TH EF AM IL FamILy FIrsT YO FF IC EE BilliOnaiREBROThERsJBanD TOnY PRiTZKEROn DI TI invEsTing, DEal-maKing —anD sOfTBall ON BY sTEPhEn fOlEY g er ma ny ’s QU an DTs TA xp LA NNINg sU CCe ss IOn AsIA OC TO BE R2 015 ft .c om /w ea ltH Issue 35 ft wealth contents octobeR @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