THEFAMILYOFFICEEDITION germany’s QUanDTs TAxpLANNINg sUCCessIOn AsIA OCTOBER2015 ft.com/wealtH 35 Issue ROn ll KE Ba iTZ fT PR sO nY rsT nD TO —a FI nD

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@Hugo_Greenhalgh

FAMILYOFFICES: 24 THENEXTSTAGE

Whatconstitutes afamily office?Both Pritzker Group, managed by brothers Tony and JB Pritzker,and Cascade Investment, which looks after Bill Gates’swealth, prefer not to be described as family offices. Pritzker Group calls itself a“world-class investment firm”. Indeed,unlikemostfamily offices, rather than take stakes in individual companies, it seeks to buy whole businesses. Cascade, as Lucy-Warwick Ching writes, is “purely an assetmanagement companythatinvests Gates’spersonal wealth”. Catherine Tillotson, managing partner at consultancy Scorpio Partnership, notes the rise of the term “private investment office”.Accountants and lawyers are also eying wealth management opportunities. Theground traditionally occupied by family offices is shifting —asis the nature of their business. As the structure is adopted around the world, notably in Asia, it will surely changefurther.Simply exporting featURes 42 western wealth management models eastwards does not 12 KeYs to afoRtUne work —asmanycompanies have discovered over the past Themulti-family office for decade. Germany’sQuandts is Whatdoes the future hold? We attempt to answer this expanding its client base question —and more —inthisfamily office-themed 16 masteR sUites edition of FT Wealth.Asever we value your input. Do let Luxuryhotels are turning us know whatyou think of this issue. Which other areas themselves into fine art should we have looked at,doyou think? spaces to rival manygalleries December’s editionwill return to our analysis of what we have termed “Ambitious Wealth”: examining newways 20 cool Reception Themove by hedgefundsto of creating and preserving money—and how the world of become family offices has not philanthropy is changing in response. been universally welcomed

Hugo Greenhalgh, Editor 24 Global oUtlooK Whycentral banks hold [email protected] the keytolong-term growth or recession MAGES YI 32 DiRect DealeRs YoUR neXt ft wealth ThePritzker brothers have GETT S: been pioneers of direct 4DecembeR2015 investing in family firms OTO PH

4 |ft.com/wealth FT Wealth editor Hugo Greenhalgh Deputyeditor Rohit Jaggi Production editor GeorgeKyriakos Artdirector Jonathan Saunders Picture editor Michael Crabtree 56 Sub-editors Philip Parrish, Ruth Lewis-Coste Special reports editor Leyla Boulton Global sales director Dominic Good Global relationship director for banking and finance ValerieXiberras Publishing systems manager Andrea Frias-Andrade openinGs Advertising production Daniel Lesar

6 investmentfocUs Family offices are favouring riskier assets more and more contRibUtoRs 8 the RichcolUmn DalyaAlberge is afreelancearts Wealth managers’ struggles writer with modern technology Yuri Bender is editor of Professional Wealth Management, an FT 10 the iDeascolUmn insiGht publication Li Ka-shing is the epitome of Kate Burgess is the FT’s Small Talk Asia’snew altruists 38 eqUities columnist Outsmarting Harvard on how Stephen Foley isthe FT’sUS 12 to handle market volatility investment correspondent JeremyHazlehurst is founder of 40 impactinvestinG Business Family Family offices are expanding Ceri Jones is afreelance journalist their philanthropic ventures Dan Jones is editor of Investment Adviser,anFTpublication 42 sUccession planninG Louise Lucas is the FT’sAsia news Ensuring smooth transitions editor between generations Madison Marriage is the FT’sdeputy asset management editor 44 taXplanninG Chris Newlands is the FT’sasset Theimplications of the UK’s management editor clampdown on non-doms David Oakley is the FT’sinvestment correspondent 46 pRofile Adam Palin is areporteronFTMoney Cascade Investment, Bill MatthewVincent is the FT’sdeputy Gates’swealth manager companieseditor LucyWarwick-Ching is digital and 48 thefUtURe communities editor of FT Money Challenges for family offices in emerging markets

50 pRofile Sandaire Investment Office’s communityspirit

52 inDUstRY oveRview Consolidations gather pace in multi-family offices

54 wealth manaGement Whatthe common reporting standard will mean for families’ planning set-ups

56 investment passions Thepleasures and pitfalls of collecting ceramics

58 ambitioUswealth Redressing the balance coveRphotoGRaph between labour and capital DaviDwalteRbanKs

ft.com/wealth|5 FAMILYOFFICEFOCUS LUCY WARWICK-CHING

GRAPHIC BY RUSSELL BIRKETT

AN APPETITE FORRISK

amily offices are taking on more risk, placing additional moneyinto equities and holding less in cash, according to the latestUBS/Campden FResearch Global Family Office Report. 34% This is shown not only in their investment intentions, where the of family officesare percentageoffamilyoffices following in North America awealth-preservationstrategyhas fallen from 26 per cent to 21 per cent, but also in aportfolio shift towards riskier assetcategories. Theaverage family office, which has assets under management of $806m, $926m invested $73m in hedgefundsin2014, Average assets under primarily in global macro strategies. management in family This assetclass is particularly popular officesinthe US with NorthAmerican and emerging 75% market family office portfolios. of family officesin However,while other classes, North America areinvolved such as property and privateequity, performed well during the same period, in philanthrophy the slowdown in equities damped returns. Thereturn on the composite global portfolio of family offices fell from 8.5 per cent in US dollar terms in 2013 to 6.1 per cent in 2014.European family offices performed the strongest, achieving areturn of 6.4per cent. 2% 10% Globally,family offices are Proportion of of family offices 4.9% predicted to increase their profile. Arise annual assets areinemerging in the number of ultra-wealthypeople under management Annual return and the largeanticipated transfer markets family officesin foremerging of moneyfromthe baby-boomer market family generation will drive an increase in both emerging markets officesin2014 single and multi-family offices. W givetolocal causes

5.8% 51% 64% Annual return achieved of global family wealth of family officeswere by North American is still invested in founded after the family officesin2014 the family business milliennium

6 |FT.COM/WEALTH Howtheyallocate

Bonds (fixed income)

4% Developing market

The average family office 10% Developed market 6.4% chief executive’sbasic salaryis Year-on-year return achievedbyEuropean $333,000 family officesin2014 Equities 7% Developing market

19% Developed market

82% Alternativeinvestments of Europeans worth Privateequity*

13% Real estate £10bn 22% saytheytrust direct investment 40% the experts when 9% Hedge funds of family offices making financial decisions areinEurope 6% Other assets**

6.3% Commodities 1%Non-agricultural Annual return forAsia-Pacific commodities family officesin2014 2%Agriculture

7% Cash or equivalent

Afinancial analyst within afamily office receives abasic salaryof

Family office chief executivecompensation $82,000 by region ($’000) ayear

Emerging 16% Europe North America Asia Pacific Markets of family offices 294 446 283150 areinAsia-Pacific

Sources: UBS,Campden Wealth. Withers/Scorpio Partnership *Includesdirect, venture, funds, co-investingand investment bank syndication. **IncludesETFs, REITs, tangiblesand other assets (eg, art)

FT.COM/WEALTH|7 theRIchcolumn matthewVIncent

@MPJVincent

shocKofthe New

enior family members it paid £9.2m, or £3,918 per inevitably gettothe stage square foot, for 29 Charles Street, where theyjustcan’t keep aGeorgian townhouse in London’s up with newtechnology. Mayfair.Who needs servers when you sNo matter how cutting-edge can have sofas? theymay have been in their younger Some multi-family offices, however, days, there is always acut-offpoint. are now trying to offer the comfort Cityslickers who shouted into and convenience of both. Stonehage brick-likecellphones in the 1980s Fleming, the international family office, can seem bemused by the brevityof is using digital technologies to provide today’stextmessages. This smartphone up-to-the minute reporting on all of a exchangewas recently shared on the family’s assets, including businesses, web: “Dad: ‘WhatdoIDK,LYand property,evenart. TTYL mean?’ Son: ‘I don’t know. “Ataglance theyneed to see what Love you. Talk to you later.’ Dad: ‘OK, the artportfolio is worth,”saysAri I’ll ask your sister.’” Tatos, managing partner at Stonehage. Ageneration thatlearned to use “Theythen have the abilitytodoa scientific calculators now initiates a ‘deep dive’onany particular work web search by typing “The Google” to see where it is kept, when it was into Bing. Using InternetExplorer6. bought, when it was lastrevalued, Disco enthusiasts who could rewind when it was insured.” their Walkmans while on rollerskates KleinwortBenson can provide cannot work out whytheir audiobooks family offices with similarly high-tech now feature so manyflashbacks and Wealth maycascade doWn reporting on art, furniture and fashion, bizarre plot twists. Or whatthat through its quaintly named ‘‘chattel “Shuffle” setting on the iPod means. generations, buttech management systems”. If this sounds familiar,you have my But all also stress the human sympathy. Wealth maycascade down supportonlyfloWs upWards touch. “The most old-school or generations, but IT supportonlyever bespokeservice is being at the flows upwards. In fact, when MyPrivateBanking Not so slick:usersof family’s side,”saysTatos. Alexandra All of which leads me to the question Research ranked the web technology brick-likecellphones Altinger,chiefexecutive of Sandaire used by wealth managers worldwide, in the 1980scan seem posed lastmonth by Zurich-based bemused by today’s Investment Office, says families consultancyMyPrivateBanking only one family office featured in its text messaging value “conciergeservices” —having Research: “Whatnavigation, content top 40. MyPrivateBanking Research “travel arrangements, domestic or and interactivityshould wealth managing director Steffen Binder family issues” taken care of.But to management websites incorporate was too discreetly Swiss to say Paul Kearney, managing director of to satisfythe needs of clients?” anything more than it was “not in KleinwortBenson’s privateinvestment Especially senior clients. the top 10”.Ashediplomatically put office, the question is when these Old family offices, which have it: “Family offices are targeting an relationships might be informed by been managing wealth literally for even more conservativesegment… artificial intelligence. generations, appear to face similar [theysay]the telephone is for us, “The mosthighly valued service technological challenges. Many started digital is not anecessity. So Ithink the continues to be omniscience: the ability pressure for them has not been that out at the forefront of innovation, of the family office team to anticipate es

such as Brunner Investment Trust, greattochange.” the needs of the family and be ahead aG which ranthe finances of boffins who As if to emphasise these unchanged of the request,”hesays. “Currently this Im ty

went on to form ICI, the chemicals priorities, twodaysafter the remains the domain of ahuman but et group. Today, manyofthese 100-year- MyPrivateBanking Research report maybe we are not too far away from /G old London-listed trusts can appear came out, an unnamed Spanish data analytics giving this sixth sense to os more dozed offthan switched on. As family office invested ahuge our smartphones.” yPr :K

their distinctly Web1.0 online offerings amount of moneyinanew state- Just don’t send letthem send text to suggest. of-the artmulti-client interface: messages to the family patriarch. W Pho

8 |ft.com/wealth

THEIDEAS COLUMN LOUISE LUCAS

@louiseflucas

ASIA’S NEWALTRUISTS

or Hong Kong tycoon “Itisamorestructured waythan LiKa-shing, it is his “third son”. was the case 10-20 years ago, when Alibaba’sfounders thought you were justwriting acheque and it deserving of 2per cent of didn’t know how the moneywas going Fthe proceeds of the world’s to be spent,”saysChristina Tung, largestinitial public offering. And for head of philanthropy and value-based agroup of wealthyAsian businessmen investing at UBS. it offers the opportunitytosaveavast Thequestion of moneyspoiling the stretch of coral. next generation is also present, adds The“it”isthe charitable foundation. Annie Koh, academic director of the Philanthropy it is big business in Asia. business families institute at Singapore Thewealthishere —560 US dollar Management University. “The older billionaires at the lastcount, according generation don’t want the younger ones to Wealth-X, the data provider that to have amentality of entitlement, so tracks the super-rich —and so too is theyset up foundations to ensure their the growth. Fittingly for acontinent children don’t gettoo much wealth and of largely self-made tycoons whocame it goes to society,” she says. from roots both humble and ghastly, Others suggest afoundation is also thereisadesire to give backtosociety. auseful place to park anyoffspring Take Li, one of Asia’swealthiest reluctant to join the family business tycoons whose charitable foundation, and still keep them in the fold. which he has called his “third son”, will It can also be an training ground receive the same inheritance as his two for children who envisagejoining the flesh-and-blood offspring. business later. As he told aForbes gathering in AFOUNDATIONCAN BE AN Finally,tax maynot be adriver to 2006: “I grewupamid the turmoil INCUBATORFOR CHILDREN TO the extent it is elsewhere in the world, of war.Itcertainly shaped me —the given the prevailing low rates in the greattug of war with destinyand the JOIN THEBUSINESSLATER region, but it can provide afillip. China taste of poverty. has lifted its tax deduction to 12 per “Theyare hardly memories one can cent, but there is astrictlimit on the forget.Ithas not been an easy journey. charitable bodies this applies to. Ican still remember vividly the dayI substantial increases over the past Three-waysplit: Singapore, which is eager to keep started work at 12.” decade —for example, from $830m in Li Ka-shing, above, has charityathome, offers the best Almostadecade later he said: China to astaggering $16.5bn lastyear. decided his legacy rates of all. Forthe right domestic will go to his twosons “Social capital is the key. Itsassets of Giving is also evolving from the and his foundation charities, everydollar invested merits a empathy, compassion, trust, shared big-ticket donations —for example, deduction of up to $3. values, communityinvolvement, endowments to universities, Most Asian giving is local, but it volunteerism, social networks and usually the alma mater,such as the can cross borders, as with arecent bid citizenship have quantifiable value. Chan family’s $350m to Harvard to save the swath of coral thatspans These assets can be measured.” Universityinthe US. Indonesia and the Philippines, down to Jack Ma,founder of Alibaba, the So far,sological. Asia has an the GreatBarrier Reefoff Australia. Chinese ecommerce group, ensured enduring respectfor education and, as But with philanthropy in its infancy 2per cent of its equity—valued in total with clothes, the biggerthe name the in Asia, and billions of dollars pouring at $168bn at theIPO ayear ago—went better: consider the Li Ka Shing Centre in, awhole newindustryisbeing born, ES

into his charitable trust, along with for Health Information and Discoveryat complete with its banking eco-system. AG

0.3per cent of annual revenues. the UniversityofOxford and Harvard’s Tycoons and their beneficiaries will IM Thenumbers are growing. An TH Chan School of Public Health. be hoping, however,thattheyavoid the TY ET

analysis by UBS, the investment But the interesting activityisatthe ills thathaveplagued other businesses, /G bank, of tax authorities’ data (which lower end, as anew generation focuses from simple value destruction to FP :A

underestimate total donations as they on self-sustaining givingtobeneficiaries mismanagement to the more dubious TO exclude personal giving) reveal some who are closer to home. siphoning-offoffunds. W PHO

10 |FT.COM/WEALTH

untholding Quandt managed mone whose of one Quandt, Gabriele ar The BY Qu ON pa IT bE FA 12 Ch |f sC tofd fo MIL EN st T. rsiblings ur ri AN by EOFT cO iscretion: sn yis harald m/ LI ew yO Ex fo dT we EN la alTH nds pA rt FF dy Tb HE Nd ICE unes NA AsE GE ING sH sT RMAN y’s As

PHOTO:GeTTyimaGes aeicue uhrJ oln,artis Rowling, JK author included have mone af crash air an in 1967 died in he Although subject. ideal an made oeta 000fre aorr,pioeso war of prisoners labourers, forced 50,000 than more anti- aircraf and firearms produced factories family Quandt father, their Günther by built empire industrial an inherited “W aw Bad of town be the ancestr and Yo Ha Fr In uA ml netetcompan investment amily Ha r ftefortune the of are here eBCtlvso programme television BBC he Lo m14 o14,tefcoiswere factories the 1945, to 1940 om 94 untadhshalf-brother his and Quandt 1954, ra yh re? dhea tt tw dnmyrBoris mayor ndon ,h dQad,the Quandt, ld ytou er: ex ,af ei ,n snm ie nvia on lives name is eaponr cl i h mone the did actly hrtdand nherited rat wi t 1hyear 11th its in ow pae nteBCshow BBC the on ppeared re ebro the of member ormer Ho cvrpas ncover nsrs for rise ings br,near mburg, yf rthe or ’s murk Ge ts ac mnidsrait ol have would industrialist, rman Th Jo ecrets. ev cu yo no,adtae their traces and hnson, ya er r Reich ird mula Fr ,t yc Ha iis ih aeasked: have might rigins, ys ksntbepol,who people, notable akes nfr,tha ankfurt, dtrus nd m from?” ome ra Th ke te Na h Do Who dQuandt ld leto dd em ipar zi ,t ’s tb urin nr tT r scandalous ore war epresenter, he He st sdi h spa the in ased ra ev fe by affed ty Yo rbert tm gh ef ce ealed. .T uT Ho fort. s45 is yE ngsthe anages he hink lding, min years. ➤

1.

and concentration camp workers, according to afamily- 1. suggeststhe siblings have harvested averageannual commissioned study thatwas produced in response to a stefan Quandt returns of roughly 7per cent since the family office was highly critical German television documentaryin2007 2. founded in 1981. Together,the four sisters —and the two about the family’s ties to the Nazi regime. Johanna Quandt children of adeceasedsibling —share afortune of at least 3. Thestrength of those ties is perhaps bestillustrated by Harald Quandt $6bn, according to the Bloomberg Billionaires Index. the factthatHarald’s mother,Magda Behrend Rietschel, 4. Harald Quandt Holding and its related investment married Nazi propaganda minister Joseph Goebbels HerbertQuandt subsidiaries have some $18bn of assets under after her split from Harald’s father in 1929. Adolf Hitler management, and HQ Trustisnow using its experience was the bestman at the wedding. to offer assetmanagement services to outsiders. Although the half-brothers passed away decades Geller,who joined HQ Trustfrom privatebank UBS ago—Herbertdied in 1982 —their legacyhas lived on. in 2011, says attracting third-party assets has not been Herbert’swidow,Johanna Quandt, who died in August difficult. “But you’dhavetotalk to our relationship this year,and their children, Susanne Klatten and Stefan managers to getadefinitive answer on that,”hesays. Quandt, have remained in the public spotlight thanks to Theevidence would suggest it has not been ahard their 47 percent shareholding in carmaker BMW —a sell. HQ Trustruns moneyfor 30 other families and now stakebought by the half-brothers after their father’s manages more assets for third parties than it does for the death. When Johanna Quandt passed away she was the Quandt family.According to Geller,HQTrustisone of second-richestwoman in Germanyand the ninth-richest the largestindependent multi-family offices in Germany. in the world, according to Forbes magazine. “Twentyofusmoved from UBS in 2011, which gives Meanwhile, Harald Quandt’s daughters —Katarina you an indication of the size,”hesays. “A client makes Geller-Herr,Gabriele Quandt, Anette-Angelika May- adecision veryearly on whether theywant to be with a Thies and Colleen-Bettina Rosenblat-Mo—havekept family office or aprivatebank —and thatdecision has to alower profile, and it is their moneythatismanaged by do with privacy.” Harald Quandt Holding. Despite the arrival of so manystaff, none of the Philipp Geller,apartner at HQ Trust, the multi-family moneymanaged by HQ Trust, which is also based in office of the Harald Quandt family,will not disclose the Bad Homburg, is run in-house. It employs external wealth of the daughters, other than to sayitis“sizeable”. investment houses and, says Geller,raising assets According to the family’s sanctioned biography, Die from other families has been crucial to keeping those Quandts (The Quandts), the four sisters inherited some transaction costs down. 1.5bn deutschmarks (then about $750m) after the death Afailure to do so has long been acriticism levied at of their mother,Inge, in 1978. ABloomberg report family offices.

14 |fT.cOm/wealTH ‘Whether to be With a family office or aprivate bank is to do Withprivacy’

“Weonly use external managers,”saysGeller.“The problem is thatifyou do it yourself and then decide you want to investinsomething new, you would need to hire people internally to do thatfor you. That’s not easy,and if you changeyour mind, you would then have to getrid of them, which is expensive.” He adds: “By building scale, however,you would be surprised justhow low you can getthe fees of external managers.” Dominic Samuelson, London-based chiefexecutive of Campden Wealth, an independent provider of research for family offices, believes HQ Trustmanages sufficient assets for it to be aviable proposition for the Harald Quandt family and other outside clients. “Traditionally,for multi-family offices to be sustainable over the medium to long term, theymustmanage cumulative assets of more than $3.5bn,”hesays. Alargeproportion of the family’s assets are invested in alternatives. Harald Quandt’s daughters —who are not involved in the day-to-dayrunning of the office but have a“strategic” input —committed to alternative assets in the late 1980s, long before manyother investment groups were considering such strategies. “A third of assets are in alternatives,”saysGeller.“The 3. family have done verywell out of [them].” W

2. down aseparaTe road

Thedeath in August at age89ofJohanna Quandt,the billionaire BMWheiress,has had no impactonthe moneymanaged by Harald Quandt Holding. TheBMW matriarch wasGermany’s second- wealthiest woman, withafortune estimated by Forbes

Ges at $11.6bn, thankslargelytoa17 percentstake in one ma ofthe world’s largestpremiumcar makers. yi Herstake,however,was left to herbyHarald eTT

/G Quandt’shalf-brother, Herbert,who took over the ld interests in the family’scar businesses whenhis father 4. died. Harald,meanwhile, oversawthe interests of his ein bi

sT late father’sindustrial companies.

ull Though managed by asingle-familyoffice just a; acrossthe road from Harald QuandtHolding in Bad eP

a; Homburg, Herbert’shalf of the Quandt fortuneis completely separate. “The wealth is split betweenthe ll/dP twofamilies, so the passing of JohannaQuandthad no kO impactonus,”saysPhilippGeller of HQ Trust. Johanna’stwo children, Stefan Quandt, 49, and

ricHard Susanne Klatten, 53, who are membersofBMW’s

T, supervisory board, will inherit their mother’sstake rs and retain the family’scombined 47 per cent holding in BMW, which also owns the Mini and Rolls-Royce mPenHO marques. ru JohannaQuandtmarried Herbertin1960, becoming his third wife. At the time, BMW was on frank the edgeofcollapse and had flirted with atakeover s:

TO by Daimler-Benz. Herberthelped preserveits independence andsteered it backtoprofitability. PHO

fT.cOm/wealTH|15 bruce mcLean’s Master suites “concept menu”, right, on display Luxury hoteLs are at 45 park Lane becoming fine art spaces to rivaL many gaLLeries

BY DalYaalBerge

sculptures thatwould not disgrace apublic galleryand which, even if you can’t afford to stay there, you can see free of chargeorfor thepriceofacoffee in the bar. AlexToledano, aParis-based artconsultant whose clients include Ritz-Carlton hotels, says: “Hotels, especially hotel owners, recognise thattheyhavebeen spending adecent amount on artfor manyyears without it doing anything special for their property.They’ve realised thatthe moneycould be used not only to tell an interesting narrative about their properties but also to makethem more memorable.” He adds thathotels used to purchase decorative art from “manufacturing companies” thatchurned out works in bulk. “Now you’re starting to see the desire of hotels to ask more of the artwork to maketheir property unique, rather than resembling manyothers.” There is also amove away from abstractart,previously considered the “leastoffensive”form, he says. “Now, hotels are willing to takemore of arisk. That is what is making artinhotels exciting right now.Our clients are asking for adiversityofart thatwewouldn’t have expected acouple of years ago.” He has been purchasing contemporaryart for the Ritz-Carlton’s second hotel in Kazakhstan, due to open in 2017 in the capital, Astana. He also acquired an historical collection for TheLanesborough in London. “Everysingle room is different from the next,”hesays. “Wesourced all the art, bought it, framed it and restored eisaformer winner of the Turner Prize and alot of it.”The focus was on artfrom the 1830s and represented in collections worldwide, but if you tell earlier.“We imagined awealthy English family living in Sir AntonyGormleyhis artsends you to sleep, he London at the time TheLanesborough was built.” won’t be offended. That is assuming you are referring Along with English portraits and militaryand hunting to the “inhabitable sculpture” thathecreated for a scenes, the hotel has twopaintings by Sir Joshua hotel bedroom, rather than one of his other artworks. Reynolds, the 18th-centurymaster.His portraits of a Gormley, bestknown for his “Angel of the North” Captain John Smith and his unnamed wife greetvisitors. sculpture in Gateshead, received the commission Some hotels want to establish asense of place from the newBeaumont Hotel in Mayfair,London. through their art, though not necessarily through local He came up with an oak-lined bedroom —titled artists. In Norway,aluxuryestablishment in Oslo called “Room”—which fills the void of his monumental TheThiefhas three original collages inspired by crouching figure on the building’s exterior.Since national and cultural symbolsand created by British it opened lastyear,“Room”has had no shortageof PopartistSir Peter Blake, bestknown for his iconic guests prepared to pay£2,500 for anight there. sleeve design for TheBeatles’ SgtPepper’sLonely Hearts It is abold statement piece and one thatreflects a Club Band.The collages, which include depictions of trend among top hotels worldwide to fill their spaces the quayinBergen and folk dancing, decoratethe with original art. They are acquiring paintings and hotel’s penthouse suite. ➤

16 |ft.com/wealth Silicon roundabout: london’s tech hub is helping to attract start-ups to the city 015 s2 dac d, erve es sr clean. all right em ruc :B to Pho ft.com/wealth|17 Richard Prince’s painting “The Horse Thief”is in the reception area. Scottish artistBruce McLean, whose work is held by Britain’s Tate galleries, is among artists chosen to decorate entire floors —bedrooms and public spaces —at45Park Lane, anew Dorchester Collection hotel in London. He selected largesemi-abstractprints —hewould not have wanted to create something especially for ahotel, he says. Askedabout his work being viewed by acaptive audience in abedroom, he adds: “I likethe factthatthe work is put not in agallery space. Youlook at something in an informal way. You’re not told, ‘it’s meaningful because it’s in the Tate’. Youcan look at it —ornot.” He is among high-profile artists who work closely with Gillian Duke, managing director of CCA Galleries, which supplies high-qualityprints to international hotels. They include 45 Park Lane, where the artprogramme extends to offering guests personal exhibition tours by artists and even painting lessons with them. She says thatwhen hotels are refurbished, artis sometimes seen as alast-minute add-on, “missing the point thatthe artand artefacts —the things thatgoin last—are usually whatmakethe hotel whatitis”. Roy Ackerman heads an artconsultancy, Tadema Studios, whose specialisms include hotels. Commenting on artthathotels previously acquired, he says: “Itwas normally cheapskate artbought in, quite alot from the FarEast. It was prettyordinarystuff.”Hecurates art at 45 Park Lane, regularly briefing staffonthe work with one of the artists. “There are changing exhibitions, so anew artistcomes in once aquarter.Itmakes it interesting for the staffaswellasfor the guests,”hesays. At the Beaumont, Gormley’sartwork is within asuite of rooms finished in the hotel’s deco style. White marble

1.

‘i like thefactthe work is notinagallery.you look at it in an informal way’

TheThief, whose guests have reportedly included ggiu so Bill Gates, the American technologyentrepreneur,is situated in an area thatwas once home to criminals and anton

shady goings-on. Today, it is acentre for contemporary f; artand thehotel’s exhibitions are curated by Sune Nordgren, former director of Norway’s National Museum of Art. Exhibits include loans from the nearby Astrup feinknoP FearnleyMuseum of Modern Artand Petter Stordalen, a Norwegian collector,hotel tycoon and owner of The Brad s: Thief. Changing displays include modern and

2. oto contemporaryartists, from Andy Warhol to Gormley. Ph

18 |ft.com/wealth ‘a lotofart in hotels is toonarcissisticand not harmonious forclients’

boasts artby20th-centurymasters who frequented this charming Provençal establishment, often exchanging their work in return for astayorafew meals. There is aMatisse portrait of awoman and aPicasso still life of flowers. “Asweare not amuseum, theyalways considered artworks as partofthe house, so there are no exacttitles,”the hotel says. “The Picasso was given to Paul Roux [the original owner in the 1920s]. Picasso came to see him with twopaintings under his arms and left with one.”Works by other regular guests include ceramics by Georges Braque (by the pool) and Fernand 3. Léger (“Lajeunefilleetl’oiseau”,onthe terrace). Among the grand hotels of Europe with notable fine artcollections are TheDolder Grand in Zurich, steps lead to athreshold divided by athick black curtain, 1. Switzerland, which has paintings and sculptures by creating asense of theatre. Walk through them and Le méridien masters such as Camille Pissarro and Salvador Dalí. you enter Gormley’s“Room”, which he wants “to bridge columbus, American artdominates US establishments such as the Joseph the gap between sacred and domestic space”.You are 2. NewYork’sGramercyPark Hotel, which is decorated cocooned in aspace thatresembles across between a sir antony gormley’s with works by Warhol, among others. Thehotel says sauna and agardenshed, with glows of discreetlighting “room”atthe the works it displays are “constantly changing, ensuring and ahigh ceiling. Alargewindow is placed too high for beaumont guests never experience the same hotel twice”. guests to see more than the sky. 3. Erin Hoover is vice-president of global brand design at fernand Léger’s Overlooking Brown Hart Gardens in Mayfair,the hotel ceramic mural “La Starwood Hotels, which includes the Westin, Sheraton was converted from aformer garage, built in 1926 and jeune fille et l’oiseau”at and Le Méridien names. “Art is becoming more and mostrecently occupied by car rental companyAvis. It is La colombe d’or more important for hotels, justasitisfor other kinds of the firsthotel of JeremyKing and Chris Corbin, business 4. buildings and public spaces,”she says. “A greatexample sir peterblake, who partners behind astring of justifiably popular London has createdthree is the soon-to-be opened Westin Denver International restaurants, including TheWolseleyonPiccadilly. collagesfor the thief Airport. ThecityofDenver requires all public buildings As the Beaumont was alisted building, the Gormley to contribute 1per cent of their construction dollars on projectneeded approval from Westminster council, the largeprojects to artwork. As aresult, the hotel features Grosvenor Estate (the ultimate landlord) and English $5m-worth of artwork and installations.” Heritage, the building preservation and listing agency While manyapublic museum would be envious of now known as Historic England. King says after initial such abudget,securityisaconcern for hotel groups. The reservations, it was rubber-stamped. “It’saninteresting artconsultant Toledano advises his clients to use special parable. Everybody is scared of the unknown,”hesays. hangings to prevent works being removed. “You have “If you look back on the big public manifestations of art to have special tools. If you tried to takethem off, you’d —inParis, the Eiffel Tower was derided when it was first probably rip the wall off,”hesays. W built and the Louvre Pyramid was loathed by many— after abit of time people begin to appreciate them.” King had his own doubts, though, about agreeing to 4. Gormley’ssuggestion thatatelevision should not be in the room. “Mycommercial head thought, ‘This is commercial suicide’,” he says. But he felt it was in keeping with the work itself —taking aguestfrom aworld where “we’reconstantly besetbydistraction —electronic, social, whatever it might be —into ahaven where you can lose yourself only 200 yards from Oxford Street”. He adds: “People sleep incredibly well there. To achieve profound sleep means thatnot only is it an aesthetic success, but apractical one too.”(Guests can, if theychoose, watch TV in aseparatesitting room.) Askedabout hotels buying more original art, he says: “The danger is thattheyuse the arttoattract attention, rather than to enhance the experience.You find thatalot of it becomes too narcissistic, as opposed to harmonious for the clients’ experience.” Possibly the finesttop-class hotel with an artcollection is La Colombed’OrinStPaul de Vence in France. It cool reception hedgefunds’move to become family officesisnot entirely popular

BY Madison Marriage

eing abillionaire hedgefund managerisnot as much fun as it used to be. The1990s, so legend has it, were agolden erafor the humble hedge fund manager,who could setupacompanywith justa computer and atelephone, without facing the glare of regulators, the media or the public. But the days of 21-year-old whizz-kids founding wildly successful investment businesses from their university dorm rooms or their parents’ garages are over.Today, the sector has been reined in by aswath of newrules in the US and Europe designed to clip the buccaneering habits exhibited by some industryfiguresintheir heyday. Rather than face the pressures of the newworld of investing ahandful of hedgefundmanagers have turned their backs on running moneyfor external investors altogether. Twoofthe bestknown are GeorgeSoros, the 85-year- old investor and philanthropistworth an estimated $23bn, and Steven Cohen, the controversial financier who was forced to wind down his hedgefund, SAC Capital,after the companypleaded guiltytoinsider- trading charges in 2013. Thebackgrounds of Soros, aHungarian-born liberal who made afortune by betting againstthe Bank of England during the Black Wednesdaycurrencycrisis of 1992, and Cohen, aNew York native and poker ➤

20 |ft.com/wealth Quantum leap: george soros is the best-known member of the hedge fund industrytohavequit running moneyfor external investors /eYeviNe ux red s/ ime Yt right/N aB hu os :J to Pho

ft.com/wealth|21 1. newyork,where hedge funds nowface greaterregulation 2. steven cohen, whose point72 firm manages his $10bn fortune 3. franzmüntefering, former chairman of the social democratic party, whobranded hedge funds “locusts”

1.

funds are returned to outside investors and the new ‘Hedge fundsmakea entityruns the moneyofthe manager and his or her fortune. tHey payno family members alone. Family offices do not need to be registered with the US Securities and Exchange tax. It’s rIdIculous’ Commission as an investment adviser and therefore are not subjecttoits regulation and disclosure requirements. There are provisions in the SEC rules by which key enthusiastwhose companywas fined arecord $1.8bn by employees mayinvestalongside the family and thereby US authorities, are worlds apart. participate in the investment results, but non-family Yetthe pair are united in their decision to transform members maynot have directequityparticipation in the their companies into family offices, which are exempt business, according to Marv Pollack, managing director from mostofthe newrules in the US and Europe. of the Family Office Exchange, anetwork thatprovides Soros closed his Quantum Endowment Fund to non- advice to wealthyindividuals. family members in 2011 to avoidunwanted regulatory Other changes thathaveproved unpopular with many scrutinyunder the Dodd-Frank financial reforms, in the industryinclude payrestrictions for managers which aimed to improve investor protection but also active in the European market under the Alternative raised compliance and reporting costs for hedgefund Investment Fund Managers Directive (AIFMD), which managers. came into force in 2011. Thenew rules also include Cohen’s SACCapital made the same transition last restrictions on how leveragecan be applied and contain year to become Point72 AssetManagement, an entity onerous reporting obligations. focused on managing the 59-year-old’s $10bn fortune, Troy Gayeski, partner atSkyBridge, the NewYork- albeit for verydifferent reasons. As partofhis company’s based fund of hedgefunds company, believes more guiltyplea, Cohen agreed his firm would no longer family office conversions are imminent asef hedg und managemoneyfor outside investors. executives who have amassed largeamounts of money Theconsensus among investment professionals is tire of the newregime. “Ten years agoahedgefund with thatmorehedgefundveterans will follow this path as $50m of assets could generateplentyofrevenue to cover the industrycontinues to shed its Wild West reputation overheads. These days it has to be $500m, and partof and the burden of running largeamounts of external the reason is thatregulatoryrequirements have gone up moneyintensifies. dramatically,” he says. “Those hedgefundindustryfounding fathers that Covepoint Capital, aNew York-based hedgefund remain active in it maybarelyrecognise today’s$3tn setupbyformer Bear Stearns employee MelissaKoin industrycompared with its form in the past,”says 2008, is justone example of alargehedgefund that David Walker,head of European institutional research succumbed to this desire for greater freedom. The at CerulliAssociates, the assetmanagement research companyreturned all outside moneytoinvestors and group. “Onshore regulation, plus public reporting of converted the business to afamily office in 2013. Greg significant shortpositions, are worlds removed from Williams, business controller at Covepoint, which at its the barely regulated industrytheyonce knew. Those peak handled more than $1bn of assets, told the FT at managers thatgrewupinalessrestrictive regulatory the time thatthe changes were in response to “regulatory landscape mayyearn for its freedoms.” requirements [that] have become much more When ahedgefund becomes afamilyoffice, all burdensome”,adding: “The family-office structure allows

22 |ft.com/wealth for the flexibilitythatweare seeking at this time.” In May, JAT, the $1.7bn hedgefundknown for its ‘I expect to seemore largestakes in companies such as Twitter,Yahoo and conversIons butnot for the Madison Square Garden company, joined the listof groups thatwill be returning moneytooutside investors It to be aHugetrend’ and becoming afamilyoffice. John Thaler,who founded the companyin2007, had encountered performance difficulties, including an 11.3per cent loss lastyear, of the Social Democratic Party, branded hedgefunds according to the Wall StreetJournal. In aletter to “locusts” in 2005. Theterm has stuck. investors, however,heattributed the decision to wanting Even Donald Trump, the Republican property to spend more time with his “young family”. magnate running for president of the US,has lashed out More hedgefund luminaries are expected to bring the at hedgefund managers, branding them “paper-pushers” shuttersdown on external investors, as agrowing number who do not paytheir fair share of tax. In an interview of alternative funds struggle to produce decent returns. with CBS television in August, the 69-year-old said of Theaveragehedgefundreturned 3.3per cent in 2014, the hedgefund elite: “Theyare energetic. They are very compared with 5.5 per cent for the MSCI World index. smart. But alot of them —theyare paper-pushers. They “Hedgefundmanagers are rational entities who makeafortune. Theypaynotax. It’sridiculous. understand whatachallenging environment this is,” “The hedgefund guys didn’t build this country. These Gayeski says. “For some, it’s not worth the efforttogrind are guys thatshiftpaper around and theyget lucky. Some out whattheyviewaslessthan thorough returns.” of them are friends of mine, some of them Icouldn’t care Perhaps more disturbingly for other hedgefund less about. These guys are getting away with murder.” veterans, however,their business is no longer as revered But while hedgefunds —and their managers —do as it used to be. It has become almostroutine for indeed paytax, within this hostile political and regulatory politicians in the developed world to attack the hedge environment it is little surprise thatmanagers who have fund industryinthe run-up to elections. already made their fortunes have begun to question the Such moves are seen widely in the industryas appeal of managing outside investors’ money. insincere and calculated, designed to score points with “The hedgefund industrymay still have aglamour an electoratethathas become disillusioned with the appeal compared with other sectors, but we are a world of finance in the aftermath of the financial crisis. long wayfrom where we were in 2006 or 2007 when In Germany, Franz Müntefering, former chairman everyone wanted to quit the sell-side [investment banks] and join ahedgefund,”saysGayeski. Theinvestment moguls at the head of some of the 2. recently established family offices ynma ot escape the long arm of international regulators for much longer, however.BarbaraWall, director at Cerulli, says: “I would expecttosee more conversions but Idon’t expectthis to be ahugetrend. Family offices are on the radar of the SEC, and Europe will also be turning its attention to these quietbut powerful entities. “Single family offices managesignificant sums and their actions have amajor impactonglobal capital flows. It’s only amatter of time.” W

3. es ag im tY et ;g rg omBe lo ;B ck to is s: to Pho

ft.com/wealth|23 global outlook Central banks hold thekey to long-termgrowth or reCession

BY DaviD OakleY

nvestment officers at some of the world’s biggest family offices and privatebanks are cautiously optimistic over markets, the prospects for the continuation of the equitybull run and the global economy. Six chiefinvestment officers and strategists are broadly in agreement on the big trends thatare likely to dominate over the next 18 months and whatit means for their assetallocations. Without exception theyfavour developed world stocks over underperforming emerging markets, with some increasing allocations to mid-cap companies, while others think hedgefunds, private equityand infrastructure are worth abet as they hunt for returns in aworld of historically low yields. In their view, the risk is the slowing Chinese economy, whether there will be ahard or softlanding, and the effects of the unwinding of extraordinary monetarypolicywith the US Federal Reserve eyeing its firstinterestraterise in adecade. In particular, the US central bank seems to hold the keywith the debate intensifying over how soon it should tighten monetarypolicy, the effects this will have on astrong dollar and fragile emerging markets, which could undermine global growth and the world recovery.

In short, investment managers saycentral bank Ges decisions, not justinthe US butinEurope, Japan ma yI and China too, over the next 18 months mayprove ett

critical for the long-term economic outlook and :G

the health of the financial system, with recession a to

distinctpossibilityiftheymakethe wrong calls. ➤ Pho

24 |ft.com/wealth softlanding: strategists saythe china slowdownis of greatconcern but they do not expect it to slip into recession

ft.com/wealth|25 Eric Verleyen, chief investment o�icer at Société générale Private banking:

“Wethink the recoveryinthe US is sustainable and we don’t think there will be ahard landing in China. The developed world equitymarketsand earnings should continue to do well. “Weprefer equityover bonds as we think corporates will generateearnings and growth and risk assets will benefit, which means we are broadly overweight equity and underweight bonds. “Weexpectapick-up in the eurozone economies with 1. 3. the help of accommodative European Central Bank policy, which should help growth. Forthatreason, we are overweight European equities. “Weare overweight Japanese equities, based on the viewthatthere will be asoftlanding in China thatwill benefit Japan, which should therefore see arecovery. Willem Sels, uk chief market strategist at HSbC “On US equities, we are neutral. TheUSisgrowing Private bank: and the economylooks relatively strong, but stocks are expensive. “Wedowngraded global equityinMay because we were “On government bonds, normalisation is on the way worried about the emerging markets. Forthis reason, we and we expectUSraterises soon. Being agovernment are temporarily overweight in cash. bond investor,you will therefore suffer as monetary “Wehavealso increased credit positions and hedge policyistightened. fund positions, while our equityallocations are neutral “Government bonds are not greatvalue with such 2. overall. low yields, so we are inclined to opt for corporatebonds “InEuropean equities we are overweight and because of higher yield, particularly as we don’t think hoping for strong earnings growth in Europe this year. there will be apick-up in default rates as we expectthe US 1. Valuations in Europe are cheap relative to the US and economywill continue growing over the next 18 months. eric Verleyen fair overall. Monetarypolicyisalso supportive in Europe. 2. “Overall, we are underweight in emerging markets, willem sels “Incorporatecredit, we are overweight. We where falling commodityvalues are having abig 3. particularly likethe cross-over space between investment influence. Forthis reason, we are more favourable european grade and high yield —companies with atripleBor towards Asian equities, where we are neutral, but manufacturing double Bcredit rating. These assets makesense, if you and the eurozone we don’t likeSouth America stocks. We are also economyare slowly are abuy and hold investor who is not worried about underweight in eastern Europe. recovering liquidity. They offer relatively high yields, but it is “On currency, the dollar looks likeitwill remain 4. not thateasy to liquidate positions. We think the US strong while the euro is likely to remain weak, which China’s stock market economywill grow while the default environment is very means it is good to hold dollars and US companies, turmoil is still acause benign. forconcern which are denominated in dollars. “Weare also overweight hedgefunds because theyare “The consumer will benefit from low commodities, an uncorrelated assetclass and we are in an environment which means we likesectors thatare linked to the of high volatility, which hedgefunds should be able to consumer,such as consumer discretionaries and luxury exploit. We like privateequity. Youcan’t getinand out goods groups. Cyclical stocks linked to the consumer and of privateequityeasily,but you need to create value in recoveryare worthwhile investments. equities and privateequitycreates value. “On the alternative front, we likehedgefunds. We “There is alot of nervousness about China, but we think theycan perform better in adifferentiating market think over the next 18 months the countrywill stabilise, where QE [quantitative easing] is not such an influence which will help equities. and apremium is on companies thatare well managed.” “China can help its economybyincreasing infrastructure spending and cutting rates while the currencycan depreciate somewhatfurther,evenif we don’t expect it to fall sharply.This should help to give marketsmore confidence thatthere is agradual slowdown of growth in China, but it does not mean there ‘THE SINGLE GREATEST RISK will be ahard landing. “Wedon’t expect equities to plunge,nor do we expect IS THEUNWINDING OF abig jump. Equities are more likely to trade inasideways US EXTRAORDINARY channel, whichweare at thebottom of at themoment. “On the dollar,wethink the firstraterisehas been MONETARY POLICY’ priced in and thatthe dollar is the mostovervalued of currencies so it would be hard for it to rally further. “Weare underweight emerging market equities because of the lack of clarityaround China in the short term, and underweight government bonds because we think the yields are too low to offer decent returns.” ➤

26 |ft.com/wealth Photos: BloomBerG 4. bruce Stewart,chief investment o�icer of the anton Sternberg, head of investmentsatStonehage family o�ice servicesgroup at bNY Mellon Wealth Fleming: Management: “Weare fairly optimistic on stocks over the next year or “First, the overall trends favour developed world equities so. We are constructive on equities in afocused way. Our to emerging market equities. Themostobvious decision equityexposure is in global-based ideas in concentrated, in this environment and for the medium term over the high-conviction, defensive high-qualitycompanies or next 18 months is to go underweight emerging markets with good exposuretoconsumer markets. because of the problems in this region. “Weare happy to have companies thatare exposed to “However,wedon’t consider emerging marketstobe emerging marketswithout them being emerging market ahomogenous assetclass. Eastern Europe and emerging companies themselves. We want decent growth and Asia are holding up fairly well, as opposed to Latin 1. decent dividends. America where there are big problems. “Emerging marketsstill have hugepotential and still “Insimple terms, you have to look at the netexporters offer opportunities. We have companies with emerging and the netimporters of energy. Forexample, India is market exposure such as Nestlé and AB InBevasthey doing well and Brazil not so well. are qualitybusinesses. “On equities as awhole, we are re-allocating from “Weare not thatkeen on bonds. We have been wrong large-cap stocks to mid-cap stocks. We like mid caps on the viewofbonds as yields have remained low,but we because theysit well between small and largecompanies. find it hard to be constructive on bonds. We have some They are higher qualitythan small caps but present 1. credit exposure. greater growth opportunities than largecaps. On arisk- “Ifyou had to look at it on an analytical basis, we like adjusted basis, mid caps are whatwefavourmost. the US as the economylooks healthyand is likely to grow “Internationally,welikesmall caps as it is one of the over the medium term. We are, therefore, constructive leastinefficient assetclasses. We think there is more on companies with headquarters in the US. opportunitytopick up capital value in small developed “Weare looking at aslow recoveryinthe US,which 2. world companies. will benefit from consumer deleveraging and the oil price “On the currencyfront, we have aclimate of strong dividend, but we are not yetoptimistic on commodities dollar and weak euro and we think thatwill continue for and don’t hold miners because we think commodity awhile, which could makeUSdollar-denominated assets weakness is likely to be acontinuing trend. attractive. “Weare underweight bonds and we don’t have a “Inbonds,welikefloating-ratesecurities to offset strong viewoncurrencies. expected US raterises. We have also gone shortUS “On alternative investments, long-term multi- Treasuries, while going long the US aggregate bond generational family wealth makes privateequity, private index, which is abroad collection of fixed income debt, infrastructure and real estate assets attractive as securities including investment-grade and other bonds. these people are not worried about illiquidity.” “Another trend among some family office clients is to hold cash and wait for good opportunities to invest.”

3.

1. bruce stewart 2. antonsternberg 3. the weaker yen 3. is driving Japan’s seafood exports 4. howthe Us Federal reserve stagesrate hikes will determine the outlook forthe world economy 5. Japan’s manufacturing sector has been affected by the China slowdown 6. simon smiles 7. steven wieting

28 |ft.com/wealth Simon Smiles, chief investment o�icer forultrahigh net worthatubS Wealth Management:

“Wehaveseen higher volatilityinrecent weeks, which is concerning because it is againstabackdrop of low volatility. But we think the overall investment trends still broadly favour developed world equities. “Weare overweight global equities, Japan equities and European equities. There is improving economic growth in the eurozone and Japan, while corporateearnings are continuing to grow in the US.Low interestrates should also help recoveries in Europe and Japan. “The US,the world’s biggest economy, has also revised up growth in the second quarter while the jobs market is strong. Our views would changeifcorporateearnings were to fold, but theyare robustand monetarypolicyis supportive with low defaults. “Wethink China will grow around 5per cent this year. But it is still abig concern with the possibilityoffurther 5. depreciation in the Chinese currency, which could hit economies such as Japan, South Korea and Taiwan. “Atsome point, there will be another recession but we do not expect it over the next 18 months as some suggest. “Wewereoverweight US equities in 2013 and 2014, but we are neutral in 2015 because of high valuations. US earnings are growing but are more muted, which is a reason not to be overweight. “Oil and the US dollar will be influences on economies and markets. Lowoil prices should be good for global growth, but astronger dollar is holding back US earnings. We areunderweight emerging marketsbecause of the oil and dollar factors. 6. StevenWieting, global chief investment strategist at “Over the next 18 months China is abig concern, but Citi Private bank: the single greatestrisk is the unwinding of extraordinary monetarypolicy. It is not the firstratehikebut how the “Weexpectslow growth in the world economytopersist. US Federal Reserve will stagethe next ratehikes that We see this as abull market with acurfew. We don’t will determine the outlook for the world economy.” expectacollapse in equities over the next 12-18 months, although we have seen some recent volatility. “China’seconomyhas been slowing since 2010, but 4. we do not think it will collapse. We also do not expect the US to have acontraction in 2016, but there are risks that there will be one in 2017.For this reason, we have made gradual cuts in our global equityoverweight positions. “Weare neutral on US Treasuries and overweight US 7. investment-grade bonds. “A big risk is more Chinese devaluations, which could be disruptive. However,weremain overweight eurozone equities, with asmaller overweight in US and UK equities. We are also overweight in Japan and India equities with asmaller overweight in Chinese Hshares. “On emerging markets, we are neutral or underweight. We are neutral on Asian hard currencydebt but ers underweight in Brazil and on emerging market debt.

reUt “Wealso have adeep underweight in eurozone and

s; Japanese government bonds, while we are overweight in Ge dollar-denominated assets. ma

yI “Inalternatives, we think there are opportunities in

tt selective privateequityand real estate, particularly as Ge there are higher long-term returns in thatassetclass G;

er than in public markets, where we don’t think it is worth paying aliquiditypremium. “Overall, we are cautiously optimistic for the next 18 BloomB

s: months but the risk for recession is increasing as the

to US economyisnot enjoying the labour force strength of

Pho recoverythatsome people had hoped for.” W

ft.com/wealth|29

direct dealers JB ANDTONY PRITZKER HAVE MOVEDBEYOND THEFAMILY OFFICE MODEL

By Stephen foley photograph By DaviDWalterBankS

he Pritzkers were Warren Buffett before Buffett was Warren Buffett.The Chicago family,which boasts 11 billionaires in its ranks, has been accumulating businesses for more than six decades, across an array of industries, from manufacturing to casinos to banking to cruise ships, as well as building the Hyatthotels chain thatremains the family’s trophyasset. As his investment vehicle, Berkshire Hathaway, has grown, Buffett has in recent years switched from buying shares to purchasing whole companies, but the Pritzkers have been in the acquiring business since the beginning. It is atradition thatscions of the family continue today. Thepitch thatTonyand JB Pritzker are making sounds remarkably similar to the one Buffett makes to family-owned businesses when he offers a“permanent home” at Berkshire Hathaway: sell your companytous, the brothers are saying; an industrybuyer will subsume it, privateequitywill strip it and flip it to the he ➤

32 |ft.com/wealth Brotherly bond: JB,leftand tony Pritzker 1.

‘Weare more like a Pritzker Group —into which the twobrothers have pooled their personal fortunes, estimated at $3.4bn World-classinvestment apiece —illustrates the rising clout of family money. After three deals this year,the group now boasts nine firm than afamilyoffice’ wholly owned businesses, adiverse portfolio that runs the gamut from Entertainment Cruises (“North America’slargestdining cruise operator”) to Peco Pallet, highestbidder,but sell to us and we will investinits alogistics company, to Clinical Innovations, which employees and in its future. makes obstetric equipment. It also has aventure capital “I grewupwatching my mom and dad selling rooms arm, which has taken stakes in more than 100 start-ups. in our motels,”saysJB. “Wehad CEOs coming to our Family offices are increasingly looking for ways to house so thatmydad could persuade them to have their circumvent the high fees of privateequityand venture executives stay in Hyatthotels. Ican relate to how Hyatt capital funds by making those investments directly — is talked about in the media. Howitdoes as acompany and sometimes bidding againstprivateequityfirmsto matters alot to me, even if Iamnow doing other things. buy whole businesses. PitchBook, which collects data on So it’s personal. And thatistrue for family owners thatsell takeovers, has recorded abig increase in acquisitions by —even if theyare selling the entire thing, their legacyis family offices: 97 deals in the US in the pastfive years, wrapped up in the name and the future of thatbusiness.” versus 56 in the previous five.

34 |ft.com/wealth ‘ifafamilyisselling the entire thing, theirlegacy is Wrappedupinthe future of thatbusiness’

Thebrothers are itching to do more but prefer not to call Pritzker Group afamily office. “We’ve been at this quite awhile and we don’t operatemuch likeafamily office,”saysJB. “Weare much more likeaprofessional and world-class investment firm.” Tony and JB are the sons of Donald Pritzker,who built Hyattwith his brother Jay; athird sibling, Penny, is commerce secretaryinUSpresident Barack Obama’s administration. Frictions and factions across the extended family necessitated adelicate restructuring of the Pritzker empire thatculminated in the sale of the its industrial conglomerateMarmon Group in 2007 —to Berkshire Hathaway, no less —and the flotation of Hyatt in 2009. But while feuds between siblings and cousins bubbled for adecade, the brothers only became tighter. 2. Working together since 2002, JB focuses on the deal-doing side, drawing on his experience in investment banking and venture capital, while Tony —at54, the 1. 3. older by four years —isthe operations guy who cuthis OneofEntertainment teeth at various subsidiaries of Marmon before its sale. Cruises’ fleet 2. Their relationship is recognisably thatofbrothers, PennyPritzker, by turns lavishly praising and relentlessly ribbing each commerce secretary other,not leastabout the annual Pritzker Group softball to Barack Obama tournament. 3. “I wakeupinthe morning and Ihave15emails from LBP Manufacturing’s cardboardcup sleeves JB,”saysTony. “Heworks his buttoff.I’m convinced that time moves more slowly for him. Ican’t keep up. But we are both extremelycompetitive. Like, JB’steam beatmy team in softball this year and I’mnot so happy about that.” JB: “But it’s not likeI’m rubbing it in everyday.” Tony:“Well, you have put thattrophyright in front of the door to my office.” JB: “I didn’t sayIwasn’t rubbing it in everyweek.” Tony:“Butwewon the year before. Twoyears ago, we won.” JB: “Whathaveyou done for me lately?” When FT Wealth magazine speaks to the pair, theyare in LasVegas, attending atrade show for the

packaging industrycalled Pack Expo and showing BloomBerg offPritzker Group portfolio companies thatinclude s; LBP Manufacturing, which makes the cardboard sleeves ge ma

thatkeep Starbucks’ customers from burning their yi hands on hot coffee cups. “Weare not here pulling slots,” tt says JB. “Welove packaging.” ge s:

Showing up to meetcustomers is partofthe deal. By to going hands-on at their various portfolio companies, the Pho brothers are demonstrating theyare engaged owners who are in it for the long haul, rather than entitled of operating businesses. It cannot be done, theysay,by billionaires pursuing afad for directinvesting. “Itis drafting in the family lawyer or the chieffinancial officer important people don’t feel likewe’regoing to decide not of the family business to run acquisition talks. to be in this business tomorrow and go sit on the beach “The family members who are involved ought to have and eatbonbons,”saysTony. abackground of having done it before, outside or inside Another partofthe deal is stuffing Pritzker Group the family business,”saysJB. “Justbecause one happens with talented investors and operational managers. This, to be wealthy, it doesn’t mean you are naturally anygood theysay,isthe testfor afamily office considering copying at building an investment operation thatisworld-class the Pritzker model and plunging into the acquisition or successful.” ➤

ft.com/wealth|35 4.

4. Family acquirers can shape adeal to fit around a ‘Weunderstandfamilies The Park Hyatthotel, seller’s tax plans or trustarrangements, for example, oftenneed diversity Buenos Aires much as Pritzker Group allowed the Duchossois 5. family to keep aminorityholding in Milestone JB and Tony Pritzker in theirholdings’ AV Technologies, which makes wall mountings for flat-screen televisions, in their deal in 2013, or as Buffett acquired the Pritzker family’s own Marmon Group in Pritzker Group’s privatecapital team is led by Paul chunks over asix-year period. Carbone, formerly of RobertWBaird’s privateequity “Wedon’t layall of our family baggage, and theydon’t arm, and there are veterans from Blackstone and Sam layall their family baggage, on the table always,”saysJB, Zell’s EquityGroup Investments, as well as executive “but we certainly empathise with all the challenges of talent from companies as diverse as Redbox, the movie multi-generational wealth. We understand thatfamilies rental kiosks business, and medical equipment supplier often need diversityintheir holdings, and sometimes Cardinal Health. there are complexities in the waythatthose assets are Thehunt for acquisitions is focused on mid-market held thatwecan managethrough.” companies valued at $100m-$500m. Theappeal It is apitch the brothers are making as vociferously continues to be to family-run or entrepreneur-owned as ever,asmorefamily offices are attracted to direct businesses looking for capital thatcan takea“40 years, investing and setthemselves up to compete for deals, not four years” perspective, the brothers say. along with aprivateequityindustrypumped up on As well as the emotional appeal to family business cheap borrowing. ThePritzker name maybefamous, owners, there are practical attractions, too, and several but getting sight of the bestacquisition opportunities reasons whythe Pritzkers believe family capital has involves telegraphing the group’s availabilityto an advantageoverprivateequityinsome deals. Chief investfor the long term and highlighting whatmakes among these is the abilitytooffer greater flexibilityin family moneydifferent. deal structure than aprivateequityfirm can;the latter They would never do anything as gauche as posing has ashorttime horizon for buying and selling assets for for photos with an open cheque book but, as JB says: its funds. “Wehavetotry harder than Warren Buffett.” W

36 |ft.com/wealth nks Ba er lt wa id av :d to Pho

ft.com/wealth|35 equities outsmartingharvard

BY matthewvincent

aHandleonvolatIlIty

sk fiveeconomists and you’ll their textbookrisk/returntrade-off getfive different answers… underpredicted the returns from sixifone went to Harvard.” low beta stocks. Similarly, astudy by Thus quipped Edgar Fiedler, investor JeremyGrantham of the 600 AthelateUSgovernment largest US stocks between1969and adviser(and UniversityofWisconsin 2005 found thelowestdecile by beta graduate). Conservativecommentator outperformedbyanaverage 1.5per cent (andYale alumnus) William FBuckley ayear, whilethe highestbetaholdings wasevenmorescathing about the underperformed by 2.7per cent. Massachusetts seat of learning’s In theUK, wealthmanager Charlotte pecuniary competence: “I’drather Thorne of Capital GenerationPartners entrust the government of the United (andOxford University) has just States to the first 400people in the compared Acadian’s managed volatility Boston telephonedirectorythan to the portfolios with other managers’ efforts facultyofHarvard University.” to capture the anomaly. She identified So,newsthatthe newheadof 20 global developed marketfunds Harvard’s century-old endowment fund with low volatilitymandates, and is concerned about“frothy”markets, foundthatover thepastfour years and hiring managerstomakeshort- theyoutperformed theMSCIWorld termbetsonfallingshare prices, is In Harvard’s shadow: Indexby150bps with30per centlower whereits endowment ‘Clients vAlue likelytodivide opinion. It sounds like volatility. Similar results were achieved fund leads,top lowvolAtility one mangiving averydifferent answer investmenthouses inemerging markets. to the long-term approachthatwent seem to follow less thAn “Clients value low volatilityless than before.Orsomeone withatelephone theyshould,”Thorne concludes, noting directoryof400 hedgefundmanagers. they should’ thatvolatilitycan have abig impacton Butitmatters to your portfolio, too, wealthyfamilies’portfolios designed because so many of today’swealth on reinventing portfolio theory,amore to payanincome. She calculates that managerscite Harvard as alma mater real-world approach to market frothhas overthe 14 years to January, a$100m or idea stimulator (State Streetusedto beendevelopedbyswots down theroad. portfolio paying out 4per centayear chargeaflat feeof$100,000torun the Forsome years now,Acadian Asset would be worth$115m if itmatchedthe $38bn endowmentfundbecause so Management (whose chiefinvestment MSCIWorld Indexwith no volatility, many of its fundmanagerswent to the officer is ex-MassachusettsInstitute of but only $98m whenexposed to full college).Where Harvard’s endowment Technologyand whose portfolio director market volatility. leads, top investment housesfollow. is aBoston Universitypostgrad) has To her,the performance of managed Judging by the fund’s latest report, been exploiting atheoretical anomaly. volatility portfolios is no mystery—it is thatmeans somemay be following Although traditional financial theory explained in twopapers: “Benchmarks chief executive Stephen Blyth out of teaches thatrisk is rewarded with higher as LimitstoArbitrage: Understanding “potentially frothy” equity markets and averagereturns —and the rule generally the Low-Volatility Anomaly” and“The into cash, and joining his search for holds good at an assetclass level — LowBetaAnomaly: ADecomposition “equity managers with demonstrable there is extensive empirical evidence intoMicro andMacroEffects”.Lead investment expertise on both thelong for a“low-risk anomaly”inequity authoronboth? MalcolmBaker, andshortsides of the market” —iea portfolios: shares thatexhibit lower professor of finance at Harvard Business willingness to short-sell sharesand beta, in other words, their prices vary School and seniorconsultant at Acadian. profit when theyfall. This from afund less than the market and perform better It seemsasimpleranswer to the that madea0.1 per cent return on the than high betacounterparts. Acadian Harvardendowment’s challengewas $6bn it gave to “long/short” and other calls it “the greatestanomaly in finance”, under its nose —and it is not always hedge funds lastyear. and is not alone in researching it. bad when,inthe words of entrepreneur

In fact,Blyth is overhauling the In 2004, Eugene Fama andKenneth Mo Ibrahim: “People suspend their omBerg fund’s entire approachtoassessing French —the academics whodeveloped common sensebecause theyget lo :B

riskand return. However, while the theefficientmarketstheory —tracked drowned in Harvard businessschool to Harvard academics expendmuchchalk US share prices back to 1923and found teachings.” W PHo

38 |ft.com/wealth

impact investing jeremy hazlehurst

@JHazlehurst

mAnAgeAble Ambitions

ne of the most it comes to investment and wealth tech solutions: many thatbusiness families are not driven memorable characters management decisions; and, third, that family officeshave by purely financial metrics but are in Charles Dickens’ it can also help “to engageayounger valuesand want also long-termistand have an ethos of novel Bleak House is generation in the leadership and to create ‘positive responsibilitytowards their workers, OMrsJellyby,awoman management of afamily office”. legacies’ the communities theylive in and the who spends her life raising funds to Undoubtedly some impactinvesting environment —Hannah and Warner build “settlements” for poor children schemes are impressive, but theyare have suggested thatagroup of family in Africa, while neglecting her own not for all family offices. It is true that offices gettogether and form aFamily offspring who ranaround her filthy manyfamilies do have values and want Capital Bank to fund businesses. house hungryand in rags. TheMrs to create “positive legacies”,asthe Theidea is thatthis might be similar Jellyby problem is an ever-present one WEF says. But, the GIIN adds, many to an old-fashioned merchant bank for wealthyfamilies when theyengage of the family offices involved belong to thatwould put the buyers and sellers in philanthropy: it might be tempting wealthyentrepreneurs, often those who together,and maybe even over time to sink moneyinto blockbuster projects have made their moneyintechnology, thatpromise to changethe world, but which means, unsurprisingly,many there is always aniggling suspicion impactinvesting projects involve tech impact investing thatyou might do more good by doing solutions. Pierre Omidyar,founder something less appealing. So whatis of eBay, for example, has invested aims tO make the bestway for families to do good? hundreds of millions of dollars in aprOfitas And how can the family office help? microfinance and mobile banking Traditionally,family offices have technologyinsub-Saharan Africa, as well as benefit usually not been involved with well as in abusinessthatsells solar- sOciety philanthropic endeavours, which powered lanterns in India. the family either made directly,or Many family offices, especially those via afoundation. But families are of multigenerational families, are far might evolve into aprincipal itself. increasingly becoming interested in too conservativefor impactinvesting. An entitythatencourages “long-term impactinvesting, which aims to make Part of the issue is its novelty. One patient capital with aconscience” aprofit as well as benefit society or the family office adviser said he prefers could, theysay,potentially have ahuge environment. And when investing is traditional philanthropy simply impact, especially given the amount of in the title, you can be sure the family because people have been doing it for moneyinfamily offices. And because office will become involved. According longer and “have aclearer idea of what it would be aformofstraightforward to the World Economic Forum, 17 per works”.Some family business members directinvesting,itwould also keep centofthe $50bn under management are sceptical about the need for them in their comfortzone. in impactinvesting projects stems impactinvesting and its sibling, social Thesorts of projects aFamily Capital from family offices. TheGlobal Impact enterprise. Bank funded would probably tend Investing Network’s2015impact “Why would you setupabusiness to be slow burners thatimprove the investor surveyshows that58family thatdoesn’t have social impact? The world in small increments, rather than offices are involved —more than whole idea of setting up abusiness just blockbusting philanthropic projects the number of foundations (47) or to makemoneyisridiculous,”saysone. such as the Gates Foundation’s malaria development finance institutions (34). Could there be away to launch eradication programme. But creating There are good reasons whymore impactinvesting-likeprojects in amore sustainable, long-term businesses that ms hA family offices might become involved. conservative way? makethe world aslightly better place is TheWEF lists three main factors: as Asuggestion comes from Wadih acredible alternative. ood away to unite families “around values Hannah and Guy Warner,partners Forall her enthusiasm, MrsJellyby’s mW and positive legacies”; thatithelps at the Termes Partnership, which settlements were never going to get dA :A

family members “to be explicit about advises wealthyfamilies. Riffing on the built. But she could have bought her to their shared values”,particularly when concept of “family capital” —the idea children newshoes. W Pho

40 |ft.com/wealth ft.com/wealth|41 SUCCESSIONPLANNING THENEXT GENERATION

BY JEREMY HAZLEHURST

SmootH HaNDovERS

ith the exception of member,and although it inevitably Spanning generations: generation, for instance, so theycan afew,such as the ends up providing services to others in John DRockefeller Sr demonstratetheyare interested in the Rockefellers’,which the family,itisconstructed with that with his great- family’s sustainability”. dates from the 1930s, person in mind,”hesays. “When the grandchildren John More and more UK families are and Elizabeth at his Wthe majorityoffamily next generation takeover theywill have using family investment companies, Pocantico Hills estate offices have been founded in the past different needs and requirements.” in NewYork which are excellent structures for 20 years. In the UK,their popularity Succession is easier if the process dealing with governance issues, says has increased over the pastdecade happens slowly.“One waytosmooth Dermot Callinan, UK head of private because of changes to the trustregime this is to always have twogenerations client at KPMG, the consultancy. thathavereduced the appeal of these on board, to have the next generation “This determines the constitution structures for families. This means that involved early on so thatwhen the one of the board, objectives for the even if the wealth theymanageisold, in command leaves theyhavebeen company, asystem of reporting back fewfamilyoffices have gone through there for awhile,”saysEmile Zakhia, and providing information, and a the process of transitioning from one head of consulting at QuilvestPrivate structural handover of ownership, generation to the next. So how should Equity, which invests in privateequity non-executives and advisers. There is theydeal with succession? for the seventh-generation Bemberg process and accountabilityand it helps One of the main issues is working out family,the Argentine industrialists. geteverything clear and correctat how to deal with the family members “Then theyare included in the process, the beginning, with astructure and a themselves. “Some people really do know how it is run and have been purpose thatcomplement each other.” plan for succession and others just involved in the hiring of the staff.” This structure allows the older ignore it,”saysSabine Rau, professor Thenextfamily head should also generation to place equityinto atrust, of family business at King’s College be eased into the job. “Theyshould while retaining their own voting rights. London. “Itseems to be something have aseatatthe table, then avoice This separates the ownership of the inherent in the incumbent generation; at the table and then theycan change companyfromthe money. “[There is] something to do with the personality the rules at the table,”saysFrancesco good succession planning going on, and experiences of the family.” She once D’Amico, managing director of Quilvest but there is also clarityabout whoisin heard apatriarch begin asentence with Switzerland, the multi-family office of control and this can be passed on when the words, “If Iever die…”.“Someone in QuilvestGroup. “Only once you master the time is right,”saysCallinan. thatstate of mindwillnot plan,”she says. the rules can you changethem.” Making sure all parts of the family Such denial of realityisnot unusual. John Davis, who runs Cambridge mesh is vital if succession is not to MatthewFleming, afifth-generation Family EnterpriseGroup, aUSadvisory cause the family office to grind toa member of the investment and banking firm, says the family office cannot be halt. Quilvestnotes thatafamily office Fleming family and partner at multi- allowed to function separately. often evolvesfrom an administrative family office StonehageFleming, says “Consciously or unconsciously,the organisation to dealing with wealth he once heard the head of afamily family office managers often make and estate management. Thenextstage describe a59-year-old as “nearly ready”. themselves indispensable by creating is to integrateitinto the family’s wider Another problem is thatthe needs a‘hub-and-spokes’ method of education and planning for the next maGES

of the individual generations can differ communication wheretheydisseminate generation. Yi hugely.The transition from the first, information from acentral position,” Ultimately,itisaquestion of tt GE

entrepreneurial generation to the next Davis explains. It is far better “if they transforming the issues surrounding S/ is always the biggest change, as the are integrated into the family’s other moneyinto ones about the other sorts NER family’s affairs usually become more programmes, developing the next of wealth families have, says Fleming. Rt professionally managed. “You have to think about financial, Pa JR

Recognising this fault line is the cultural, social and intellectual capital,” S/ firststep to mitigating problems. It ‘Somepeople he says. “If afamily’sdecisions are is inevitable thatthe family office based on financial capital alone, Idon’t really do plan tlE timE will changeduring succession, says think the family office is going to be at

Alistair Morgan, chiefexecutive of forSucceSSion there anyway.” W SE Mayfair Private, afirm that advises HE andotherSjuSt :t wealthyfamilies. “The family office is Jeremy Hazlehurst is founder of to generally built around one keyfamily ignoreit’

Business Family PHo

42 |fT.COm/wEALTH

TAXPLANNING NON-DOMS

BY DANJONES

follow themoney

he decision by GeorgeOsborne, as initially outlined. It is this legislation the UK chancellor,toscrap thathas caused the mostconcern among the permanent non-domicile family offices, given the importance they status has created issues for place on succession planning. TLondon’s family offices and As of April 2017,non-doms will no their clients. Themove, announced as longer be able to avoid UK inheritance partofthis year’s summer Budget,means tax by holding UK residential property those who have lived in the UK for through an offshore company, ending a more than 15 of the past20years will be common method of tax planning. deemed UK domiciled as of April 62017, John Rhodes, director of Stonehage subjecting their foreign income and gains Fleming Law, asubsidiaryofStonehage to taxation. Fleming, the multi-family office, says tax With the wealthyinthe Treasury’s is justone factor in succession planning. sights, some suggest the changes could But he acknowledges the inheritance have asignificant impactonthe structure tax changes could have significant of the family office industryitself. repercussions. “Families are going to “Itisverymuch adestabilising move. have to think mostcritically about estate We are at risk of throwing the baby out With manynon-doms able to move Clampdown: UK planning. This is really the angle we want with the bathwater,” says AshleyKing- around the globe with relative ease, the chancellor George to cover.” Christopher,apartner at Charles Russell chancellor’s latestreforms could lead to osborne’s reforms In asign of the sensitivityofthese could lead to Speechlys, the privatewealthlaw firm. the return of “daycounting”among the the return of ‘day proposals, the government will dedicate a Thesingle family office, which wealthy, according to Kearney. Those counting’among the separateconsultation to the subjectlater provides arangeofservices to wealthy who spend an averageoffewer than 90 wealthytoavoid a this year. families, maybeunder threat, according days ayear in the UK do not qualifyas change in status Kearneyadds: “The ideathata to King-Christopher. resident non-doms. significant house in Chelsea falls into UK “When Iget an instruction, saying, Thelargermulti-family offices say inheritance tax is asufficiently material ‘Wewant to relocate our family office their relationships are strong enough to risk for afamilytoconsider leaving. I team, our keymoneyguys, from Brazil survive this kind of scaling back. Many think we will see alot of that.” to London’, my next question is whether already necessitate “travelling to see TheKleinwortBenson director says the family is coming as well. Often the clients, conference calls and video calls”, offices should hold little hope of being answer is, ‘No’.” says Michael Parsons, client relationship able to plan around the change. Norare Paul Kearney, afamily office specialist manager at Sandaire, the wealth family offices clinging to the beliefthat at KleinwortBenson, the privatebank, manager. the crackdown represents an epilogue agrees: “Family offices thatact as asset This abilitytoserve international to the non-dom taxation story. But their managers can be here even if the families clients does have natural limits. Wealthy overall outlook is far from downbeat. are not. [But] if the family office really clients moving to far-flung time zones are Family offices retain faith in London’s deals with privateneeds, those would less likely to retain UK connections, as relative merits, not leastbecause other move with them.” Parsons acknowledges. mainstream jurisdictions, such as Howlikely are departures? Recent tax But manynon-doms are deeply Switzerland, are less of ahaven than they reforms, of ascale less severe than the embedded in the UK,making mass once were. latestproposals, have seen the number departures “doubtful”,according to one “Wecan simply do whatwehave of UK resident non-domiciled taxpayers adviser.For these clients, the question is always done, which is to look at co- fall from ahigh of 140,000 in 2007-08 how to adapt to the newrules. ordinating the affairs of these wealthy to 114,300 by 2013-14.But the figure has Thegovernment’s consultation on its cross-border families,”saysRhodes. remained relatively constant since 2010- proposals, released on September 30, “There have been quite dramatic 11, and numbers rose 3per cent lastyear. revealed thatpersonal income and gains changes everywhere over the pastfive Pinsent Masons, the lawfirm, says this from non-doms’ offshore trusts will not years for people who occupy this space. increase masks significant churn. The be taxed in the eventthatindividuals Huge amounts of information are going suggestion is thatthose arriving in recent become UK domiciled. to be swapped, on ascale never seen harlie bibby :C

years have done so with alower degree of But changes governingthese vehicles’ before, which is going to makeitvery to commitment than in the past. inheritance tax liabilitywill go ahead difficult for people to hide money.” W Pho

44 |fT.cOM/weALTh

PROFILE CASCADEINVESTMENT

BY LucY WarWick-ching

What’s in aname?

ichael Larson is to investglobally andacross many 1. consulting”, “privatecompanyservices” one of the most assetclasses. Itsfive largestpublicly Cascade,the and even “strategic philanthropy powerful men disclosed equityholdings are: Canadian companymanaging advice” have joined the lexicon of Bill Gates’s fortune,has in US wealth National Railway; Republic Services, invested in Femsa, a wealth management for the extremely management you the waste removal company; Ecolab, bottler of Coca-Cola rich, she says. have never heard the disinfectant maker; Femsa, the 2. Whattheysignal is thatfamily of.Heisthe chief drinks group; and Deere, the maker of Bill Gates wealth investment management is big Minvestment officer agricultural machinery. 3. business. Across the world, Tillotson Cascade also has a for Bill and MelindaGates Investments Cascade has holdings in property stakeinDeere,the believes there are about 79,000 very (BMGI), and as such is in charge and non-technologycompanies. It maker of agricultural rich individuals (those with personal of managing Bill’s personal wealth holds around a4per cent stakein machinery wealth greater than $50m) who control through Cascade Investment, as well Warren Buffett’s Berkshire Hathaway roughly $19tn in assets. Many of them as handling the Bill &Melinda Gates investment group, owns 47 percent are business-owning families or those Foundation Trustendowment. Despite of the Four Seasons hotel company so-called “financial families”,who his high-profile job, he works hard and and about 6per cent of Bunzl, the have sold operating businesses. When successfully to stay out of the public distribution and outsourcing group. In it comes to managing thatmoney, eye—Cascade declined to speak for the August, it increased its stakeinStrategic theywant to apply the bestpossible purposes of this article. Hotels and Resorts to 9.8 per cent. investment advice. Bill Gates hired Larson 22 years Under Larson, Cascade has focused “Tothis end theyare increasingly agototakeover the investment of his some of its attention on UK-listed sharing their experiences with other personal wealth, which was about $5bn stocks. In 2008, it bought a3per families via specialistpeer networks, at the time. Since then Gates’sfortune cent share of Carpetright, the flooring events and publications, and with their has grown to around $80bn (of which retailer,but has since reduced its stake. advisers,”saysTillotson. “So where once he has given away around half)after It has also invested in Diageo, the the term ‘family office’was synonymous Larson diversified the funds out of distiller,and JJBSports, the retailer. with the isolated management of Microsoft, Gates’ssoftware company, Cascade does not publicly disclose an individual family’s wealth, today and into abroad rangeofinvestments. its performance results but it has been it perhaps bestdescribes agrowing Cascade is not afamily office in reported thatbecauseofLarson’s bodyofprofessional knowledgeand the traditional sense and does not relatively conservativestrategy, an industryinits own right that liketocall itself one. It does not Cascade’s losses in the 2008 financial includes both specialistand general handle logistics, payroll or expenses crisis were smaller than the industry practitioners.” for the foundation and is purely an averagefor the full year.Since 1995, Thefamilyoffice market can take assetmanagement firm thatinvests Larson has delivered acompound manyforms, from asingle former Gates’spersonal wealth. BMGI is annual return of around 11 per cent. executive assistant helping apatriarch/ an organisation thatmanages the Like Cascade, manysinglefamily matriarch, to a40-personprofessional portfolios of Cascade, the Bill & investment firms aremovingaway investment organisation thatalso deals Melinda Gates Foundation Trustand from theterm“familyoffice”.Catherine with personal affairs. other entities, but again it does not Tillotson, managingpartner of Scorpio Bill Woodson, north America head label itself as afamily office. Partnership, theconsultancy, says: of the family office group at Citi Private Theway BMGI is structured “A tour aroundLondon’selitewealth Bank, says: “While family offices take allows the foundation to separateits management boutiques reveals the different forms, the challenges they programme work from its investments, growingpopularity of the term ‘private face are verysimilar and, as aresult,

saypeople close to the organisation. investment office’. Once loosely the ultimate solutions theyadopt as omBerG

This has meant thatmoremoneyhas described as family officesormulti- theyevolve tend to be similar,although lo ;B

been created to go into the foundation’s family offices, thislinguisticshift aimsto addressed with varying levels of focus, By mission to fight disease and improve put afiner point on their capabilitiesas staffing and professionalism.” iB education in the developing world. independent advisers on family wealth.” He adds thatfamily offices are

Based in Kirkland, Washington, This changeisnot only happening changing and evolving in anumber of harlie B Cascade shies away from media among high-end investment firms; fundamental ways. First, an industry s: C

attention. It declined to comment on its lawyers and accountants too are has developed around supporting to

investment strategies but it is known coining newphrases. “Family business family offices. This allows them to Pho

46 |FT.COM/wEALTh 1.

2.

outsource functions previously done 3. in-house. Second, there are more family offices as aresult of the increase in wealth globally and greater information is available about best practice and resources. This helps family offices “professionalise” earlier than they would have before. Third, Woodson adds, the generational shiftincontrol of family wealth has changed whatfamily offices focus on and how theyare structured. “Younger family members tend to, at ahigher ratethan before, focus on pursuing philanthropy earlier and on integrating philanthropy into afamily’s W investment activities,”hesays. W

FT.COM/wEALTh|47 THEFUTUREOFTHE FAMILYOFFICE EMERgIngMARkETs

BY YuriBender

ThegeneRaTiongaMe

eading family offices in Latin Single family offices have proliferated 1. America and the Caribbean are in Latin America over the past25 The garment-making going through atransitional years as veryrich families sold parts of industryisexpanding period, says Steven Cantor, their businesses and, taking their cue fast as Myanmar pins itshopeson Lmanaging partner of Cantor & from US and European structures, set industrialisation to Webb, aMiami-based lawfirm. up their own investment operations, reshape the economy “Asthe worldmoves to tax says Gerard Aquilina, an independent 2. transparency,withacrackdown on family office adviser,previously asenior Rio de Janeirois undergoing amassive undisclosed taxsavings in Swiss bank executive at several leading global transformation with a accounts, Fatca [theUSForeignAccount banks. flurryofprojects TaxCompliance Act] andcommon Recently,multi-family offices have reporting standards, theseare the glory “mushroomed throughout the region days fortax attorneys in theUS.” as disgruntled and entrepreneurial Thetendencyoffamilies with assets ex-privatebankers and assetmanagers of more than $50m to setuptheir own left their former institutions”,hesays, family offices is increasing, he says. setting up “gatekeeper”firms to offer Disappointed by wealth managers neutral advice to wealthyfamilies. in the region scaling back their Many Latin American banks have privateclient business, “sophisticated not been equippedtoprovide the families are setting up their own trust succession planning, account reporting, companies and taking amuch more conciergeservices and privateequity active role in-house with regards to investments these families need, succession planning”, Cantor says. Aquilina says. However,the likes of More and more wealthyfamilies BTG Pactual and Itaú are beginning from developing economies are to respond to this wave of potential realising thatthe complexityoftheir business, he adds. financial issues requires some degree Topoffamilies’ investment of bespokeplanning, he says. “Itisnot wish listisaccess to privateequity

justabout pulling atrustdocument off opportunities. “If anything, single beRg the shelf in apreprinted format.” family offices will viewlocal political FormostwealthyLatin American upheavals and fraud issues such as families, the issue of ensuring Petrobras as excellent opportunities to personal safety is justasimportant as investinassets when other investors ges; blooM Ma

diversification of assets, he says. are fleeing,”saysAquilina. yi “Since Istarted in this business in This desire to investinunquoted geTT

the mid to late ’70s, there has been a companies is justasprevalent across P/ significant amount of political change Asia as it is in Latin America. af s:

across Latin America,”Cantor says. “Family offices across Asia are setting To “But if you had told me then that up trusted and dedicated private 1. Pho Caracas would become the most client investment teams. These are dangerous cityand Bogotá one of the more interested in privateequitythan “Mostrecently there has been much safest, Iwould have thought you were companies listed on financial markets,” interestinEuropean investments,” crazy,asitwas justthe opposite.” says Michael Benz, global head of Benz says. Asian investors are attracted This changing nature of the landscape privatebanking at Standard Chartered, by European economies lagging behind is keytohis clients’ needs. “Wehave the bank. “One can observe this trend the US,coupled with the lure of a lived through several kidnappings of over the pasttwo to three years, as it has cheap euro. our clients in Mexico and seen first- become more and more difficult to earn But anysuggestion thatAsian family hand in pre-residencytax planning for adecent yield from financial marketsin offices were turning their backs on Venezuelans and other wealthyLatins alow interestrateenvironment.” home marketsbecause of fears of a how important arole their political and Asian families are increasing foreign Chinese implosion would be short- economic situations plays.” allocations. sighted, he suggests. “Itisclear that

48 |FT.COM/wEALTH ‘these arethe gLorydaysfor taxattorneys in theUs’

2.

Bernard Rennell, global head of family governance and family enterprise succession at HSBC PrivateBank. “While Asianfamily leaders think about theirbusinessesand investments strategically,whenitcomes to transferring wealthfromone generation to another,the samecommitment of time and effort to planningisoften missing,”hesays, drawing attention to the Chinesesaying that“wealthdoes not lastthree generations”. Splitting assets between siblings after the death of apatriarch or matriarch seldom makes sense, Rennell believes. “A keyarea of focus needs to be how families makedecisions as agroup after thecontrolling member moves on.” Asian family offices face very different challenges than those in the US and Europe, adds Bernard Fung, head of family office services for Asia- Pacific at Credit Suisse. “The Asian wealth here is younger, closer to the original business, so more often than not the family or business leader is still the same person,”hesays. Ageneration of ageing Asian tycoons reluctant to letgoofthe reins hinders younger family members from developing expertise in either business or investments, he says. This can result in investment strategies with atime horizon suited to the founders, but not their children. Advisers who help family offices structure investments can end up dealing with physical as well as financial assets, says Lisa Vizia, head of the family office team at SafferyChampness, the Chinese growth is slowing down, but “A lot of wealth in emerging markets accountancyfirm,inGuernsey. not manypeople in Asia are expecting is being created by entrepreneurs and “Wehavedevised structures for it to stop.” companies in full swing, still in the planes, boats, yachts, helicopters and Most of StanChart’sAsian family hands of the firstgeneration,”hesays. residential developments worthup clients are sophisticated investors, “The biggest step is to takeitfromthe to £300m [for wealthyfamilies]. We experienced when it comes to firsttothe second one.” recently fitted out our second 747,” diversifying internationally and holding Many of the mostsuccessful family says Vizia, who works with clients property not only in the UK,but often businesses bear the scars of internal in emerging markets. “Weare even in the US and Australia. disputes, stemming from alack of tracking carbonemissions. We are They are less advanced in the area of good governance or disruptive fall-outs running their service almostlikea estate planning, says Benz. between clashing generations, says commercial airline.” W

FT.COM/wEALTH|49 profile SANDAire iNVeSTMeNT offiCe

BY YURIBENDER photogRaph BY RIck pUshINskY

communitySpirit

lexScott, founder of Sandaire thatput Switzerland on the map has Long-term horizons: Serving just45wealthyfamilies, Investment Office, which also contributed to its downfall, he AlexScottand Sandaire does not employ technologyin manages his own funds and believes. “Switzerland has always AlexandraAltinger, the same wayasmass-market operators. those of ahandful of other been dominated by privatebanks. opposite “A lot of players recognise this need to be Afamilies, smiles wistfully as But in London, we live alongside partofacommunity,but theysee it as a he thinks about his home in north-west assetmanagers who can provide both purely digital play,”saysAltinger. England’s Lake District. performance and authority. We are “Thatisnot acommunity—itisa “Of course Iwould rather be measured againstthatand have to digital platform. There is an intimacy in Kendal,”saysScott, the fourth compete againstthose standards.” necessarytohostacommunity. We generation to head his family business But the “pendulum of global realise there are experiences our at its Cumbrian headquarters. Sandaire opportunityisswinging east”,adds clients go through where theycan help has its roots in the 19th-centurycotton Scott, explaining the firm’s interestin each other.Thatisthe definition of a industry, before it moved into insurance Singapore, where Sandaire established community—atwo-waything. and financial services in Manchester at an office three years ago. “Some of our clients are keen to invest the turn of the 20th century. Thelongtermiscritical, he says. together.Eventhough these are people “But you have to have access to the Thegroup is not aiming its services at with deep knowledge, theycan’t do vibe,the ideas, the dynamism and the families who want to sign aform and everything alone. It is the reason we talent,”Scottsays. That has meant basing have immediate access to investments. joined forces with Lord NorthStreet.” the investment operation in London’s “Myown family is always working TheSandaire transaction reflects a West End, tucked behindSelfridges to a30-year time horizon,”Scottsays. wider trend among multi-family offices department store on OxfordStreet. “All the clients we are working with are to increase their size, also demonstrated Sandaire, which manages assets of thinking several decades ahead.” in arecent merger between Stonehage more than £3bn, is looking further Themain problem families have with and Fleming Family &Partners, afield. Thegroup merged with fellow banks is trust, he adds. “The banks creating apowerhouse of 500 staff wealth manager Lord NorthStreetlast have collectively paid £160bn in fines serving more than 250 families across year and is keen to expand in Singapore. and settlements, but the power of their the Emea region. “Weare anticipating aneed for these brands means theyare able to endure “Asthese firms enter the next phase, entities to gain scale, as theyare facing these penalties. That is the environment theywill need to focus more on the avariety of legal and compliance costs,” in which we mustcompete.” strengths of their brand, process says Stefan Jaecklin, head of the Emea But an eventual rejection of banks’ and client relationship, while still wealth and assetmanagement practice investment offers by millionaire families maintaining the sense of afamily-owned at consultancyOliver Wyman. “Inthese is coming closer,hesays. “I am an experience,”saysSebastian Dovey, areas, scale really matters.” entrepreneur and optimist. We are early managing partner of wealth think-tank Family offices are often preferred on in terms of consumer acceptance Scorpio Partnership. by wealthyinvestors because they of whatanindependent provider While he feels the sector gets can provide unbiased advice and can do, but we have proved there is a disproportionate attention compared independent access to specialised commercial case for this. People who to its relatively small size, there is a services, unlikecostlier alternatives come to us have decided theywant a window of opportunitytobeexploited, from banks, believes Jaecklin. different solution, and whatisout there with those offices thatare currently Traditional privatebanking centres does not answer their needs.” expanding “better placed to face the such as Geneva and Zurich, Scott Developing technologyisone wayto increasing competitive challenges for says, have been discredited because meetthose needs, although Sandaire business in the next five years.” their institutions failed to put clients has to be more judicious in its spending Banks are veryaware of this threatto first, charged excessive fees and than its wealthier banking competitors. their customer base, but family offices sold inappropriate products. “Swiss “Wewillnever havethe budget of the need to better position themselves to institutions always had asignificant big firms for tech spend, but we canbe win market share, believes Dovey. “The advantageinattracting clients, which more nimble than theyare, outsourcing MFOs need to think harder about how was banking secrecy,”hesays. “Now that modules to different tech companies to respond,”hesays. “The old approach has been dramatically eroded, giving and plugging them together,” says of simply stating ‘we are not abank with other places astep-up.” AlexandraAltinger, Sandaire’s German- all the inherent issues thatcome with Thetight-knit privateclient culture Italian chiefexecutive. this,’isnot cutting it anymore.” W

50 |fT.CoM/weAlTh ‘PeoPle who come to us hAve decided they wAnt A different solution to whAt is out there’

fT.CoM/weAlTh|51 INDUSTRY OVERVIEW MERGERS

BY CERI JONES

COSTCHALLENGES DRIVECONSOLIDATION

ecent merger activityinthe technologyand regulation, which multi-family office world are generally underestimated,” in London demonstrates says Dominic Samuelson, chief the fierce pressure on executive of Campden Wealth. Rmargins across the industry. “Topreserve the investment Stonehagehas merged with Fleming management piece, you have to and Sandaire has scooped up Lord be seen to be delivering other more NorthStreet, the consolidations practical lifestyle services such as driven primarily by the need to achieve operational management of yachts economies of scale by attracting more and aircraft, philanthropy services and profitable clients in the rangeof mentoring the next generation. £25m-£30m upwards. TheStonehageFleming deal has APRESENCEIN created the biggest independent multi-family office (MFO) in TWOWEALTH Europe, the Middle Eastand Africa, CAPITALS OF THE advising on more than $40bn of assets for 250 families in eight WORLDISCRITICAL countries. Anton Sternberg, partner and head of the investments division, “The majorityofthe costs incurred says the deal brought Fleming a are investment-related but families combination of services such as require conciergeservices —theyneed corporatefinance and privatecapital school fees to be paid and households resources thatappealtothe firm’s to be managed —soitisacomplex largely entrepreneurial client base. piece for these organisations which This broader offering has resulted in a requires hiring experienced and skilled number of significant wins thatneither talent, but accepting partoftheir time firm would have gained on its own, will be allocated to services thatmay Sternberg says. erode their value. Themain challengefor theindustry “The prime reason for consolidation is rising costs, which have soared is to scale up the assets under by an averageof7per cent among management,”continues Samuelson. family offices globally over the year, “If an MFO does not have AUM according to the 2015 Global Family greater than $3.5bn-$4bn, then its Office Reportpublished by Campden sustainabilitybeyond the next fiveyears Research and UBS. At the same time, mustbeinserious question. If you look returns have dropped by 2.4percentage at the mergers in the US over the past points on an averageportfolio. The decade, some of which were prior to biggest hikeisinadministration costs, 2008, manyofthose offices became which have climbed from 15 basis unsustainable and had to be acquired.” points in 2014 to 24bps in 2015. Themarket has also been flooded “The trend to consolidation has with competition from professional been led by considerations around firms, independent advisers and the costbase such as the abilityto spin-offteams from investment acquire and retain good-quality management firms. Banks and asset talent and the increasing costof managers have been keen to offload

52 |FT.COM/WEALTH non-core operations; Jupiter,for example, sold offits privateclient business to Rathbones lastyear. Similarly in the US,firms on the eastcoastare setting up arrangements with those on the west, in abid to attractmorehigh-end customers, while ahandful of family offices are collaborating with non-US counterparts. Apresence in at leasttwo or three wealth capitals of the world has become critical. Ultra-high-net-worth families —those with assets of more than $30m —are largely multi-jurisdictional and have to comply with initiatives, such as Fatca (the Foreign Account Tax Compliance Act), thattheywould not have faced in previous years. However, while abroader geographical base is increasingly seen as aprerequisite for clients facing greater complexityin manyareas of their lives, the sweeping regulatorychanges facing advisers, ‘THE COST OF TECHNOLOGY such as the Dodd-Frank Actinthe US, for example, which will require firms to ANDREGULATIONIS maintain additional records, are adding UNDERESTIMATED’ substantially to family office costs. “For international clients, it is important to have local expertise,”says Sternberg. “The resources need to be on the ground. This certainly applies to our US office which is small but frankly is necessaryasour families do things in the US and we could not managethat out of our London office.” “The hype we hear is of cross-border acquisitions but we are not convinced we will see much of thatsoon,”headds. “The marketsare verydifferent. But MSTIME

there are constructive arguments for EA

cross-border expansion. TheUKclient /DR

base is different —mostfamilies will US do something in the US and Asia and BR :D

offices in these regions allow the firm to TO have alevel of localtrust.” W PHO

FT.COM/WEALTH|53 wealth management commonreporting standard

BY adam palin

THETAXMANCOMETH HArliE bibby ;C rs uTE rE s:

1. OTO PH

he “common reporting It promises to prise open the tax and estate planning at Berwin standard”(CRS) maysound secretive affairs of those who are Leighton Paisner,the lawfirm, innocuous enough to those evading tax, and to playapartin sayschanges are “unavoidable” for outside the tax world, but reducing the so-called “tax gaps” wealthyfamilies. T to families with carefully of governments struggling with “Clients have moved on from designed and international wealth- stubbornly high fiscal deficits. throwing their hands up in horror,to planning structures, these three words Theinitiative is symbolic of a accepting thatall of their affairs will are critically important. broader move towards more disclosure soon become available to at leastone Under an OECD-led initiative, of information, with agreater onus tax authority, and thattheyneed to agreed in May2014, more than on individuals and their advisers to plan on this basis,”hesays. 60 countries will starttoexchange comply and steeper penalties for those Bloom says families are worried details of individuals’ bank accounts who do not. about having to explain some of their and trusts on an automatic basis from Damian Bloom, aprivateclient arrangements to authorities for the September 2017. partner who specialises in international firsttime. “There are manyjustifiable

54 |ft.com/wealth “individuals used To be happy To Talk abouTTheir non-dom sTaTus aT Thedinner Table, buTnow iT is whispered in Thecorridor”

reasons for having an offshore bank costs are being incurred to disclose 2. account, not leastprivacy, but in the different information to different current climate there is an assumption jurisdictions… [and] it leaves people thatthose with offshore accounts must wanting to simplifytheir structures.” be dodgy.” Bloom says thathis firm’s clients are Sophie Dworetzsky, apartner at looking to consolidate their affairs in Withers, the global lawfirm, says the one jurisdiction, often from myriad common perception thatwealthy countries, to avoid costly duplication of people with offshore accounts and administration and reporting. trusts must“have something to hide” is Moving assets to low-tax jurisdictions misplaced. It is often due to perceived outsidethe common reporting standard threats of extortion and kidnap in has not been on the agenda, he adds, manycountries. especiallybecause financialinstitutions TheEU’sproposals to require are increasingly unwilling to risk tax advisers to reportthe beneficial facilitating tax evasion. ownership of trusts, with the creation HSBC, Europe’s largestbank, came of apublicly accessible register of under scrutinyearlier this year after the details, would undermine the detailed allegations thatits Swiss 1. “Individuals used to be happy to anonymitythattrusts currently afford. privatebank helped clients to avoidtax. The Eu’sproposals to talk about their non-dom status at the “If information likethis is open to the In March, it launched areview requiretax advisers to dinner table, but now it is whispered in reportthe beneficial public, it is open to abuse,”saysEdward of theJerseyaccounts of its UK- ownership of trusts the corridor,” says Bloom. “Itisnow not Stone, apartner at BerkeleyLaw. resident clients. would undermine socially acceptable at all to say‘Iam Dworetzskysaysmanyfamilies are At atime when banks are the anonymity they moving all of my assets to Panama’.” “justifiably”concerned thatdetails of particularly fearful of breaching currently afford Stricter penalties are also afactor. their wealth could prompt targeted compliance rules, Bloom says “there is 2. Taxevasion is acriminal offence in in July,the uK attacks, particularly in their home growing tension between banks’ desire governmentpledged mostcountries, but intent mustusually countries. They are re-evaluating to protecttheir own reputations and to abolish permanent be proved. TheUKgovernment has their arrangements in the EU their responsibilities to actinclients’ non-domiciled proposed introducing a“strictliability” because of the plans for abeneficial- bestinterests”. tax status offence, meaning individuals can ownership register. Thecostand complexityof be prosecuted automatically for tax Other largetax jurisdictions, such complying with the US Foreign evasion regardless of whether they as the UK,havebecomeless attractive Account TaxCompliance Act(Fatca), necessarily intended to break the law. for wealthynon-residents recently as which requires financial institutions to Dermot Callinan, UK head of politicians have tightened tax regimes. pass on details of overseas assets held privateclient advisoryatKPMG, the Dworetzsky points to theUK by US citizens, prompted some wealth professional services group, says that government’s pledgethis July to managers to shun their custom. opportunities such as the Liechtenstein abolish the permanent non-domiciled Wealthyindividuals are, of course, Disclosure Facilityfor “accidental” status that allows overseas income not immune to reputational concerns, tax evaders (who mayhaveinherited to be exempted fromUKtax. The and although it maybepossibleto undeclared offshore assets) to become announcementthatanyoneliving in circumvent international information compliant with tax authorities are the countryfor more than 15 years sharing, veryfew appear to be adopting running out. outof20willbecome atax resident aggressive strategies, says Berkeley “People are effectively being told they followed other changes, including Law’sStone. mustnow be compliant, having had increasestopropertytaxes, thattarget “There are low-tax jurisdictions where years to settle anyissues on beneficial wealthy foreignfamilies. “Whenyou put people could go,such as Panama and terms,”hesays. everythingtogether,people arestarting Dubai, [but] tax is justone item on the “Once tax authorities have to feel alittle hounded,”she says. balance sheet,”hesays. “Families do not information from the CRS, it will It is this rising costofcompliance paymore [tax] than theyhaveto, but be averydifferent environment combined with newregulations that their main goal is wealth preservation where people need to understand is prompting action now,Dworetzsky while remaining compliant. Taxisnot thatcarelessness can lead to severe continues. “There are frustrations that the number one priority.” penalties.” W

ft.com/wealth|55 investment passions ceramics

BY Kate Burgess

potshot

hatever it is —the thattheywere more concerned with feel of the clay, the commerce than greatart. 1. roundness, the lustre Perceptions began to changeinthe —Ifind potteryhard late 19th centurywith the Arts and Wto resist. Crafts movement. It revived traditional Iamnot discriminating, and do not handicrafts and elevated the design payenough attention to condition and of ordinaryobjects.The firstanti- provenance. My greatestprizes are a industrial British studio ceramicists big-hipped, long-necked Ethiopian emerged soon after,working in bottle in soft, black clayand alarge colonies to throw,sculptand decorate studio ceramic by Jane Perryman, individual pots as pieces of art. One of which Ipicked up in aflea market for the firstwas Bernard Leach working less than £100 adecade ago. Neither in St Ives, Cornwall, where, having the bottle nor the bowl, which is been influenced by Asian and medieval made of paper-thin smokyblue clay English forms, he philosophised about and balances precariously on atable “the ethical pot”. waiting for achild to obliterateit, are He was followed by Hans Coper and worth much. Lucie Rie, who fled the Nazis in the That is the downside of pottery 1930s and came to Britain. Their work as an investment: it continues to be created newinterestinceramics in art affordable. But thatisalso the upside. colleges and studios. Galleries popped Potteryisoften deemed domestic and up all over Britain. These galleries now functional —infact, hardly artatall. displaythe work of modern studio As an anthropologystudent in ceramicists such as Gabriele Koch. the 1980s, Iwas struck by abunch Interestdipped alittle during the of feminists who claimed potteryas financial crisis but is resurgent. After a their own. They called it the artofthe £6m redevelopment finished this year, kitchen and expounded on how women York ArtGallery’s Centre of Ceramic have kneaded, coiled, burnished and Artwill displaythe largestcollection of baked pots, much as theydid bread, British studio ceramics in the country, since the Neolithic revolution. including 10,000 bowls thatmakeup Many believe thatpottery, particularly an installation by Clare Twomey. 1. 3. Lucie Rie bottles mud-coloured, rough stoneware or Works by Grayson Perry, winner of 2. earthenware mugs and bowls, has less to the Turner Prize, the UK artaward, Magdalene odundo’s do with artists than artisans. regularly go for £20,000 and he has “Untitled 1991”wentfor They even say thatabout the (blue) done much to glamorise the medium. £86,500inNew York jasperware and black basaltware of So too have Asian buyers prepared 3. Lucie Rie’s graffito Josiah Wedgwood. Thescientist, slave- to payhugeprices throughout the bowls trade abolitionistand supporter of the financial crash. American revolution setuphis kiln in This year Magdalene Odundo’s the Potteries in Staffordshire. He was “Untitled 1991” went for £86,500 partofaceramics movement “to create in NewYork, making it the most artistic and technological innovation”, expensive work sold by aliving British in the words of Dr John Wall, who built ceramicist. Herhand-built and the firstWorcester porcelain factory burnished masterpieces, with their in 1751. These reformists were at the round bodies and angled necks, drive forefront of the industrial revolution, collectors into frenzies. inventing heat-proof tableware and But she is the exception. democratising tea consumption with Themarket will be tested this mass-produced but exquisitelypainted month by an auction of 20th-century tea sets. It is probably true, though, Japanese and British studio ceramics

56 |ft.com/wealth 2.

‘ThaTisThe doWnside of poTTeryasan invesTmenT:iT conTinuesTobe affordable.ThaT is also Theupside’

at Christie’s.Fifteen years ago, all the big auction houses held regular stand- alone sales of studio potters. These are rare now.Sotoo are the regional auctions of blue and white Delft, Staffordshire figures and tin-glazed earthenware thatwere in fashion in the lastcentury. Thecollectors stopped collecting, says Keith Heddle, head of investment at StanleyGibbons, the auctioneers. “Weare seeing growth in investment in rare coins, rare first edition books, contemporaryart,not pottery[or]porcelain. In fact, many collecting fields such as blue and white potteryand Staffordshire figures are vanishing as an area of interest.” “Prices are only now matching levels seen in 2005,”saysRobin Stewart, a specialistinmodernBritish ceramics at Sotheby’s. The“Made in Britain”sale held at Sotheby’s lastmonth was deliberately designed to appeal to abroad audience, with estimates starting at amodest £150. Aspadeform vase by Hans Coper was expected to fetch up to £25,000 and went for £36,250. Works by Lucie Rie did particularly well, but she has awide fan base in Asia and Europe. One of her footed bowls went for £23,750againstamaximum estimate of £8,000. Theestimate on abottle, with acharacteristic elegant long neck and flaring lip, was up to £8,000. It went for £18,750. But aBernard Leach dish went for under £500. Comparatively fewceramic artists come to auction, explains Stewart. “And there is adivide between whatapiece goes for in agallery and whatitgoes for at auction.”Galleries maycharge hundreds of pounds for arelatively obscure ceramicist, but under the hammer even aLucieRie coffee pot might not reach £1,000. Of course, for amateur collectors like me, thatmakes potterythe artofthe possible. W

ft.com/wealth|57 AMBITIOUSWEALTH STEPHENFOLEY

@StephenFoley

CAPITALISM FOREMPLOYEES

an companies be been aDemocrat senator for Virginia persuaded to paytheir since 2009. Recently,hehas wrestled workers more?Inthe with how the federal government perpetual struggle between might update regulations to reflect Clabour and capital, it is no the sharing economyand shiftthe secretwhich side has the upper hand. tax code to deal with whathecalls Theshare of the national income that the “imbalance” between labour and goes to wages has been in decline in the capital. Taxincentives largely favour developed world since the 1980s, and capital, such as lower levies on capital precipitously so over the past15years. gains than on income, and ahostoftax Union-led protests outside fast-food breaks for investment. chains lastyear,with people waving But whatifthere were away to placards demanding a$15-an-hour favour companies thatpay workers living wage, did not seem to getheard higher wages, offer larger benefits and in the C-suite. do better training? Paul TudorJones Maybe whatittakes is abillionaire (left) andSenator Congress has permitted newkinds hedgefundmanager with amadcap Mark Warner of corporatetax structures in the scheme to bend the capital markets What (below) past, to encourageparticular kinds in the service of improving wages. marks Just of economic behaviour.Realestate Or maybe one of the US’s wealthiest Capital out from investment trusts existtoboost politicians, with adream of rewriting the hundreds of ESG property investment, for example, and the tax code to favour labour over (environmental, social business development companies were capital. and governance) created to provide financing to small Such are the ambitious plans being indices already businesses. hatched as inequalityrises —and with available is the Some states have recently permitted it the political temperature. amount of marketing benefit corporation, or “B corps”, Thehedgefundmanager in question moneybehind the companies thatdonot have to prioritise is Paul Tudor Jones,whose successful project, almostall of shareholder interests but can also act bets on currencies andinterest rates it coming out of Tudor for awider social benefit. Theidea of have added up to a$4.7bnpersonal Jones’spocket. anew structure to favour employee- fortune. Back in 1988, he created the Itsindexwill reflectthe friendly behaviour specifically is an Robin Hood Foundation,whichtakes priorities revealed in asurveyof intriguing one, if Warner can getitoff moneyfrom rich financiersand gives 43,000 Americans unveiled at aglitzy the ground. it to charities helping the poor in New ceremonylastmonth, astone’s throw So, yes, Tudor Jones and Warner York City.Now he hasco-founded Just from the United Nations headquarters both think companies can be persuaded Capital, anon-profitorganisation that in NewYork. Those priorities rank to paytheir workers more. Financial planstorank US companies according employee payand benefits, and fair incentives, positive returns, everyone’s to how well they treattheir workers and hiring practices, above acompany’s awinner. to launch a“Just 100” indexofthe best. human rights record or environmental Thequestion is whether this ought impact. EUTERS Thetheoryisthatifenough investors to be amatter of persuasion at all. The ;R

switch to following the Just 100 Theconsequences of failing to same unions thatwere protesting last ES instead of the S&P 500 or the Dow tackle inequalitywill be “higher taxes, year are now pulling political levers to AG IM

Jones Industrial Average, thatwill revolution or war”, Tudor Jones says. and campaigning to gain abig increase TY

makeitcheaper for those companies If Just Capital is taking acircuitous in minimum wages at the stateand ET /G

to raise money, giving chiefexecutives route to changecorporatebehaviour, federal level. This would be amuch LL

an incentive to do the right thing by via trying to influence capital flows, quickerfixthan bending the capital CA

their employees. Even if thatseems one of the wealthiestmen in the US marketsorconjuring newcorporate OLL fanciful, there might be enough cachet Senate is thinking of something alittle forms into law. in the “Just100”seal of approval that more direct: tax incentives. Can companies be persuaded to pay S: CQ-R

employers want to getonthe list, Mark Warner,aformer venture their workers more?Maybe. But they TO improving payand benefits to do so. capitalistinthe telecoms industry, has can certainly be compelled to. W PHO

58 |FT.COM/WEALTH