How To Grow And Protect Family Wealth by Greg Silberman
Nobody told me about the Peanut Shells on the floor!
You’d think a place like this would have clean floors?
Michael Mauboussin: Challenges and Opportunities in Active Management And Using BAIT #MICUS
But settle in for a few ‘Slings’ and you will find yourself absorbed into the atmosphere, fantasizing about colonial adventures in South East Asia.
Malayan plantation life in the 1920s.
Oriental carpet on tiled floors and traditional stained cane and rattan furniture.
Charming timber staircases connects the two levels of the Long Bar with the seating above interspersed with teak lounge chairs.
You are in the Raffles Hotel in Singapore.
An island city state, Barron’s reports that Singapore is the world’s second largest banking center, behind Switzerland.
Singapore’s worldwide share of the private banking business is around 6%, compared with Switzerland’s 18%. But Singapore is growing 30% per year. Private banking assets are up six fold from 1998. Today, Singapore is home to about $300 billion, according to Citigroup .
Be a little kinder to capital than your neighbors and you will attract money flow. Singapore has a long history of trading (and smuggling) without many questions asked.
Combine the investor friendly environment with lower transparency and the incredible economic growth in Asia, you will find Singapore to be an enclave for family wealth.
A new Politico Economic Structure
We highlight the success of Singapore because we envisage a new form of politico-economic structure developing. Neither capitalism nor communism but one of near dictatorship yet friendly to capital.
We see many such Singapore’s developing over time to cater to vast family wealth. In a recent article Bloomberg notes there is as much as $4 Trillion (that’s a T) of family wealth looking for private equity like deals.
In fact we can even see a time where the wealthy are happily ensconced ‘somewhere’ else, well protected and guarded while the world’s wealth disparity becomes enormous.
Not unlike in the Neill Blomkamp – my favorite director who happens to be South African – movie Elysium.
“In 2154, Earth is overpopulated and polluted. Most of the earth’s citizens live in poverty, on the edge of starvation, and with little technology and medical care. The rich and powerful live on Elysium — a gigantic space habitat located in Earth’s orbit. Elysium is technologically advanced with some of its technology including Med-Bays: medical machines that can cure all diseases, reverse the aging process, and regenerate new body parts. A long-running feud exists between the wealthy residents of Elysium and the citizens of Earth, who want Elysian technology to cure their medical ailments.” — Wikipedia
Managing Family Wealth
In this enclave of family wealth we have noticed a ‘new’ business model emerge within the wealth management space.
What is commonly misunderstood about family wealth is not only the lack of homogeneity between families but also the diversity of capital pools within.
Beneath the surface of the family wealth structure it is not uncommon to find:
- operating businesses spinning off cash;
- a wide array of trust structures;
- charities and foundations;
- other liquid & illiquid assets
It is therefore quite common for any new investment (direct, co-investment, fund) to be made from a SPV commingled vehicle.
Over the years we have seen various wrap provider businesses develop to create unique vehicles and/or access points for family offices and club deals.
We know of several ‘consultant’ type businesses which specialize in introducing co-investment and direct deals through family office syndicates.
The fee level depends on the required level of service, from least to most expensive:
- Wrap providers that will provide simple, cost effective feeder fund structures that include document managing, recordkeeping and accounting services (back office).
- Investment due diligence on opportunities designated by the family;
- Investment sourcing (technology platforms playing a large role here);
- Investment Monitoring;
- Board representation.
All of these services are provided on a sliding fee scale and in some instances feeder funds are opened for distribution to other families or RIAs.
It’s a fascinating space and likely eating the lunch of fund of funds as the movement towards direct deals by family has increased.
For more fascinating information on Family Offices and their tremendous trajectory I suggest you read Richard Wilson’s The Family Office Book: Investing Capital for the Ultra-Affluent.
We perceive that the growth in family office wealth is where it’s at over the longer term – fungible wealth managed away from regulation that knows no borders or constraints.
What has your experience been dealing with family wealth wrap providers?
Thank you for reading my post. I regularly write about private market opportunities and trends. If you would like to read my regular posts feel free to also connect on LinkedIn, Twitter or via Atlanta Capital Group Investment Management.
Greg Silberman is the Chief Investment Officer of Atlanta Capital Group Investment Management [ACGIM]. Atlanta Capital Group Investment Management specializes in creating custom private market solutions for RIA/Family Office clients.
Advisory Services offered through Atlanta Capital Group Investment Management.
Nothing in this article should be interpreted as a recommendation to buy any security. Please conduct your own due diligence.
Main pic source: http://picography.co/photos/dubrovnik/