower and families can better understand the business they invest in, Casey of the Family Wealth Alliance said. Family offices involved will divide the due diligence by interest and expertise to increase efficiency and maxi-mize their resources. “Since the financial crisis there’s been a question about whether the value-add from an intermediary fund is worth the cost,” said Ashby Monk, executive director of the Global Projects Center at Stanford University, which studies the movement of financial assets globally. “For these big families there was this perception that they were often getting screwed by Wall Street.” Kalvoda, whose firm serves as the investment office for a group of related family members, can rattle off the details of the San Diego farming company including how its vertical- greenhouse technology isn’t dependent on soil, how it offers Californians local food they love like cilantro, and how it creates jobs in the community and benefits the environment. For this investment, two family offices analyzed the marketplace and the busi-ness model, while a third office deter-mined the fair value of the company. Continued on next page… Index | Previous | Next
  • 18. December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 18 Kalvoda’s firm did a background check on the start-up’s managers even though some of families knew the entrepreneurs personally, she said. Kalvoda declined to name the startup or her co-investors. The families she invests with usually have at least $500 million in assets, she said. Since May, Kalvoda said she's been approached by a billion-dollar corporate pension plan, a Fortune 500 family and an investment consulting firm to co-invest with her family office group as the trend gains momentum. Ward McNally, whose family founded mapmaker Rand McNally, has been advising family offices on joint invest-ments as managing partner of Chicago-based McNally Capital, which serves as a merchant bank to family offices. One of the biggest challenges is reviewing enough deals to find an attractive one, said McNally, whose firm in 2010 helped 12 family offices create an alliance called the Cleantech Syndicate with $1.2 billion to invest in clean-energy companies. About 22 percent of family offices had three or more people in their office tasked with the sourcing, screening, monitoring and exiting of direct invest-ments in 2010, according to a survey by McNally’s firm. That percentage has almost doubled as of this year to 35 percent, said McNally. Even with added staff dedicated to direct deals, families are finding alliances valuable — especially to locate invest-ments globally. SandAire, a multi-family office that manages about 3.5 billion pounds ($5.6 billion), formed the Wig-more Association with other family offices in 2011 to share research. The eight members are based in the U.S., Brazil, Germany, Canada, Australia, the United Kingdom and Mexico. Some Wigmore members joined last year on two deals in private companies in "With like-minded and friendly investors along for the ride, you can leverage each other’s strengths. When it comes to negotiating, you ultimately carry a bigger stick." — Katie Kalvoda, Newport Wealth Management the U.S. and U.K. investing more than $20 million combined. Due diligence was first done by the family based in the region of the investment opportunity and then each member interested does follow-up research themselves, said Marc Hen-driks, chief investment officer at London-based SandAire. The investments are in early-stage businesses in the technology industry or startups based on a new pat-ents, said Hendriks, who declined to give the companies’ names. “We are strong believers in investing in pre-IPO companies,” said Hendriks, who was previously chief economist at firms including Societe Generale and Swiss Bank Corp. The challenges of direct deals don’t end with due diligence, said Stephen McCarthy, who helps manage his family’s investments as senior vice president of New York-based KCG Capital Advisors. Families also must come up with a plan for management post-investing and appoint a leader because many of the investments may not see profits or an initial public offering for years. Families participating in direct invest-ments generally haven’t abandoned funds altogether. They usually allocate 12 percent to 14 percent of their portfolio to them, according to data compiled by the Family Office Exchange, a network of pri-vate families with an average of $450 mil-lion in investable assets. They also have 10 percent to 12 percent of their assets in private equity funds and the same propor-tion in real estate. Kalvoda said families should consider setting up a separate entity for these co-investments as she did to make sure their entire family offices aren’t forced to register as investment advis-ers and therefore reveal financial details. The registration requirement stems from the Dodd-Frank Act of 2010 and exempts family offices that are owned and controlled by family members, don’t advertise or provide investment advice to nonfamily investors. The added effort to do direct invest-ments is worth it because of the ability to create scale and tap into each other’s expertise, Kalvoda said. “With like-minded and friendly inves-tors along for the ride, you can leverage each other’s strengths,” she said. “When it comes to negotiating, you ultimately carry a bigger stick.” PRIVATE EQUITY… Continued from previous page private equity Fundraising trends, expert commentary a BRIEF nd people news newsletters For proFessionals, From proFessionals. BrieF<go> www.BloomBergBrieFs.com Index | Previous | Next
  • 19. December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 19 PRIVATE EQUITY AND VENTURE CAPITAL World’s Rich Bullish on U.S. as Family Offices Open Outposts BY MARGARET COLLINS As the U.S. powers the global economic expansion in its fifth year, the world’s rich are counting on American companies to help increase their fortunes. At least a dozen family offices, with fortunes made in Europe, Asia and South America, have opened U.S. outposts in the past two years or are making direct invest-ments in corporations from Silicon Valley to the East Coast. Their view is that the Federal Reserve’s aggressive monetary easing, a shale oil boom that’s lowered energy costs, and improving corporate balance sheets give the world’s largest economy an edge over other regions. Peca Ltd., a London-based firm started in the 1990s by a family that made its wealth mainly in financial services, has made about two-thirds of its private-equity and venture capital investments in the U.S. while reducing investments in Europe, said Anselm Adams, who oversees the firm’s alternative investments. A German family that founded an automotive com-pany opened an investment office in New York this year to find deals in the automo-bile, textile or luxury industries, according to a person familiar with the matter. “They are looking for diversification and more exposure to the U.S.,” Patrick McCloskey, managing partner at Aeterna Capital Partners, said of the firms. “Many family groups are trying to manufacture yield in a very low-interest-rate environ-ment and are looking for unique and customized ways to do so.” McCloskey’s firm last year opened a New York office for a rich European family looking for deals in the U.S. In September, he helped his client finance a video-distribution company with a loan that pays the London interbank offered rate plus as much as 11 percent. Family offices manage $4 trillion in assets globally, about 55 percent of which is based outside of North America, accord-ing to a 2014 study by London-based researcher Campden Wealth. Affluence has grown fastest since 2013 in the U.K., Korea and Denmark, according to a report this month by Credit Suisse Group AG. The U.S. is “a big bright spot in the world,” said Stephen Cecchetti, professor of international economics at Brandeis Average Family Office AUM and Total Family Net Worth 1,600 1,400 1,200 1,000 800 600 400 200 - Assets Under Management ($M) Total Family Net Worth ($M) Global Europe North America Asia-Pacific Developing Economies Source: The Global Family Office Report 2014 International Business School in Waltham, Massachusetts. As the Fed winds down unprecedented stimulus, the European Central Bank is contemplating its own quantitative-easing program to tackle the weakest inflation in five years, and Japan is continuing purchases. Peca has been attracted to venture-capital deals in the U.S., said Adams, who declined to name the family he works for, citing privacy reasons. The firm has taken stakes this year in The Bouqs Co., an online flower-delivery business, and Circa, a mobile news service, Adams said. Both are closely held companies based in California. The family office generally invests $1 million to $3 million, working alongside private-equity firms rather than through funds because it pays no fees or carried interest on co-investments. “One of the things we’ve been very active in, in the last two years, is the venture capital scene,” Adams said in an interview via Skype. McCloskey’s firm usually seeks equity and lending transactions in companies with enterprise values of $5 million to $100 million, he said, declining to name the family sponsoring him for privacy reasons. Aeterna helped finance RLJ Entertain-ment Inc., a Silver Spring, Maryland-based video content distributor founded by Robert L. Johnson, because it liked the business, management and risk-reward profile, McCloskey said. Four other lend-ers were involved in the $70 million deal, according to an RLJ filing. “There’s so much cash on the sidelines ready to be put to work by families that took money out in the financial crisis or that have operating businesses generat-ing a lot of income that they haven’t put in the market yet,” said John Benevides, president of Chicago-based CTC myCFO LLC, which advises family offices and is a unit of the Bank of Montreal. “They are giving us a shopping list.” That capital has made finding bar-gains a challenge. Price multiples for U.S. private-equity deals are the highest since 2007, and some transactions are being done with less leverage as more equity is being contributed to the average deal, said Andrew Lee, head of alternative investments for the chief investment office at UBS AG’s wealth-management unit, which oversees $1 trillion. Those factors may make it harder to see returns as attractive as in the recent past, he said. “We’re more cautious on allocating aggressively to U.S.-focused private-equity opportunities,” Lee said. “On a one-off basis there may be situations that may make sense.” Valuations have also risen in U.S. Continued on next page… Index | Previous | Next
  • 20. December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 20 venture-capital deals, particularly for later-stage companies, Lee said. One area where family offices find opportunities are private companies look-ing for a new, private owner, said Francois de Visscher, whose Greenwich, Connecti-cut- based firm advises single family offices and family-owned businesses. Every day, about 10,000 Americans born between 1946 and 1964 reach retire-ment age. Many of them have built busi-nesses, don’t have an heir to take over and want to sell, said Robert Elliott, vice chairman at Market Street Trust Co., a multi-family office established to manage the wealth of the Houghtons, founders of glassmaker Corning Inc. The U.S. is “a good hunting ground, particularly with this generational shift,” Elliott said in an interview. “Some wealthy families from countries like Colombia, Chile and Belgium have even established single-family offices in the U.S. with the intent of accelerating their American direct investment activities,” said de Visscher. More than 40 percent of the 330 members in the Family Office Exchange are buying at least one private company a year, said Sara Hamilton, founder of the Chicago-based group. The deals are part of a larger trend among family offices to find investments themselves. The number of family offices seeking equity stakes or lending oppor-tunities directly grew 45 percent this year at Axial, an online network that connects companies to capital, said Peter Leh-rman, the New York-based firm’s CEO. “We get at least one call a month from a family company that is ready to sell and wants to sell to another like-minded family instead of a private-equity firm,” said Ham-ilton, whose group is a network of private families around the world with an average of $450 million in investable assets. The New York firm that’s been investing money for the German automotive family was in talks earlier this year to buy a family-owned business based in Califor-nia, said the person familiar. The family is looking for public or private companies in the automobile, textile or luxury industries with enterprise values between $250 mil-lion and $300 million. The transaction fell through, the person said, because of the seller’s lack of speed in closing the deal. “It doesn’t come without risks,” Aeterna’s McCloskey said of international invest-ments. “It’s easier said than done.” PRIVATE EQUITY AND VENTURE CAPITAL… Continued from previous page TAKE YOUR FREE TRIAL Deep Financial Intelligence TO BLOOMBERG BRIEF For Industry Insiders. To stay ahead of turbulent markets, you NEWSLETTERS TODAY! need the latest news, analysis and data delivered in innovative ways. The newsletters pull together the reporting, insight and analysis of over 45 senior editorial staff and dedicated economists to help you stay informed and ready for your daily business needs. They also offer cutting-edge access to proprietary Bloomberg data and breaking stories that move markets. Bloomberg newsletters are uniquely positioned to provide you with the scope, depth and market intelligence you need for: Economics ETFs Municipal Market Economics Asia Financial Regulation Oil Buyer’s Guide Economics Europe Hedge Funds Private Equity Asia Corporate Treasury Hedge Funds Europe Real Estate Bankruptcy & Restructuring Leveraged Capital Reserve (free brief) China Brief London (free brief) Structured Notes Clean Energy & Carbon Mergers Technical Strategies Index | Previous | Next
  • 21. December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 21 HEDGE FUNDS Marcuard Heritage to Maintain a 'High Allocation' to Credit Managers Hansjoerg Borutta, group executive committee member of wealth man-ager Marcuard Heritage, discusses why he has a "strong" preference for credit, globally-focused long-short, and event-driven managers. There is a growing uncertainty about the real state of the global economy and the development of their asset values. There is no doubt that the global economy is weak despite the pursued zero interest rate policy by many central banks. Inves-tors and consumers alike increasingly have the impression that the transmission mechanism in the developed economies is broken. Additionally, geopolitical risks have started to trouble minds as well. Given the fragility of the global econ-omy, we are confident that the U.S. inter-est rates will remain low for longer. As the corporate balance sheets are strong and default rates low, we continue to like credit and loans to yield-enhanced cash flows. We are aware that leverage in balance sheets has slightly increased, notably in the U.S., but the interest coverage ratio is reassuringly high. Based on this assess-ment, we aim to benefit from still-inter-esting spreads in the credit space, while paying attention to duration risk. We remain positive that the U.S. economy will continue to grow at a moderate pace over the next few quarters and believe that the rest of the devel-oped world will muddle through with little support from emerging markets. We do not foresee a strong beta market in the coming quarters. Therefore, Marcuard Heritage continues to prefer exposure in equity long-short managers with a prefer-ence for managers who will have shown stock selection skills. We expect also that corporate action will increase as compa-nies, notably those in Europe, will need to reshape their businesses. For a typical asset allocation, this translates into a strong preference for credit managers, long-short managers with a global focus, event-driven managers and, to a lesser extent, macro managers. As a result, a model portfolio will main-tain a high allocation to credit managers with exposures to U.S. dollar, euro and British pound credits and loans. In fact, we overweight European loans as their spread levels are more attractive when compared with the respective U.S. loans. Alongside long-only exposures to short-term, lower volatility, high-yield debt and investments with managers who focus on senior secured loans, Marcuard Heritage also invests in funds that utilize long-short credit, event-driven and capital-structure-arbitrage strategies regarding U.S. and European companies. The beauty of the latter is that these funds can quickly adjust their net exposures dependent on the prevailing market environment as the managers trade actively. In addition, we keep our exposure to emerging market debt in hard currency which — as an exception to our general view — has longer duration risk as higher yield levels (i.e. above 5 percent) should compensate for the risk we take. Secondly, we prefer equity long-short and event-driven managers over straight beta long-only equity managers, whose allocation in the model portfolios are minor. We prefer the versatility of active hedge fund managers in this current environment of increased volatility. The chosen long-short managers run with positive net-long exposures, i.e. we have not selected a market neutral equity manager for the time being. In addition, at least some managers are willing to run their books with a pronounced long bias when deemed appropriate. We decided to utilize the experience of seasoned Asian fund selectors to cover our need for Asian equity exposure. The event-driven funds focus primarily on mergers and acquisitions and special situation equities. They have typically a lower correlation to broad equity markets. The geographical focus is also the U.S. and Europe. If Europe should finally wit-ness a stronger wave of corporate actions with respect to mergers and restructuring, we will be ready to deploy an additional special situations fund. Macro exposure via a discretionary global macro fund allows us to better face sudden shifts in the markets which we witnessed over the last quarters, as we assume that the markets will still undergo further adjustments in the relative asset pricing. Obviously, this investment capital-izes on fundamental trends in currencies, interest rates, credit and equity markets in both developed and emerging markets. We currently still refrain from adding CTAs or similar quantitative strategies. We are still cautious that the massive price distortions inflicted by the zero interest rate policies of central banks may continue to hamper their price signal algorithms. Having said that, we have also noted that perfor-mances of managed futures recently started to recover as market volatility increased. Likewise, we do not allocate to commod-ity- related funds as sluggish global growth and secular excess supply tend to hamper any price advances. With the current allocation, we are confi-dent to achieve our goals for our customers with rather conservative risk profiles, i.e. to continue to provide positive compound return while managing the downside risk. Marcuard Heritage is a globally operating wealth manager offering discretionary portfolio management and wealth planning to high-net-worth clients. All the funds proposed for the model portfolios go through a stringent due diligence process with equal emphasis on the investment content and on the fund manager’s risk management setup at all levels. Once approved, the funds will be constantly monitored. LAUNCHES, MANDATES, & PEOPLE NEWS HEDGE FUNDS EUROPE LAUNCHES, MANDATES, & PEOPLE NEWS BRIEF NEWSLETTERS FOR PROFESSIONALS, FROM PROFESSIONALS. BRIEF<GO> WWW.BLOOMBERGBRIEFS.COM Index | Previous | Next
  • 22. December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 22 WINE Taylor Wessing's Gauterin Says Wine 'Attractive' From a Tax Point of View Tom Gauterin, senior as-sociate in the private client practice at international law firm Taylor Wessing, says wine can represent an investing opportunity for those with a little knowl-edge and enthusiasm. In 1982, Robert Parker published his assessment of that year's Bordeaux vintage in his Wine Advocate magazine. Contrary to prevailing opinion, Parker claimed that 1982 was a stellar year — and, as he was proved spectacularly right, made his name as a result. Of more significance was that his 100-point scor-ing system became widely recognized and, after years of esoteric, confusing and sometimes downright peculiar tasting notes, made it possible for wines to be compared with a simple number. A key side effect of attaching numbers to wine was that, almost immediately, wine became much easier to trade. Thirty years on, the sophistication of today's fine wine market has surely exceeded anything that Parker — or indeed anyone else — could have foreseen. This has particularly been the case with Bordeaux, partly a product of the 'Parker Effect' and partly because the various chateaux produce enough wine to generate meaningful secondary trading. Fine wine even has its own market, the LivEx Fine Wine 100. In recent years, a number of spe-cialist wine funds have been established. Following ever-greater interest from China, and with two superb Bordeaux vin-tages in 2009 and 2010, the index peaked at 365 in June 2011. However, after poor growing conditions leading to less attrac-tive wines in 2011 and 2012, the LivEx has plunged about 35 percent and is currently trading at the 237 mark. Confidence in the secondary market also took a knock, with the revelations at the New York trial of Rudy Kurniawan, recently convicted of selling counterfeit wine valued at millions of dollars. Savvy collectors had paid significant sums to buy from Kurniawan's collection, and the industry was shocked to find that the bottles of such legends as Mouton-Roth-schild 1945 and Petrus and Cheval Blanc 1947 were, in fact, a cocktail of other less exalted wines. Caveat emptor indeed. While claims that a holding in fine wine is an essential part of any self-respecting investor's portfolio can be taken with a pinch of salt, wine nevertheless repre-sents an opportunity for those with a little knowledge and enthusiasm. For the wine-lover who can afford to ride out the ups and downs (and who might be willing to drink up if they incur a loss!), an invest-ment in wine is in fact very attractive from a tax point of view. Fine wine is usually purchased "in bond" i.e. retained in HM Revenue & Customs-approved warehouses rather than delivered direct to buyers. No excise duty (2.04 pounds, or $3.30, on a bottle of table wine) or value-added tax (paid on the wine and the excise duty) are payable until final delivery. So, if wine is sold while it remains in bond, then neither excise duty nor VAT is ever paid by the seller. Even if in bond, though, wine still forms part of a person's estate for inheritance tax purposes. A wine costing 40 pounds in bond would incur total tax of 10.45 pounds on withdrawal, an effective cost of more than 25 percent. This saving is thus clearly worth securing. Most wine is likely to be exempt from capital gains tax on any increase in its value. CGT is not charged on wasting assets which, for tax purposes, means anything with a 'useful life' of less than 50 years. This is calculated from the point at which it is first owned by the seller; so a mature Bordeaux (1970, say) bought today would be unlikely to last another 50 years. If one were to buy a top wine from a great recent vintage then it prob-ably would have a useful life of at least 50 years, in which case any growth in its value could be subject to CGT on sale. Even then, there are exemptions avail-able before any CGT becomes payable. If one bottle of wine is sold for less than 6,000 pounds, no CGT is due. Since there are very few that will change hands for anything like that sum (most of which will be rare red burgundies made in miniscule quantities), single bottles can usually be sold tax-free. Several bottles sold to the same individual may, on the other hand, be treated as a set and assessed on their collective value if they are "similar and complementary" i.e. from the same vine-yard and made in the same vintage. Fine wine tends to be sold by the case, so for some prestigious wines, the 6,000-pound threshold may easily be exceeded. A 12-bottle case of any of the most famous wines of Bordeaux, Burgundy and Califor-nia (think of Screaming Eagle, a collec-tor's item that generally changes hands for 2,000 pounds a bottle) would normally sell for at least this sum, certainly in a good vintage. Collectors tend to prefer to buy wine by the case since that tends to indicate better storage, and so the pre-mium price it attracts could outweigh any tax disadvantage. Even if a taxable gain is realized, each person has an annual exemption of 11,000 pounds to use before any CGT is payable. A canny seller could therefore spread his really valuable sales over a few years if necessary. Things become less certain when work-ing out how to tell if your wine (bonded or not, individual or case) actually will last 50 years, depending on: ■■ The type of wine (sweet and fortified wines last longer; drinkable Sauternes from 1811 can occasionally be found at tastings); ■■ The quality of the vintage (there is plenty of Rioja still going strong from as long ago as 1925); and ■■ The quality of the wine itself (anyone fortunate enough to taste Hermitage La Chapelle 1961 will quickly realize that it may very well outlive them). HMRC's view is that a wine "is not a wasting asset if it appears to be fine wine, which not unusually is kept (or some samples of which are kept) for substantial periods sometimes well in excess of 50 years". Sometimes this will be obvious but, in any case where there is room for doubt, it would be wise to seek specialist advice from a reputable wine merchant. Taylor Wessing is an international law firm, offering legal services to individuals, families and family offices who require multijurisdictional advice on personal wealth structures, international tax planning, commercial and real estate invest-ments, reputation management and immigration. Index | Previous | Next
  • 23. December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 23 PROPERTY U.S. Commercial Real Estate Property Revival Gets Boost from Overseas Investors The rebirth in U.S. real estate is being fueled by overseas investors such as pension funds, insur-ers and wealthy families looking for an inflation hedge and drawn by de-mographic trends that are expected to stoke demand for multifamily housing, says Tim Ng, manag-ing director and head of research at Clearbrook Global Advisors. Some of the deals are novel transactions that involve leasing the land under a building to insurers. Buyers of commercial properties are looking beyond gateway cities, Ng tells Bloomberg’s Aleksandrs Rozens. Q: In your work with family offices, are you seeing more investors from over-seas buying New York City property? What’s drawing them? A: The investors are sovereign wealth funds, corporate pension funds and high-net- worth families. In Asia, family offices would be the families behind the conglom-erates such as industrial and technology companies in Korea. They are looking at commercial buildings. They are looking at both the typical commercial building you will find in a gateway city — Los Angeles, San Francisco, Boston, New York, Washington, D.C. — or multifamily, apartment-type buildings because of inter-esting demographics we are "Investors are seeing this wall coming and that is rising interest rates. Instead of taking a hit with rising interest rates, they are looking at real estate as a bond surrogate, particularly where they can get cash flow or an interest payment like a bond. beginning to see. There is not a lot of office space that is coming online. It is projected over the next two or three years that the overall growth in supply in the commercial office market is only going to be around one percent. In the early 2000s, 40 percent of first-time home buyers were buying single-family homes in the suburbs. Now with the increase in the cost of single-family homes, higher unemployment rates, all of the kids out of school saddled with student debt, that 40 percent has dropped to 27 percent. Those are the dynamics driving the multifamily and the commercial marketplace. Investors are buying because the market technicals are positive in terms of occupancy, consistency of cash flow and eventual price appreciation. Investors are seeing this wall coming and that is rising interest rates. Instead of taking a hit with rising interest rates, they are looking at real estate as a bond surrogate, particu-larly where they can get cash flow or an interest payment like a bond. They see it as an inflation hedge. They firmly believe that interest rates will be rising here in the U.S. versus other countries and therefore the dollar will be much stronger than their own home country currencies. Q: Are they interested only in Manhat-tan? What other boroughs and cities are they looking at? A: Manhattan is what they understand. We once asked that question and they said ‘I fly into JFK, I take a taxi and I stay in Manhattan. I won’t take a train or subway to Queens or the Bronx. I under-stand Manhattan.’ They feel it is a very stable area. Boston, Washington. They are looking at San Francisco. They are begin-ning to branch out into other cities they would consider major cities and/or growth cities such as Chicago, Austin, Texas. Q: Investment in the properties — does it come in the form of purchasing a hard asset, or does it take the form of buying securities backed by commer-cial real estate debt? Or is it something else, like construction financing? A: They will not do construction financ-ing. What they really want and care about more so than anything else is the ability to extract the cash flow. They want the coupon element. If they have the ability, they can get a combination of an equity-like return on a portion of their investment, plus the coupon. It is an established building they care about. They care about the rent roll and they care about the loan to value so that the underlying transaction when they do buy a building has enough cash flow to effectively cover the interest cost of the financing. Their rule of thumb is 1.3 times in terms of cash flow versus what the interest cost would be. Q: Have we had all-cash deals? A: Yes. The transactions we are looking at — one in the Washington D.C. area and a second one that we’re in the process of getting agreements for — are all cash. Now what does that mean? All cash means that the investors themselves are providing the capital for the purchase of the building. There is no bank financing whatsoever. Q: Do you expect more banks to sell off their buildings and physical properties in response to changes in the regulatory environment? Will these be mostly in the form of lease-backed deals? A: A number of banks and financial institutions are under tremendous pressure from regulators to lower the overall risk on their balance sheets and are raising tier one and tier two capital. So, what is an easy way for them to do so? It is to look at all of the real estate they own around the country and have selected buildings they can sell and take off of their bal-ance sheets. What the buyers like is that the bank has owned the building for two decades; they want to make sure the bank is still the main tenant and they may hire them as a property manager to manage the building as well. They see it as an inflation hedge." — Tim Ng, Clearbrook Global Advisors Index | Previous | Next
  • 24. December 2014 bloombergbriefs.com Bloomberg Brief | Family Office 24 PROPERTY Elaine Dobson, head of residential prop-erty, and Paul Lawrence, partner in the real estate team, at Taylor Wessing, speak to Bloomberg’s Darshini Shah about why family offices are still being drawn to London’s prop-erty market and how hotels are moving from a “purchase” to an “investment.” Q: Are family offices interested in buying property in London? A: Interest in prime London residential property has remained constantly high over the last 12 months. We are also seeing a prevailing trend on the commer-cial side, with several new high-net-worth investors looking to enter this market. London continues to remain the city of choice for international investors on the lookout for prime commercial, residen-tial and mixed use assets. This trend is reflected in recent research by CBRE, which attributed 72 percent of all invest-ment in central London office space over the last quarter to overseas investors. We regularly see investment coming into the capital from across the globe, with prime assets being purchased by Asian, Middle Eastern and North American buyers. Q: What is drawing them to London? A: Global geopolitical risk is on the increase and high-net-worth individuals wish to place their assets and families in safe jurisdictions. London is a lead-ing global city — financially, culturally and socially — and the U.K. benefits from a stable political landscape along with a world renowned legal system and transparent tax codes. Unlike some of our European competitors, there is no tradi-tion of introducing retrospective legislation to increase the overall tax burden. Q: Is the demand in residential? A: We are now seeing investment being spread from the purchase of high-end residential properties for personal use, to value add opportunities. Investors are seeking retail, office, hotel and residential development opportunities where capital growth is predicted over a three- to five-year period. When it comes to investment strat-egies, global investors differ in their thinking. Middle Eastern investors are relatively unique in that once they have acquired a property they tend to hold onto it for many years and generations. The Far East and China markets are not yet in the same league as the Middle East or Russian markets, and have yet to embrace the concept of a family office and/or structuring. There is though still a significant appetite for commercial real estate from these markets — whether due to portfolio diversification or in some cases political instability. Q: You mentioned investments in hotels — Why this particular type of asset? A: Hotels is a sector ripe for international investment. However there has been a notable change in the type of asset being acquired. In days gone by, the stereo-typical high-net-worth investor from the Middle East would acquire a luxury hotel in one of the key cities, such as London, Paris or New York as part of their global portfolio of luxury assets with yachts, mansions and private jets. The purchase was driven more by the kudos of owning a five star hotel — perhaps operated by one of the luxury brands such as Four Seasons or an iconic landmark hotel such as the Ritz in Paris — rather than focusing on the underlying commercial rationale. Often these purchases would be spontaneous, ad hoc and not part of any defined strategy. Q: And that's not the case anymore? A: No. Whilst this clichéd view may still be true in a limited number of cases, it is now very much the exception to the rule. Today's high-net-worth investor looking to invest in a London hotel will, one, come from a wide geographical base. Qatari and Asian investors have been particularly active purchasers of hotels over the past couple of years. Secondly, they are far more discern-ing and views the acquisition of a luxury hotel as an investment and not just a purchase. Today's high-net-worth investor is savvy and well-advised; they are able to invest in a multiple of asset classes. Along with many other sophisticated investors, they view hotels as an attrac-tive option, since it is an investment in both the real estate asset as well as the underlying hotel business. Thirdly, they are willing to play the role of the developer as well as the ulti-mate purchaser. And last, they will also consider investing in hotels outside the traditional gateway cities of London, New York and Paris, to many European cities, as well as European resorts and second-ary regional locations It is also fair to say that one thing still holds true. High-net-worth buyers of hotels are not active sellers. They are purchas-ing the assets as a long term hold and perhaps also for future generations. This has in turn, led to a shortage of supply for purchase in a number of destinations, and possibly helped to promote the develop-ment of even more luxury hotels. Q: Does the investment come in the form of buying the actual property? A: The investment in residential prop-erty tends to be the outright purchase of the actual property, although once the purchase price exceeds 5 million pounds, and if the current ownership is a corporate vehicle, this is an attractive option for the sophisticated purchaser to save on Stamp Duty Land Tax. It has been known for the Far East buyers to "flip" the contract on a new build before actual completion and therefore this could be seen to be a form of investment. The developers have got wind of this and are now, if the contract allows, requiring the buyer to seek con-sent to any assignment of the contract and, in some cases, a share in the uplift. On the commercial side, whilst typically direct investment has been the trend, there is an increasing number of investors who are looking to invest by way of provid-ing alternative forms of finance. London's Hotels 'Ripe' for Investment by Family Offices Elaine Dobson Paul Lawrence Index | Previous | Next