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August 2015 Bloomberg Brief Family Office 2
BY DARSHINI SHAH, BLOOMBERG BRIEF EDITORWorldwide, there are now more than 14,600 families with at least $100 million in
assets — the kind of folks who would start or hire a family office — up 42 percent since 2008, according to the Boston Consulting Group.
When setting up a family office, organizers face a two-fold challenge: building a diversified portfolio capable of growth, and also figuring out how to pass the wealth on to the next generation. Indeed, an estimated $36 trillion is expected to transfer to heirs in U.S. households alone from 2007 to 2061, according to a 2014 study by the Center on Wealth and Philanthropy at Boston College.
With that in mind, Bloomberg Brief brings you insights from managers about their investment decisions and their outlook for the year ahead. Ariel Arazi, managing partner and co-founder of Bedrock Group, says he is tilting a typical family office portfolio towards equities and hedge funds and less towards fixed income this year. On the other hand, family office UFG Wealth Management, which caters to Russian clients, says a "dimmed to dismal" outlook for equities has resulted in the firm allocating most of its portfolio to fixed-income instruments.
Also read what advisers are saying about leaving too much money to the next generation, and how wealthy young heirs are being prepared for their inheritance.
INSIDE
Bedrock's Arazi on allocating to equities, hedge funds in a typical family office portfolio. .Page 3
UFG favors corporate bonds over equities. . Page 4
Bonderman’s Wildcat family office is backing hedge fund for masses. .Page 5
KKR rolls out Petraeus in $4 trillion hunt for family wealth. .Page 6
Leaving kids $63 million is too much, Merrill Lynch says. . Page 7
How Citigroup courts wealthy young heirs: Teach them to buy art. .Page 8
Inside a billionaire’s family office: Navy Seals, yacht captains. .Page 9
Meryl Streep money stays with Simon family as SEC grants in-laws. .Page 10
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Q&A
August 2015 Bloomberg Brief Family Office 3
Q&ABedrock's Arazi on Allocating to Equities, Hedge Funds in a Typical FO Portfolio
Ariel Arazi, managing partner and co-founder of
, spoke to Bloomberg Brief's Bedrock Group
Darshini Shah about tilting a typical family office
portfolio towards equities and hedge funds and
less towards fixed income. Bedrock Group was
founded by Maurice Ephrati, David Joory, Sandy
Koifman and Arazi in 2004. It oversees $9 billion
in assets.
Q: What is the asset allocation for a typical FO portfolio this year?A: Our asset allocation currently deviates from its benchmark primarily in fixed income, where the portfolio is underweight. Allocations to equities and hedge funds are broadly in line with the benchmark, and the fixed income underweight is balanced by cash. For moderate profiles, we stand at around 40 percent in equities, 40 percent in fixed income and 20 percent in alternative investments.
Q: Why are you underweight fixed income?A: Our fixed income allocation is unusually far from its benchmark due to very low yields and meager return prospects in traditional bonds. In fixed income, we deviate from the benchmark through niche asset classes, which we classify as 'alternative credit.' This includes opportunities such as peer-to-peer lending — a form of consumer credit — and trade finance. Such strategies offer stable returns of 7 to 10 percent per annum, with minimal correlation to broader fixed income markets. We also have an allocation to some high yield in Europe, as well as exposure to subordinated debt of investment-grade companies.
Q: What about the portfolio's equity allocation?A: The portfolio’s equity allocation is broadly in line with the benchmark, with slight overweights in Europe and Japan and an underweight in U.S. markets. We also maintain our exposure to emerging markets with a small underweight.
Q: Why are you overweight Europe and Japan?
A: We expect artificial stimulus measures, notably quantitative easing programs, to cause asset price inflation in Europe and Japan. The ECB’s QE program has a long way to run, and should lead to gains for European equities in the next one to two years. The weak euro and and cheap oil will also be supportive.
Q: Is Greece a worry?A: While Grexit is no more an option in the short term, we believe that the country’s financial future remains uncertain despite the bailout given its continuing reliance on significant financial bailouts and high existing debt.
If the situation in Greece were to worsen again, we believe that Europe is much better prepared than in the past and that contagion risk is lower.
Q: What about China?A: We believe that China is slowing but not breaking and that a soft landing remains achievable with continuing enhanced policy support. The country has the necessary tools to support its economy, with significant reform efforts on multiple fronts including key financial and capital account liberalization.
Our exposure to China is mainly expressed through our exposure to EM equity managers, which currently do have a significant overweight to EM Asia, including China.
Q: And you allocate to hedge funds?A: We are constructive long-term on equities, but expect volatility to persist near-term. This should provide a favorable opportunity set for our active managers, both in developed and emerging markets.
Q: What specific hedge fund strategiesdo you like?
The hedge fund portfolio is currentlyA:
biased towards event-driven and long-short equity strategies. Increased marketvolatility provides a fertile opportunity set for both strategies.
Long-short equity managers are benefiting from reduced correlations between stocks, enabling them to generate more alpha whilst maintaining low beta exposure.
Event-driven strategies should continue to benefit from a robust pipeline of M&A deals, supported by sustained easy credit conditions, and distressed managers have an ample opportunity set among the assets being sold by European banks as part of their deleveraging process.
There is also now considerable divergence between the macro trajectories of the U.S., eurozone, U.K., commodity exporters and other countries. We believe that these divergences will provide a rich opportunity set for macro managers and, whilst returns will not necessarily be smooth, they will be uncorrelated from other assets.
Q: Do you have any private equity or real estate exposure?
It is limited given the poor liquidity of A:those investments and is concentrated in private lending strategies. Our clients have direct real estate exposure.We also seeded a product leveraging long-standing relationships within the confidential world of best-in-class technology firms that are in their final rounds of private financing before an exit through IPO or purchase.
Q: What about commodities?A: We don’t have a dedicated allocation to commodities as we don’t have any strong view on the asset class. We do, however, have some exposure to the asset class through our macro and commodity trading adviser hedge fund managers.
Age: 47Education: University of GenevaFamily: Married, two childrenHometown: LondonHobbies: Skiing, art, travelFavorite book: The Kite RunnerFavorite restaurant: UNI, LondonFavorite holiday destination: Verbier
Q&A
August 2015 Bloomberg Brief Family Office 4
Q&AUFG Favors Corporate Bonds Over Equities
Oksana Kuchura, partner at family office UFG
, which caters to Russian Wealth Management
clients, spoke to Bloomberg Brief's Darshini Shah
about how a 'dimmed to dismal' outlook for
equities has resulted in the firm allocating most of
its portfolio to fixed-income instruments.
Q: How are you catering to wealthy Russians this year in terms of their portfolio allocation?A: Russian high-net-worth individuals and ultra-high-net-worth individuals face different challenges — some sold established businesses and started new ones, some are reallocating to other jurisdictions, some demand stable cash flow. All these goals require different investment strategies. As for UFG Wealth Management, 95 percent of our typical portfolio consists of hard currency fixed-income instruments. The rest is equally split between cash and equity instruments.
Q: Why is most of the portfolio in fixed income?A: Due to our clients’ specific liquidity and safety needs, we believe that investment-grade and the highest-ranking high yield corporate bonds of issuers from developed markets are the best places to be in the medium to long term. In the short term, as we approach a rate hiking cycle in the U.S., fixed income instruments in developed markets would experience elevated volatility. However, as the world economy continues to face slow growth and deflation concerns, bonds of good-quality corporates will bring investors decent returns in the medium to long term.
Q: Is the fixed income portfolio biased towards developed markets?A: The fixed income part of portfolios is skewed towards developed market
issuers — approximately two-thirds — with a third in emerging market corporate and sovereign notes. We also moderately employ derivatives both as hedges and to enhance returns in a difficult market environment.
Q: Why is such a small part of your portfolio in equities?
Given that markets globally — mainly A:developed countries — face rising interest rates in the short to medium term, our outlook for equities ranges from dimmed for developed to dismal for emerging markets.
Q: Do you invest in alternatives at all such as private equity, hedge funds or property?
Russian HNWI and UHNWI in general A:have had quite an upsetting experience with private equity and thus they either abstain from such investments or engage with them personally, devoting lots of time and effort for research and supervision themselves.
At the same time, Russians traditionally like investing in real estate. At the moment, we are seeing growing interest — both among our clients and Russian investors in general — to diversify into European commercial real estate. In the past, the focus of such interest was traditionally concentrated in London, however, following the numerous financialcrises, significant money flows shifted to
continental Europe.
Q: How do you cater for that demand?UFG runs three Luxemburg-based A:
funds, which invest in commercial real estate both in Russia and Europe and we constantly look at the new opportunities. The current market environment in Russia, with the falling ruble — makes hard currency investments the most alluring.
Q: What is your outlook for the remainder of the year?A: Our outlook for the year-end is rising volatility in emerging market equities and emerging markets in general, a strengthening U.S. dollar on the back of markets’ anticipation of interest rate hikes in U.S., sideway movements in developed markets' bonds and equities and continued weakness in commodities.
Q: Does Greece/China worry you?A: We do not believe that China is going to implode, causing new global crises. But its slowing economy is going to add deflationary pressure and will make the rate hiking cycle significantly less aggressive compared with the past.
As far as Greece is concerned, it’s too small an economy to truly influence the global outlook. However, its ongoing saga is causing regular volatility outbursts, which are worth watching to pick up some interesting European names.
Age: 41Professional Background: Troika Dialog Management Company, UFG Wealth Management.Education: Kazakh University of International Relations and World LanguagesFamily: Married, daughterHobbies: Yoga, kite surfing, skiingFavorite book: The Power of Now, Eckhart TolleFavorite restaurant: Chotto Matte, London
HEDGE FUNDS
August 2015 Bloomberg Brief Family Office 5
HEDGE FUNDSBonderman’s Wildcat Family Office Backing Hedge Fund for Masses BY SABRINA WILLMER AND MARGARET COLLINS
David Bonderman amassed a $3 billion fortune in private equity for sophisticated investors. He’s now selling hedge fund strategies to the masses.
Bonderman, whose has TPG Capitalowned companies such as Continental Airlines and retailer J Crew Group, is using a family office that manages a portion of his money — Wildcat Capital
— to back a startup Managementinvestment business. Infinity Q Capital Management is offering retail and other investors a version of the hedge fund programs it uses for the billionaire, said James Velissaris, chief investment officer for the new firm.
Run by Wildcat employees, Infinity Q can sell products such as liquid alternative mutual funds to outside investors. It means Bonderman can profit from the expertise of his personal money managers, who in turn can earn more money.
“Families recognize that over time it’s sometimes valuable to turn the services they created into a business,” said Bill Woodson, head of the North America family office group at Citigroup’s private bank.
Bonderman, known as Bondo, built his wealth buying, fixing and selling companies. Wildcat was set up in 2011 to manage his money and cater to a small group of his friends and relatives. The family office oversaw $1.3 billion at the beginning of the year, according to a regulatory filing in March, with holdings including public stocks and venture capital.
Wildcat shares its name with the location of Bonderman’s home near Aspen, Colorado. Leonard Potter, who previously managed private equity investments for George Soros, runs and is the owner of the Fort Worth-based firm, allowing Bonderman to focus on TPG, the $75 billion firm he co-founded in 1992 with Jim Coulter.
The family office’s initial focus was improving the performance of its hedge fund holdings, according to Velissaris, a former Harvard University football player who studied financial engineering and economics. The investments were moving
in the same direction during periods of crisis and would be difficult to quickly sell, he said.
They pulled money from outside managers and started overseeing the investments directly, using quantitative methods to bet on themes including macroeconomic trends, volatility and long-short equity. Since August 2012, Wildcat’s hedge fund strategies returned 15 percent through March 31, Velissaris said in an e-mail.
Wildcat decided the techniques could fit within mutual funds known as liquid alternatives. It started New York-based Infinity Q last year and the firm now oversees about $54 million. A Bonderman family entity owns at least 25 percent of Infinity Q and Potter is chief executive officer.
By offering liquid alts, Infinity Q is trying to tap into one of the fastest-growing areas for money managers. The mutual funds aim to give investors access to complex strategies that can use derivatives and borrowed money, and still let investors withdraw their money on a daily basis. The funds attracted a record $16.5 billion last year, according to Morningstar, raising total assets to about $158 billion.
“We think the hedge fund industry is
undergoing a significant change due to a high fee structure and several years of underperformance,” Velissaris said.
Infinity Q’s Diversified Alpha Fund has an upfront sales charge of as much as 5 percent and an annual expense of 1.95 percent for the Class I shares, which have a minimum investment level of $1 million. The fund has gained 5.16 percent this year as of Aug. 14, beating 94 percent of peers, according to data compiled by Bloomberg.
Infinity Q plans to broaden its offerings to funds using volatility and macro strategies, Velissaris said. It’s also received requests for tailored accounts that would employ their techniques, he said.
For Bonderman, who got his start in finance working for Robert Bass’s family office in the 1980’s, Infinity Q is just one of a range of investments he’s made in recent years outside of TPG and private equity. He’s backed online lender Kabbage, and Kite Pharma, a developer of cancer drugs that went public last year.
“Bonderman has had the itch to expand into investment areas beyond what TPG is confined to,” said Erik Gordon, a professor at University of Michigan’s business school. “He definitely has the money.”
PRIVATE EQUITY
Source: Bloomberg/Andrew Harrer
David Bonderman
August 2015 Bloomberg Brief Family Office 6
PRIVATE EQUITYKKR Rolls Out Petraeus in $4 Trillion Hunt for Family Wealth BY MARGARET COLLINS AND JASON KELLY
It was an invitation too good to resist.Matthew McCarthy was asked by KKR
to fly to New York from Ohio, where he manages money for the founders of a consumer-products company. First he had dinner with KKR’s billionaire co-founder Henry Kravis. The next morning, he met David Petraeus, the former director of the Central Intelligence Agency and current chairman of the KKR Global Institute at the company’s headquarters.
“They didn’t really pitch products,” said McCarthy, whose firm Rockside Capital
intentionally stays under the Partnersradar. “They brought out General Petraeus.”
McCarthy is the type of investor that KKR and its private equity competitors including Blackstone Group and Carlyle Group are increasingly courting. Family offices and their advisers manage an estimated $4 trillion, including for the newly rich in Silicon Valley and China, Midwestern entrepreneurs and old money in Europe.
The money managers are responding by adding staff, holding conferences and offering sweeteners, including reduced fees on investments.
Efforts are paying off. Blackstone, which last year started reaching out directly to family offices and hosting forums for them, has $43 billion of its $310 billion under management from private wealth, more than triple the amount five years ago, the firm said in May. Across private equity, family offices account for about 6 percent of capital, up from 4 percent in 2010, according to research firm Preqin.
Industry executives say the percentage should be higher.
The firms are seeking new pools of wealth to lessen their reliance on state and corporate pension plans. They’re also reaching out at an opportune time. Globally private equity firms reaped a record $428 billion by selling holdings last year, a 30 percent increase from 2013, according to Preqin.
Cracking the network of rich families isn’t easy because it requires uncovering people who don’t necessarily want to be
sold to, said Lawrence Calcano, a managing partner at iCapital Network, an online marketplace for private equity funds.
Private equity firms want wealthy families for more than just their money.
Family offices bring expertise in buying companies, usually have fewer regulatory restrictions and can take bigger risks than pensions or endowments, Michael Arpey, a managing director at Carlyle who oversees fundraising, said in an interview.
William Heitin, who works for families including the founders of fitness company Reebok International and Stacy’s Pita Chip, was invited by Blackstone last year to an event at the Waldorf Astoria hotel followed by time in the company’s New York headquarters with senior executives.
Many of his clients are entrepreneurs who have built and sold their own businesses so they can help private equity managers vet deals, said Heitin, whose Waltham, Massachusetts-based
manages more than Windrose Advisors$2 billion.
“We have a client that started and sold a major food company,” said Heitin, Windrose’s chief investment officer. “If the private equity firm is looking at a deal with a food company, we put them in touch and then there may be a co-investment opportunity for the family.”
Private equity firms — once they track down family offices — face intense competition to woo them from both larger and smaller rivals.
BlackRock, the world’s largest asset manager, has amplified efforts to serve the group by hosting summits with speakers including its chief executive officer, Larry Fink. The company has more than 20 people dedicated to working with them in the U.S. and has added staff in London, Hong Kong and Australia, said Brian Feurtado, who leads the group for the New York-based firm in the U.S.
“There’s been an explosion of family offices,” Feurtado said. “It’s a very, very vibrant and growing industry.”
There are an estimated 4,000 family offices globally, according to London-based researcher Campden Wealth.
Some private equity firms are enticing family offices to invest with the promise of co-investment opportunities. That’s when families invest alongside the firms rather than through a pooled vehicle, and are charged reduced or no fees. While it sounds good to investors who are more sensitive to costs, the offerings may not result in better returns, according to a 2015 study by professors Josh Lerner and Victoria Ivashina of Harvard Business School and Lily Fang of INSEAD.
SURVEY SAYS…
Private Equity Investors
August 2015 Bloomberg Brief Family Office 7
SURVEY SAYS…Leaving Kids $63 Million Is Too Much, Merrill Lynch SaysBY MADELINE MCMAHON AND MARGARET COLLINS
Some parents are concerned about leaving excessive amounts to their offspring, for fear of creating a sense of entitlement. Others are afraid of leaving too little. But just how much money does that actually mean?
Bank of America’s Merrill Lynch asked these questions to high net-worth individuals, and some of the findings are in the graphic below.
The purpose of the survey was to understand the intentions behind individual decisions when transferring wealth.
“There’s a lot of intensity around these questions,” Stacy Allred, a managing director in Merrill Lynch’s private banking and investment group, said of family dynamics associated with wealth transfer.
Generational giving isn’t always seen in a positive light, the report said. “One blog that compiles photos of children of the
wealthy from social media gives the impression that the next generation in wealthy families spend all their time drinking champagne on yachts, flying private jets to St. Tropez, or deciding whether to take the Bentley or the Ferrari for a spin,” according to the report. These stereotypes may encourage families to avoid the topic, which can impede defining priorities of giving, the report said.
PREPARING THE NEXT GENERATION
August 2015 Bloomberg Brief Family Office 8
PREPARING THE NEXT GENERATIONHow Citigroup Courts Wealthy Young Heirs: Teach Them to Buy Art BY MARGARET COLLINS AND REBECCA SPALDING
The team went all in on Kate Moss.One evening in June at Citigroup in
downtown Manhattan, a group of 20-somethings spent $95,000 in a bidding war for a black-and white photo tapestry of the fashion model’s face. They were confident that the work by the prominent New York artist Chuck Close was worth the price.
That’s why there was a collective gasp when Tash Perrin, a senior vice president at Christie’s, revealed that the work didn’t sell when it was last auctioned in 2013.
The sale and money that the 40 participants used to bid with was fake, but the lesson on valuing and buying art was real. The attendees, from wealthy families in 18 countries, are poised to inherit enough money in coming years to purchase some of the items they were shown at the event — from Cartier earrings worn by Elizabeth Taylor to a Bjork album cover photograph. For firms like Citi Private Bank, teaching them how to invest in art is one tool to help retain the heirs when the family wealth is passed on to them.
“You don’t have the birthright to the next generation’s wealth,” said Money Kanagasabapathy at Citi Private Bank, who directs such events for clients’ children. “We want to continue to have the relationship with the family.”
In the past, wealth managers haven’t been so successful at keeping younger clients. On average, firms have seen almost half of the assets leave when a family’s wealth is being handed to the next generation, according to the latest figures from a report on global private banking by consulting firm PricewaterhouseCoopers.
Banks are trying to reverse that trend because an estimated $36 trillion is expected to transfer to heirs in U.S. households alone from 2007 to 2061, according to a 2014 study by the Center on Wealth and Philanthropy at Boston College. The figure swells when including billionaires worldwide, a majority of whom are over age 60 and have more than one child.
The U.S. economic recovery also has accelerated parents’ desire to prime children for what’s coming, said Arne
Boudewyn, a managing director in Wells Fargo’s Abbot Downing unit.
“Company valuations are higher than in past years, including family-owned and controlled companies,” said Boudewyn, whose clients generally have at least $50 million. “Many families who never seriously contemplated selling are now fielding offers they can’t refuse.”
Citi Private Bank’s event included a session on buying art because the asset class is increasingly seen as an investment, with global art sales hitting a record in 2014 as new collectors drove up prices for trophy works.
Other banks including Credit Suisse Group, Deutsche Bank, UBS Group and Coutts, a unit of the Royal Bank of Scotland Group, run training camps for clients’ children. Held in countries including Singapore and Switzerland, the programs usually span several days to more than a week and participants often fly in from around the world. The seminars — which cover topics such as sustainable investing, philanthropy, entrepreneurship or how to protect your family reputation and brand online — are free to attend while clients generally cover their own travel and accommodation.
During the Citi Private Bank event, experts from Christie’s helped participants review a mock catalog of
quality, rarity, condition and history of ownership. Attendees then bid on pieces that have been, or will be, auctioned including an Andy Warhol polaroid print of Giorgio Armani and a pair of ear clips by Seaman Schepps formerly owned by the Duchess of Windsor. Perrin then showed the teams what the works really sold for so they could see if they spent their money wisely.
Wells Fargo’s Abbot Downing and U.S. Trust, a unit of Bank of America Corp., have a financial education curriculum with individual coaching instead of boot camps. Some parents or grandparents require heirs to take it before telling them how wealthy they are and what they will inherit, said Chris Heilmann, U.S. Trust’s chief fiduciary executive. In June, the bank added a program for teenagers as young as 13.
The young adults who attended Citigroup’s event have jobs and even some master’s degrees, but their parents want them to hone skills that are unique to their wealth — such as bidding on a Picasso or taking over a family business, said Kanagasabapathy.
“There is no tolerance today for an incapable CEO,” he said.
Wealth managers like Citigroup said they hope the trainings will strengthen both family profits and bank loyalty.
“It’s easier to retain a client than to get a new one,” he said.
The Drain on Family Wealth
August 2015 Bloomberg Brief Family Office 9
about a dozen works. They advised each team on criteria to determine value: a work’s
PROFILE
August 2015 Bloomberg Brief Family Office 10
PROFILEInside a Billionaire’s Family Office: Navy Seals, Yacht Captains BY MARGARET COLLINS
Managing the life of Sergey Brin is big business.
Through Bayshore Global , the Google co-founder Management
has hired former bankers and philanthropy experts to help manage his estimated $33 billion fortune. He’s employed a former Navy SEAL and SWAT team veteran for security, and a yacht captain to handle his aquatic endeavors. A fitness coordinator, a photographer and archivist help run his life.
Bayshore, based in Los Altos, California, provides a glimpse into the services family offices bestow upon the wealthy beyond investing and accounting.
There are now more than 14,600 families with at least $100 million in assets globally, up 42 percent since 2008, according to the Boston Consulting Group. Many of these have set up their own offices to help manage investments and day-to-day lives.
Family offices serving the world’s billionaires usually employ at least 50 people, with staff across multiple teams including executive, administrative and investment groups, according to London-based researcher Campden Wealth, which started collecting the data last year.
Vulcan, the Seattle-based company created by Microsoft co-founder Paul Allen and his sister Jody Allen, has more than 500 people. The family office features an in-house media company, a 17-member team managing a multi-billion dollar investment portfolio and a division that’s working on space travel. Vulcan is also currently hiring a chief investment officer and wildlife conservation expert among other positions, according to its website.
Allen, who has an estimated net worth of $17 billion as of Aug. 24, according to the Bloomberg Billionaires Index, named Vulcan after the Roman god of fire. He’s also a Star Trek fan.
Bayshore gets its name from the location of Google’s headquarters, an area in California known as North Bayshore. It’s existed since at least 2006, two years after Google, the world’s largest search engine, had its initial public offering.
Group, Deutsche Bank and other family offices, according to LinkedIn profiles that list Bayshore as their employer. It has employed at least 47 people according to Department of Labor filings. These include a chief of staff and manager of the family’s New York City home, who oversaw construction, recruited domestic staff and provided personal shopping.
Brin also owns Passerelle Investment, a real estate firm. It’s bought properties in Los Altos to help revitalize the town for businesses and families, according to Passerelle’s website.
Representatives for Bayshore declined to comment.
Brin emigrated to the U.S. from the Soviet Union as a child with his family. He also runs the Brin Wojcicki Foundation with his wife, Anne, that disburses charitable donations and supports human rights.
Brin was the 15th richest person in the world as of Aug. 24, according to the Bloomberg ranking. Controlling a fortune of that size requires professional security. Bayshore brought in the former Navy SEAL to provide protection, according to a LinkedIn profile. A former U.S. Secret Service agent directed security programs, and a former SWAT team operator oversees the family’s properties and emergency procedures.
Some of the largest family offices have operation centers to monitor people and property, said Christopher Falkenberg, a
former U.S. Secret Service agent and founder of New York-based Insite Security that provides protection services to clients such as family offices.
There are layers of personnel including former military and law enforcement experts who are responsible for locks on doors and gates, background checks on staff, and managing travel and aircraft security, Falkenberg said.
They don’t come cheap. A security director who’s a former FBI agent can command at least $200,000 a year, he said. That can be double a typical salary working for the government.
Salaries at family offices vary widely, said Natasha Pearl, chief executive officer of Aston Pearl, which serves single-family offices that have at least $400 million. Pearl's New York-based firm has helped families hire cybersecurity experts, find college advisers and create procedures for staff at multiple residences.
Private chefs can command salaries from $40,000 to as much as $200,000 a year with full benefits depending on whether they have top restaurant experience and have worked with other wealthy families, Pearl said. College-adviser fees, a growing area, can range from $5,000 to $25,000.
“It’s not like the ‘blue book’ where you look up chief risk officers or chefs and there are standard comp rates,” she said. “It’s a very fragmented market.”
Family Office Assets Under Management
August 2015 Bloomberg Brief Family Office 11
The company’s employees have been recruited from Google, Goldman Sachs
REGULATORY
August 2015 Bloomberg Brief Family Office 12
REGULATORYMeryl Streep Money Stays With Simon Family as SEC Grants In-Laws BY MARGARET COLLINS
Private investment firms in the U.S. that manage the wealth of a single family are winning the right to service in-laws and their relatives.
For the descendants of William E. Simon, Treasury Secretary under Presidents Richard Nixon and Gerald R. Ford in the 1970s, that means they can keep managing money for Meryl Streep and her foundation within their family office.
The Simons, who have advised their former sister-in-law for 26 years, sought permission from the U.S. Securities and Exchange Commission after a 2011 rule tightened the definition of family clients. The regulator on Jan. 20 granted their petition, according to an SEC document that didn’t identify Streep. Two people familiar with the matter said the former sister-in-law is the Oscar-winning actress, whose brother Dana was recently divorced from Mary Simon, a daughter of the ex-Treasury Secretary.
The Streep decision followed similar orders granted to the offices that serve the billionaire heirs of energy tycoon Dan L. Duncan and descendants of the New York banking dynasty of Joseph S. Gruss. By winning SEC approval, the single-family offices are redefining how broad they can be without divulging information about the wealth they manage or triggering regulatory scrutiny.
“There isn’t any real compelling reason for the public to know how a family office operates,” said David Guin, a partner at Withers Bergman who specializes in securities regulation for family offices. “If you’re a commercial adviser, the purpose of registering is to make sure there is a certain level of available information and compliance in place for their investors’ protection.”
Family offices, which have existed for more than a century to handle the financial affairs of the wealthy, oversee an estimated $4 trillion globally. They typically don’t have to register with the SEC like other money managers, avoiding certain compliance costs. They
also don’t have to disclose equity holdings even after rules enacted in the wake of the 2008 financial crisis increased oversight of investment advisers.
Keeping their privacy came with a catch. When the SEC defined family members in rules issued in June 2011, it said families could designate a common ancestor, whose descendants could be served by the office. The designation of that person rather than a husband and wife, means providing services to a spouse’s parents, siblings or nieces and nephews could force registration as a commercial investment adviser.
"There isn’t any real compelling reason for
the public to know how a family office
operates."— DAVID GUIN, WITHERS BERGMAN
“We’ve had to restrict who’s been able to invest through the family office,” said Bradley Van Buren, an attorney and partner at Holland & Knight in Boston who works with family offices.
In the case of Streep and the Simons, the SEC accepted the family’s plea, which argued that the former sister-in-law is an integral part of the family whose assets were managed by them for more than two decades, according to the filing. That familial relationship shouldn’t mean that the firm is a commercial investment adviser, according to the petition, which didn’t disclose the assets overseen by the firm.
Peter Simon, a son of William E. Simon and a co-founder of their namesake firm in Morristown, New Jersey, declined to comment. Streep’s publicist at 42West,
didn’t respond to a request for comment.The Simon’s family office was among a
handful of firms who filed applications with the SEC after the rules related to in-laws changed in 2011. They are also among the first to have their requests granted, after more than two years.
The SEC approved in July 2014 a petition from the , Duncan Family Officewhich sought to keep advising a mother-in-law who had been a part of the family for at least 16 years, according to the filing. The firm serves billionaire descendants of Dan L. Duncan, who founded the Houston-based energy company Enterprise Products and died in 2010. Duncan’s four children have a combined estimated wealth of $15 billion as of Aug. 24, according to the Bloomberg Billionaires Index.
That same month the regulator granted an exemption for the Gruss family. The financier founded New York-based Gruss & Co. and specialized in oil and gas industry mergers. The family office won concessions to keep advising sisters-in-laws and their families.
Martin Lybecker, an attorney at Perkins Coie in Washington, who represented the Duncan and Gruss family offices in their applications, declined to comment on the families or the SEC’s decision.
Families have to apply to the SEC on a case-by-case basis. Another application from D-W Investments, which provides services to the descendants of Myron A. Wick, Jr., was granted in May. The petition asked to keep advising a sister-in-law and a trust that she’s a beneficiary of, according to the document. Wick was the CEO of Dominick & Dominick, the investment banking house, according to a 1990 obituary in the New York Times.
The 2011 rules will be an issue for more family offices over time who want to expand their clients without registering. That’s because the designation of a common ancestry will affect in-laws on one side of a familial lineage with each successive generation, Lybecker wrote in a 2013 book titled “Investment Adviser Regulation.”
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