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 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.
TRUST
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.
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"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."
(1 CHF = 1.14277 USD)
(Editing by Carmel Crimmins and Philippa Fletcher)
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