What family offices are investing in
This booming sector likes to keep a low profile. But its secrets aren’t always far from the surface.
Australia is in the middle of a boom in the relatively secretive financial creature that is the family office. The wealthiest Australians are getting richer – about 1.8 million have $US1 million ($1.5 million) or more, according to Credit Suisse – and more and more of them are deciding to set up financial vehicles to manage their wealth.
An estimated 2000 family or private offices are now operating in Australia, research from KPMG has found, a 150 per cent increase over the past 10 years. Sydney alone is home to 198 people with more than $US100 million in investible assets, and 30 billionaires, according to Henley &Partners, a firm focused on assisting the wealthy with ideal geographical locations for their investments.
The number of family offices, investment vehicles for the wealthy, is increasing.
What they invest in
Australia’s wealthy families are known for being heavy in real estate, with businessmen like Frank Lowy and property developer Lang Walker having made their fortune on the back of these investments. But many family offices led by the heirs of those who have made money in property are branching out into other sectors to diversify their holdings.
The children of the late John Saunders, who founded Westfield with Frank Lowy, have cultivated a strong private lending business within their family office Terrace Tower Group.
It’s a popular theme internationally for wealthy families, who are not under pressure to do deals and can be picky about which borrowers they lend to. Dell founder Michael Dell last year backed 5C Investment Partners, a private credit investment firm recently set up by former Goldman Sachs employees.
Some Australian family offices are keen to back progressive or climate change causes, and have gone big on environmental or social focused investments.
Mike Cannon-Brookes’ private Grok Ventures is singularly channelling funds towards green investments. Lisa Miller, a former Canva executive and wife of Canva co-founder Cameron Adams, leads private investment firm Wedgetail which aims to use its funds to “conserve and restore biodiversity through sustainable investment”.
The best-known family offices
The single family office model is probably how family offices are best known. They likely have a dedicated full-time team that just looks after the one family with a bricks-and-mortar presence.
Single family offices typically employ full-time accountants and other professionals, plus perhaps offering formal education for the next generation. In some cases, younger generations attend seminars on how to manage finances and make investment decisions.
These offices can then split up as families change shape or have different priorities. “As wealth transitions to successive generations … branches of family might become more independent of each other and their needs may diverge,” according to Chris Graves, an associate professor at the University of Adelaide Business School.
The Fairfax family has offices for different branches of the family, including Cambooya and Marinya Capital which characterises itself as a global concentrated long equity investor, which has backed companies like Canva and Guzman y Gomez.
Running an entirely separate entity, especially if the principal is still in the business which brought them their wealth in the first place, can be complicated. Loyal and trusted staff are key.
Billionaire Atlassian co-founder Mike Cannon-Brookes recently moved to injunct a senior figure at his private companies and prevent him from disclosing or publishing confidential information.
But a lot of family offices can be more basic. One of the reasons might be because despite the size of a family’s investible capital, their investing strategy might be simple. A family business might use its excess capital to invest in companies in a similar industry or in property. So it might have staff who already sit inside the family business to run those investments, rather than setting up a whole new operation.
But things can get more complicated, especially if a family has a major “liquidity event”, or comes into a larger sum if someone dies or once a business is sold.
“Most people start off with an accountant … but you need broader advice when your wealth multiplies, such as investment advice,” one client of multi-family office operator Mutual Trust said in an interview for research into Australian family offices. This might mean a need to change their model to include more dedicated outsiders.
Outsourced professionals
Families can also opt to set up a “virtual family office” model where they employ professionals who work at service providers on a part-time or contract basis.
One lawyer working for wealthy families on that basis said families faced new issues as their wealth accumulated, and could get caught out. “I have dealt with a number of blackmail attempts,” they said, adding that part of their role also includes counsellor.
Andrew Hagger, a former Andrew Forrest lieutenant, and Guy Debelle, the former deputy governor of the Reserve Bank, recently set up Famille Capital, a new advisory firm for Australia’s richest families.
Alex Nikov, the firm’s managing director, told The Australian Financial Review how some families were using their capital in a more sophisticated and sometimes activist way, meaning those serving these families needed to have rich experience in financial markets.
Multifamily offices are another choice, with a full service of offerings across investments, tax, and philanthropy. In this case, third-party companies with their own professionals look after multiple families.
The best known of these is the Myer and Baillieu family’s wealth firm, which among many services offers family succession education. Succession is a hot topic for the rich. Australia is in the midst of a generational wealth transfer worth trillions. Of the 200 wealthiest Australians on the Rich List, 45 are over 80 and control a collective $136.1 billion, which will be inherited by 150 children.
For those wanting a trial run at investing like a family office, some of these firms take on outside money to grow their funds under management.
Victor Smorgon Group, led by Peter Edwards, is one of those. “I think it’s traditional for family businesses to bring in family and friends,” he told a forum last year.
