Ten years ago the Guggenheim family felt the need for greater control over their family office and sought out objective and sophisticated investment advice, free from the typical product-pushing environment of the private banking industry.
Banks had become supermarkets, conveyor belts of internal products and full of conflicts of interest. To be conflict free there is a need to separate the role of product vendor from the role of adviser, free from commission or retrocession fees. It was as a reaction to this that Guggenheim Partners’ investment advisory business was born, becoming a multi family investment advisory firm that strove to identify on behalf of a number of families, the very best external talent, fund managers in every asset class and in every geography, offering sophisticated risk management based on pioneering academic research in the area of behavioural finance.
Since 1881 the Guggenheim family had been driven by a commitment to integrity and a passion for innovation. Its guiding philosophy being the “Family Formula”: engage highly talented people, challenge them to think creatively, and empower them to achieve the extraordinary. They were committed to this belief that human capital drives returns.
Today such independent investment advisory models have become the model of choice for families with $30m-plus. The market place has grown prolifically in the past three years as a reaction to the inherent conflicts in traditional private banking becoming that much more obvious to the “not-so ignorant” investor. The lack of transparency issues and of sophisticated compliance and due diligence on fund managers and products have also been a driving force.
As investors seek out greater transparency, control and alignment with not only their advisers but with the ultimate success (or failure) of the underlying investments themselves, there is another important trend taking place - there is a growing demand for access to direct and co-investment opportunities amongst large families.
This seems to be the natural evolution of the traditional multi-family office and investment advisory industry.
Most families, particularly since the fall out in 2008, are seeking peer-to-peer co-investment with other families of similar size and with similar expectations, avoiding private equity blind pools. The multi-family office industry needs to address this need if they are to stay ahead of the curve and begin to facilitate interaction between family clients. Multi family offices have a natural merchant banking platform with a unique network of trusted partners, where ideas and/or business opportunities can be explored with highly aligned interests.
To encourage co-investment within a private, standalone global network of families across different continents - tying together developed and emerging markets seems to be a natural extension of the multi family office - appears to be a full circle back to the traditional roots of merchant banking, the Sigi Warburg approach. There is a need to redefine the banking of tomorrow, led by two guiding principles - integrity and sustainability - prioritising long term success over short term gains
The best ideas and investment opportunities are generated by families themselves and this proprietary deal flow needs to be protected, investment knowledge monetised. It should not be given away to external investment houses and families should be given the ability to make personal direct investments internationally whilst avoiding institutional fees and safeguarding the best deals from external private equity firms.
When it comes to both PE and real estate asset classes, “blind pool” investing is increasingly being ignored by the MFO’s in favour of investing directly and, if need be, alongside other family offices.
However, beware there are pitfalls and a plethora of challenges for the traditional
FO in making the shift to direct investing. Traditional teams are not made up of
“investors” but instead normally comprise of wealth managers, bankers and lawyers; they have limited access to proprietary deal flow and the time required to manage a portfolio of directs is all consuming. Ultimately this role needs to lie with the independent MFO adviser in solving these problems.