I advise several families on alternative investments. They are mainly from the GCC and each have a net worth in the billions (USD). Most of them have a presence in London, if not their main office based there.
Not many people know who they are and even fewer know what they own exactly. Aside from the shiny assets they possess, these families tend to employ a small army of specialists ready to serve their needs, ranging from private bankers and legal experts to security companies looking after the safety of their loved ones.
Often, their money is managed through what’s called a Family Office, an organization that manages the wealth of an ultra-high-net-worth family. This vehicle or entity can comprise less than a handful of people, including the individual or family members to whom the wealth belongs, up to twenty or more individuals. It varies on a case by case basis.
Interestingly, Family Offices allow very few people into their inner 'circle', for obvious reasons.
Different families, different cultures
They differ from larger, more institutional investors such as Pension Funds in a number of ways - far too many for me to outline in one post. One of them has to do with how those Family Offices go about deciding whether or not to carry out due diligence into a particular investment opportunity.
Let’s set aside the type (debt or equity), sector (Energy, Natural Resources, Technology, etc.), ticket size (USD1m, 50m or more) and structure of the investments they make, and touch on how they arrive at a decision to proceed ahead.
Two examples:
1) One French Family Office I know is so hierarchical that the decision whether to dig deeper into an investment proposition, from the moment the opportunity is introduced to the organisation, goes through a series of predetermined steps which could last anywhere from two to three weeks. From there, it can be a month before anything moves forward. They’re generally very cautious and conservative. Note, there’s nothing wrong with that. That's just how they operate as an investment firm.
2) On the other hand, an English Family Office I worked with in the past was somewhat the opposite. I recall the following:
One morning a call came into the office. A member of the family answered. It was a new investment opportunity. The call went on for ten or so minutes, after which a meeting was called. Five family members and I went into a conference room to hear what was up. In short, a Scandinavian tycoon was facing financial difficulties, needed money and was willing to sell his private jet at a discount. We discussed it for ten minutes before dialling in the person who had called earlier (the ‘introducer’). He was advising the Scandinavian businessman. The call went on for 45 minutes. Afterwards, we stepped out and grabbed a bite, after which we returned to the conference room to continue discussing the opportunity amongst ourselves. We returned to our seats. An hour later, the introducer sent us documentation on the private jet. Another hour later we regrouped in the conference room. Within half an hour we made a decision to move forward and exactly two days later we all flew out to meet the counterparty.
In short, a faster, less bureaucratic decision-making process where decisions are often made, informally, sitting around a table over coffee or tea. Also, nothing wrong with this style of doing business.
The chosen few
Family Offices meet new people regularly in the course of day to day business. They’re always meeting someone new. How, then, do the special few manage to get into the circle and go on to build lasting relationships? And to be in a position to successfully call on those Family Offices when a transaction (eg. fundraising) is at hand?
Trust. That's how. It is as a result of the trust these people - let's call them special advisors - have developed over years and years.
They tend to be far from short-sighted. Amongst other things, they cultivate and maintain the relationship with a long term lens, whereas most people who enter the picture will quickly plant a seed but fail to water and nurture it. Because, let's face it, that takes a lot of time and effort. And can last years without one seeing any tangible benefits.
Anything worthwhile takes time and effort
People in positions of privilege, be they rich and otherwise, tend to attract a lot of people. Particularly the sycophantic types. I have seen it countless times when working with my Family Office clients. An individual will come to meet a member of the family, through an introduction, at a conference or some other source. For a very short while that new face will keep in touch and propose a project or two but then quickly disappear because they expect the Family Office to simply write a 10, 50 or 100 million dollar cheque quickly. But that rarely happens.
A family with billions of dollars, euros or pounds is not going to throw money around based on the opinion of a stranger they’ve just met. Especially one who does not have anything – especially money – to lose.
Most fundraisers fall into this category. You’ll hear from them one day and then nothing. Then, six months later, they’ll touch base again this time with another proposition and urge you to invest, take action, etc. When they fail to be taken seriously, once more, they’ll become impatient and disappear once again.
Don’t be like the rest when it comes to relationships
There is no doubt that relationships matter very much. And the more history you have with people (e.g. members of a Family Office) the better.
Like much in life, what matters when it comes to relationship-building is the long term. And the people you work with have to see and believe that you’re not a one-night stand kind of person.
Remember: rewarding relationships take time to build and require maintenance.
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For a comprehensive list of major family offices based around the world, click here.