- Super rich increasingly seek direct investments
- Banks restructure, hire staff in pursuit of family funds
- Number of billionaires grows 7 pct to 2,325
Traditionally focused on companies and institutions, investment banks are hiring staff and reorganising teams to cater to wealthy clans, from Chinese multi-millionaires to old world dynasties in Europe and the United States.
While some such families have been involved in direct investment for years, many more are just getting interested, seeing more potential for profit there than in funds or markets.
“The global scale of this is meaningful so the group takes notice,” said Philip Higson, Vice Chairman of the Global Family Office Group at Swiss bank UBS which, like others, had previously courted individuals via its wealth management arm.
Unsurprisingly, investment banks in Switzerland, the global hub of wealth management, have led the way in targeting family offices, the private firms that manage the financial affairs of the richest families.
But U.S. banks are also deploying more investment bankers to focus on the super rich, whose numbers are on the rise. At the top end, a study by UBS and consulting firm Wealth-X identified 2,325 billionaires last year, up 7.1 percent over 2013.
BoA Merrill Lynch hired a Goldman Sachs banker last year to look after family offices within investment banking, while JP Morgan asked two of its investment team to focus on the area.
And banks are also trying to reorient their structure to seize the opportunity – UBS created a joint venture between its investment bank and wealth management department at the end of 2010, and Credit Suisse has also adapted.
“At Credit Suisse we set up a private banking multi-asset class sales desk within the investment bank, so the client has one point of contact,” said Matthew Haimes, Managing Director and Head of Family Office and Institutional Clients.
Family offices traditionally managed a clan’s day-to-day financial affairs, from paying the heir apparents’ school fees to dealing with tax and charitable interests. For investment advice they tapped private bankers and fund managers.
But since interest rates tanked in the wake of the global financial crisis, they have been hiring in-house advisers, often ex-investment bankers keen to do business with former colleagues.
They are helping family offices to look for more creative ways of earning a return than simply handing their cash over to fund managers, whose 2 percent annual fees and 20 percent on any profit earned are falling, but not fast enough for some.
Robert Bibow, Managing Partner at private investment advisor Bidwell Capital and a former employee of Goldman Sachs and Deutsche Bank, cites one client, a member of the Saudi royal family, who decided that after 20 years of investing in private equity funds to focus only on investing directly into deals.
Wealthy families made a string of high-profile deals in 2014. The Qatari royal family poured 1.75 billion euros ($2 billion) into Deutsche Bank’s 2014 rights issue, while the billionaire March clan’s holding firm Corporacion Financiera Alba took an 8 percent in Spanish airport operator Aena ahead of its initial public offering (IPO) this year.
Having a family buy into a new share deal can be a trump card for investment bankers because they are willing to tie up their funds for a long time.
“More and more in the context of pitching equity capital market (ECM) mandates, having access to such anchor investors is a differentiating factor,” said Sam Losada, head of International Strategic Equity Solutions and co-head of Global Rates & Currencies Origination at BoA Merrill Lynch.
Family offices offer investment banks the possibility of a lengthy and lucrative relationship and are also often easier to deal with than institutional investors whose decisions are often delayed by internal committees.
“If they call us with a deal opportunity and we respond in 24, 48 hours, they like that,” said Marc Meyohas, whose private equity vehicle Greybull Capital invests money from his own “entrepreneurial industrialist” family, and one other.
UBS said it expects to earn around 260 million Swiss francs ($297 million) in Global Family Office revenues outside the United States in 2014. Within that, earnings from direct deals grew fastest of all, although it is still dwarfed by income from the foreign exchange division for example.
But establishing the connection can be difficult. In the rarefied world of family money, deals between dynasties are still favoured.
The average deal size for office-to-office deals in 2013 was $119 million compared to $76 million syndicated by investment banks, according to UBS and family office data provider Campden Wealth.
“Family offices need someone they trust,” Haimes said. “You need to go into each meeting without an agenda, without trying to presuppose what a client wants.”
In an industry where one professional recommends “hanging round Mayfair” as a good way to find business, industry figures say investment bankers used to cold-calling with ideas need to work to establish rapport.
“You’ve got to find points of entry other than a pitch about the investment opportunity of the quarter,” said Andrew Porter, director of research at Campden.
“Family offices are for life, I always say. If you don’t have patience, if you don’t want to engage in a non-transactional way, don’t bother.”
By Freya Berry and Andrew Winterbottom, Reuters