Developing partnerships with family offices
Rotterdam-Delft, August 2020 Introductory words to this report on approaching family offices.
This report details a strategy for developing partnerships between Cardano Development (CD) and family offices (FOs). It provides an answer to the question: What is the best strategy for Cardano Development to develop partnerships with family offices in the United States and Europe? To this end, it includes a market overview, a selection of family offices whose interests are aligned with CD’s mission and a route to market.
The market overview is largely based on a review of existing literature and reporting. Amongst others, it educates the reader on FO market size, segments and trends. Of interest is the observation that impact investing is on the rise, especially amongst the newer family offices and younger generations.
The selection of FOs functions as a focus group for CD to proactivelyreach out to if they indeed choose to pursue this market. An initial long list has been selected from the Prequin database on FOs and supplemented with other sources. It has subsequently been narrowed down to the final selection, containing only those FOs whose online profile points toward an interest in impact investing.
The route to market is a synthesisof twenty interviews conducted by Young Advisory Group (YAG). Although it is a very private market, family offices and those in the extended ecosystem appeared very willing to share their expertise. A degree of luck and a substantial amount of networking are key to eventually obtain an investment. Moreover, it is important for CD to be an understandable concept to investors, which is a challenge given the current structure. YAG has developed two alternative brand images and has created a comprehensible pitch deck for CD in its current form.
We would like to express our gratitude to Maria-Pia, Matthijs, Fleur and Joost for the challenge in this interesting field and their useful insights along the way. We look forward to similar fruitful cooperation in the future. It has been our pleasure to tackle this challenge for CD and we would like to stay in touch.
OLIVIA KORTE SACHA MARTINI COMMUNICATION Project manager • MA Global Political YAG has worked on this project • MSc Financial Economics Economy with much enthusiasm. If there • LLB Dutch Law • MSc Public Affairs are any additional questions or • BSc Tax Economics • BA International Relations if there is curiosity as to what • BSc Economics & Business else YAG could do for your economics organization, please do not hesitate to contact us:
Sacha Martini JASPER GROENEWOUD MARJOLEIN KERSTJENS [email protected] • MSc Biochemical • MSc Complex Systems +31 6 20 71 16 38 Engineering Engineering & Management • BSc Life Science & • BSc Systems Engineering, Technology Policy Analysis & Management
PROJECT TEAM 3/48 Table of contents The executive summary first lays out the strategy YAG advises, after which the detailed analyses follow.
TABLE OF CONTENTS
INTRODUCTION TABLE OF CONTENTS
PROJECT METHODS CH 1 – FAMILY CH 2 – CH 3 – ROUTE TRIGGER OFFICE IDENTIFYING TO MARKET MARKET POTENTIAL PARTNERS
TABLE OF CONTENTS 5/48 Project trigger This issue tree elaborates on the questions and sets the scope for the project.
HOW TO PARTNER WITH FAMILY OFFICES?
ROUTE TO MARKET MARKET What would be a Which players are What are the market characteristics? suitable route to interesting partners? market?
Which type(s) of How should Are there What are the What size is the financial support do relationships be subsitutes to CD? market dynamics? market? they provide? built? What size What are CD’s Are there In terms of Are there gatekeepers investments are characteristicsand newcomers? capital? to the process? USPs? common to them? What is their “track- Which are other Is the market In terms of Which fora may be record” in CD- parties’ USPs? growing? players? used? comparable investments? Have there been/are there strategic shifts?
ISSUE TREE 7/48 Methods The market analysis draws upon desk research, the shortlist on databases and market entry on interviews.
METHOD CORE SOURCES
CHAPTER 1: Industry reports, complemented Main sources were UBS & FAMILY OFFICE MARKET with insights from interviews Campden Wealth and Rockefeller & Campden Wealth
CHAPTER 2: Shortlistingbased on database Preqin is a prominent investor database POSSIBLE PARTNERS and networking via interviews and includes a large family office database.
CHAPTER 3: Findings from interviews form 20 interviews were conducted with people ROUTE TO MARKET the advise on the route to market. working in the field of family offices. These were mostly obtained from YAG’s and CD’s network, as well as from web searches.
METHODS 9/48 For a representative image of the FO world, knowledge was gathered from twenty diverse FO experts (1/2).
Interviewee 1 Interviewee 2 Interviewee 3 Interviewee 4 Interviewee 5 VP and Head of Business Senior Manager, family Managing Partner/ Head Former CEO of an F amily office advisor & Development at a family office and Governance at of a family office impact fund & CEO of a director at a family office office a consultancy firm public growth enabling community organization
Interviewee 6 Interviewee 7 Interviewee 8 Interviewee 9 Interviewee 10 Impact Investing Partner & Founder of a Former CEO/employee CEO/Founder emerging Former manager family Managing Director at a family office of three family offices & market platform & office, founder family family office private investor founder impact office advisory firm investment consultancy firm
INTERVIEWEES (I/II) 10/48 For a representative image of the FO world, knowledge was gathered from twenty diverse FO experts (2/2).
Interviewee 11 Interviewee 12 Interviewee 13 Interviewee 14 Interviewee 15 Prof. PhD at a university Investor Relations & Managing Partner at a Founder impact Founder & CEO at a with main focus on Business Development at family office community global family office family businesses impact investing community community
Interviewee 16 Interviewee 17 Interviewee 18 Interviewee 19 Interviewee 20 Chairman of a family Co-founder and CEO/Co-founder of an Co-founder & Partner Director family office office President Director of an impact crowdfunding impact investing firm impact focused company platform
INTERVIEWEES (II/II) 11/48 Chapter 1: Family office market This chapter presents conclusions on market size, market dynamics, impact investing and substitutes.
WHAT DOES THE MARKET FOR FAMILY OFFICES LOOK LIKE?
MARKET SIZE MARKET DYNAMICS IMPACT INVESTING SUBSTITUTES TO CD
25%of FOs is engaged in The most important substitutes 5.9 trillion AUM in total Most FO assets are in equity impact investing to CD are impact funds
Of which 1.5bn in MFO and The real estate asset class is Most investments are done Returns realized by impact 802m in SFO growing the most rapidly through direct private equity funds differ from 7 to 17%.
FOs have grown 38% in the past Because of COVID-19 the focus One concern regards the lack of 85% of fund investments are two years. has shifted to preserving wealth knowledge in the field market rate returns seeking
Average self-reported return of In recent years impact Another barrier is confusion 11% of impact funds around 5.4% investing has been on a rise around these investments investments are in Fin services.
*N.B. The market is very diverse and not one family office is alike. Office size, structure and investment strategy and criteria are the main differentiating factors. Therefore the uniqueness of the market should always be taken into account when acting upon these generalizations.
FAMLIY OFFICE MARKET CONCLUSION 13/48 CH 1 – FAMILY OFFICE MARKET
1.1 MARKET OVERVIEW
1.2 MARKET DYNAMICS
1.3 FO UNIQUENESS
1.4 IMPACT INVESTING VS. PHILANTHROPY
1.5 SUBSTITUTES TO CD
INHOUDSOPGAVE 14/48 A family office serves the generations of a wealthy family by managing key areas of family assets.
WHAT IS A FAMILY OFFICE? TYPES OF FAMILY OFFICES A family office (FO) is the private office for a family of significant wealth. The number of A single family office (SFO) is a family office serving staff working in the office can vary from one (multiple) generations of one single wealthy family. or two employees to 100 or more staff, The SFO is designed to fit the specific needs and depending on the type and number of services beliefs of the family. it provides. For families with private wealth in excess of USD 150 million, establishing a FO could be an attractive move. A private multi-family office (MFO) is a family Generally, FOs manage key areas of family office serving multiple families with often same assets, including real estate holdings and common values or goals, with the benefit of direct or indirect investments, tax economies of scale. consolidation and estate management. They can serve as the central hub for a family’s legacy, governance and succession. They can A public multi-family office (MFO) is a family office furthermore support the education and looking after interests of multiple families with less development of family members, coordinate wealth. Unlike private MFOs, they are owned by communication and resolve issues within the commercial third parties. family enterprise.
UBS/Campden Wealth
MARKET SIZE (I/IV) 15/48 Working with FOs has four general benefits, one of them is being more flexible than traditional investment firms.
THESE ARE THE RESULTS OF THE MARKET REVIEW, INTERVIEWS OFFER A MORE NUANCED VISION
BENEFITS OF WORKING WITH FOs 2. OPERATIONAL FLEXIBILITY The market for family offices has been increasing and Family offices operate with much more speed and flexibility than other more and more businesses and companies are looking investment firms. Unlike institutionalfunds, many family offices do not for family offices as an investment partner. In general, have a formal mandate or an investment committee. Principals of the there are four major benefits of working with family family office determine general goals, and as such, investments can be made offices. more quickly and unique structures can be deployed.
3. FLEXIBILITY ON EXIT 1. MORE THAN FINANCIAL CAPITAL Family offices can be rather flexible on the exit of their investments: they are Family offices are known for the ability to bring more often longer-term holders, which can be a valuable asset to have in a capital than financial capital to an investment. structure. Furthermore, family offices are often natural buyers as companies scale and grow, especially to a family office whose principal has deep domain When thinking about investment partners, there are expertise. the “three forms of capital”: intellectual capital, relationship capital, and financial capital, of which 4. NOT ALWAYS RETURN-DRIVEN financial capital is often the most fungible form. If the principal of a family office has extensive industry Family offices can make investments on metrics other than those that are experience and relationships that are relevant, having a purely financial. Whether it is a pet project in which they want to invest or family office as business partner or investor can have based on a relationship, family offices often make investments looking at additional benefits. overall benefit and value to the principal, rather than pure IRR. Compared to traditional investment firms, the focus is often less on generating returns, especially when looking at the short-term. UBS/Campden Wealth
MARKET SIZE (II/IV) 16/48 An estimated USD 5.9 trillion worth of assets is held by an increasing number of family offices world wide.
KEY FIGURES SIZE OF THE FO MARKET • The market for family offices is booming. 38% 6,500-10,500 $5.9 trillion The number of FOs is estimated to have grown by 38%globally from 2017 to 2019. increase in FOs the estimated number of FOs worth of assets under FO • In 2018, Credit Suisse estimated the past two years in 2018 management number of FOs to range between 6,500 and 10,500. Because of the increase in wealth and the reported growth in FOs, the Average assets under management (2019) number of FOs is likely to be much higher. 1.5bn • Globally, the FOs are estimated to hold 1500 over USD 5.9 trillion worth of assets under their management. 917m • There is no mandatory registration for FOs 1000 802m and one single investment adviser can technically already qualify as a FO. 500 Therefore, the actual number of FOs and their assets can only be estimated. 0 • The average assets held under management Total average AUM (SFOs + SFO average AUM MFO average AUM by a FO is USD 917 million, with big MFOs) differences between SFOs and MFOs.
UBS/Campden Wealth, BNP PARIBAS (2020), Credit Suisse (2018)
MARKET SIZE (III/IV) 17/48 Equities and alternative investments constituted the top two asset classes FOs invest in in 2018-2019.
CASH COMMODITIES • Cash or equivalent 7.6% • Agriculture 1.4% Return of 1.9% • Commodities 1.0% • Gold/metals 0.8% Return of -2.1% – +3.3% BONDS • Developed markets 12.0% • Developing markets 4.3% Average Return of 2.3% – 2.9% self-reported ALTERNATIVE INVESTMENTS FO portfolio return • Private equity – direct 17.0% Q1 2018 – Q1 2019 • Private equity funds 7.7% • Real estate – direct 17.0% ~5.4% • REITS 1.0% • Hedge funds 4.5% EQUITIES An extended period of low interest rates • Developed markets 25.0% and high volatility has led to a search for • Developing markets 7.4% yield and drive for diversification, Decrease compared to 2018 increasing FOs’ allocation to alternatives. Return of -1.1% – +2.1% Return of 2.3% - 16.0%
N.B. Returns are subject to annual change and only provide an indication for the year 2018-2019. UBS/Campden Wealth
MARKET SIZE (IV/IV) 18/48 CH 1 – FAMILY OFFICE MARKET
1.1 MARKET OVERVIEW
1.2 MARKET DYNAMICS
1.3 FO UNIQUENESS
1.4 IMPACT INVESTING VS. PHILANTHROPY
1.5 SUBSTITUTES TO CD
INHOUDSOPGAVE 19/48 Several changes are happening in the family offices market regarding asset allocation and landscape.
INFLUENCING MARKET DYNAMICS ASPECTS • A shift happened towards closer scrutinity • Investment performance of FOs fell, returning regarding FOs, because of a changing global tax 5.4% averagely in 2018, compared to record landscape and more (social) media attention. breaking 2017 with 15.5% and 7.0% in 2016.
INVESTMENT ALLOCATION* GLOBALIZATION • The biggest and most yielding asset class is private equity (av. • The rapid growth of Asian economies affects both the family 19% of portfolios compared to 22%in 2018, achieving 11-16% offices and their investment opportunities. return). • More global trade flows happen within and in between • The real estate class is increasing the fastest by 2.1%, with an emerging markets. average return of 9.4%. • Interest from family offices to co-invest is increasing. • Impact investing and sustainability have become more popular.
NEEDS EXPECTED DISRUPTIVE FORCES • 20%of family offices experienced a cyber attack in 2019. There is • Family offices indicate they are expecting technical a growing need for better cyber safety. developments (AI and blockchain) to disturb the market. • A growing concern for family offices is the need for specialist • Also, the US/China relations and Brexit are expected to skills and expertise in areas such as IT and HR. Additionally, influence the market. FOs are more often seeking expert external audit advice. • 55% of family offices predicted a financial recession in 2020. • Even though the effectsare not yet fully reported; COVID-19 would be a disruptive force in the market.
UBS/Campden Wealth 2019, Deloitte Private, UBS/Campden Wealth 2018
MARKET DYNAMICS (I/II) 20/48 Industry interviews indicate two current trends, namely COVID-19 and the ongoing shift to impact investing.
COVID-19 IMPACT INVESTING SHIFT Due to the Corona crisis, the economic performance is In recent years, impact investing has become more expected to slow down, which has a diminishing effect popular amongst family offices due to: on the returns of FO’s. Therefore, they will focus on • increased awareness of impact topics amongst preserving wealth instead of on growing the family younger generations within the FO; office. A shift is thus happening, focussing on • proven successful impact investments; surviving rather than on making impact investments. • the realisation that impact investing is more interesting than philanthropy because of returns. CardanoDevelopment couldcapitaliseon the A challenge to get a foot in the door opportunity by attracting low-risk debt Interviewees indicated that they keep discovering new This could be an opportunity to attract investment for players in the field of impact investing despite being low-risk loans such as the ones which CD proposed for quite active in the field. Getting attention and standing the pith deck. out can thus prove to be challenging.
Interviews, Team analysis
MARKET DYNAMICS (II/II) 21/48 CH 1 – FAMILY OFFICE MARKET
1.1 MARKET OVERVIEW
1.2 MARKET DYNAMICS
1.3 FO UNIQUENESS
1.4 IMPACT INVESTING AND PHILANTHROPY
1.5 SUBSTITUTES TO CD
INHOUDSOPGAVE 22/48 In the family office world, all firms are unique and there is no ‘one-size-fits-all’ description.
UNIQUE VISIONS BASED ON UNIQUE BACKGROUNDS Family’s historic trajectories are the largest determinant to their investment practices. In this chapter, speaking of sectors and segments is useful in discussing the market, but it should be kept in mind that conversing with the offices themselves will require more depth.
IDIOSYNCRATIC PREFERENCES AND CRITERIA Given the above, there is also not one set of ‘preferences’ or ‘criteria’ of family offices which could be compared. Whilst this chapter aims to provide an overview, any approach or evaluation of family office should be tailor made.
DISTINCTIVE STRUCTURES AND APPROACHES Although probably the most standardized of the three, the way family offices go about their business in terms of structure and approach also differs.
SINGLE VS MULTI FAMILY OFFICES Multi family offices are much more institutionalisedwith governance schemes often resembling asset management firms. Single family offices have simpler and less uniform structures where one principal is at the center of all actions and is the final decision maker.
Interviews
FAMILY OFFICE UNIQUENESS 23/48 CH 1 – FAMILY OFFICE MARKET
1.1 MARKET OVERVIEW
1.2 MARKET DYNAMICS
1.3 FO UNIQUENESS
1.4 IMPACT INVESTING AND PHILANTHROPY
1.5 SUBSTITUTES TO CD
INHOUDSOPGAVE 24/48 The way FOs use their AUM for impact investing and philanthropy could be interesting for CD.
1 IMPACT INVESTING 2 PHILANTHROPY
Definition: Impact investing is making investments with Definition: The voluntary act of giving by an individual or the intent to generate measurable environmental or social a group to promote the common good. Philanthropic impact, alongside providing a competitive financial giving supports a variety of activities and causes, such as return. research, education, social justice, and poverty alleviation.
In 2019 Families give on average 25% of all FOs $6.4 million
were engaged in impact investing, allocating on through their FO to philanthropy on a yearly average 14%to impact investing. basis .
UBS/Campden Wealth, Rockefeller/Campden Wealth
IMPACT INVESTING VS. PHILANTHROPY (I/VI) 25/48 Impact investing, mostly done through direct private equity, is expected to grow over the next five years.
Percentage of FOs making use of thevehicle for impact THE SECTOR IS GROWING investment In 2019, the sector’s assets under management amounted to roughly USD 502 billion, which is almost double 2018’s estimate Direct private equity (albeit this was based on fewer organisations). Over the next five years, family offices expect on average the percentage of their Real estate portfolio allocated to impact investments to grow to 25%. Private equity funds Infrastructure Direct private debt Public equity Expectedaverageportfolio allocationto impact investments Private debt funds %of FOs – five yearsfromnow Cash & cash equivalents 40% Public debt 0% 20% 40% 60% 80% 30%
20% PRIVATE EQUITY IS POPULAR For family offices, private equity is the most popular asset class, 10% with an average return of 16%for direct and 11%for funds-based 0% %of portfolio in impact investing investing. For impact investing, this is no different, with direct private equity as most common vehicle for this sector, which is shown in the figure above.
UBS/Campden Wealth, Rockefeller/Campden Wealth
IMPACT INVESTING VS. PHILANTHROPY (II/VI) 26/48 Philanthropic donations are mostly done regionally and from intrinsic motivation, via family foundations.
Percentage of peoplemaking use of philanthropicvehicle COMMENTS • All of the philanthropic donations are voluntary driven, Family foundation intending order to give back to society. Their purpose is to Direct donation influence and activate. Donor advised fund • While most of the money on philanthropy is donated to the Corporate/business foundations area where the FO is located, European family offices tend to relatively give the most outside of their own continent. Third-party foundation • The most popular vehicles for donating are family foundations Family office (64%), followed by direct donations to nonprofit organizations Community foundation and charities. 0% 10% 20% 30% 40% 50% 60% 70% Outflowof philanthropicdollars as % of portfolio. Reasonsfor philanthropicgiving (Remainderis donated nationally) Central and South America Giving back to society 75% Engaging next generation 36% 100% Europe 80% Influencing social change 55% Leaving a legacy 34% Middle East 60% To put values into action 50% Environmental concerns 28% 40% Asia-Pacific Social inequality 47% Reputation management 8% 20% Personal family experience 38% Legal responsibility 3% 0% Africa North Asia-Pacific Europe Moral obligation 37% Religious causes 2% North America America
Rockefeller/Campden Wealth IMPACT INVESTING VS. PHILANTHROPY (III/VI) 27/48 Impact investing is increasing and philanthropy strategy is shifting to a more time-limited approach.
IMPACT INVESTING PHILANTHROPY
LOWER RETURNS? EUROPE VS NORTH AMERICA The assumption that lower returns for impact Despite the average AUM and family wealth investments have to be accepted is fading. “If you differing less than 8%, among European FO’s, the do it the right way, you can achieve a return set average annual philanthropicdonation was USD to market.” – Principal, SFO, Europe. 6.0 mil and USD 7.5 mln in North America.
RISK AVERSE TIME-LIMITED VS. IN-PERPETUITY Although the family office investing approach remains relatively risk-averse, shiftsare taking Two kinds of strategic time horizons exist place, not only between and within asset classes regarding to philanthropy. The in-perpetuity but also regarding new motivations. timeframe was twice as likely to be adopted (62%) as the time-limited timeframe (32%). However PARTICIPATION the popularity of the latter model is on the rise, Family office’s appetite for direct minority-stake with the number of those who have chosen it investments and more active participation in the growing by nearly two-thirds since 2000. strategic management of these investments has increased. DECISION-MAKERS EXPECTATIONS In Europe, the key decision-maker in family In 2019, for the majority of FOs, their impact philanthropy is the head of the family or founder investments have matched (61%) or out- (74%). In most US FOs, other family members performed (20%) expectations compared to their have this power (65%). traditional investments of the same type. Source: UBS/Campden Wealth, Rockefeller/Campden Wealth, Forbes
IMPACT INVESTING VS. PHILANTHROPY (IV/VI) 28/48 Regarding impact investing, the greatest barriers are conservative approaches and the lack of knowledge.
CHALLENGES At the and of the day, it is going to be very different While nearly two-fifths (39%) of the family offices which currently make depending on how the investor is looking at the money. Are sustainable or impact investments are happy with their existing you looking at it for a real financial return or are you approach, significant numbers report facing barriers when trying to looking at it as a replacement of philanthropy, where you invest in this area. Most concerns pertain to the lack of knowledge in the can justify lower returns versus looking at it on an apples- field and the confusion around these investments. to-apples basis.” – Portfolio Analyst, MFO, North America.
Barriers to investing in sustainable or impact investments, as a percentage of FOs that recognize the barrier
I'm happy with my existing investment approach 39% These investments aren't well enough established 33% I'm worried about having lower returns 24% It's hard to know what impact these investments actually have 22% I don't know enough about them 16% Not based on values most cared about 14% I have never been offered a sustainable/impact investment 12% Switching requires sale of investments and paying taxes 10% I prefer taking my investments and donating to causes I support 10%
Source: The UBS/Campden Wealth Global family office Survey 2019
IMPACT INVESTING VS. PHILANTHROPY (V/VI) 29/48 For time-limited philanthropic donations, administrative complications are the biggest challenge for adoption.
As philanthropy is, in contrast to charity, seen as an approach to make THE IN-PERPETUITY MODEL the world a better place rather than a one-time gift, it could become quite Within the in-perpetuity model, restricted fund dispersal a challenge to find an office to assist CD. The FO will need to be able to levels is named as one of the big challenges. The fact that support with issues such as setting philanthropicobjectives, formulating traditional endowments allocate only 3%-10%of their funds a giving strategy, technicaladvice, operational management and the at any given time limits the impact of these initiatives. presentation of strategy initiatives.
Challenges associated with the adoption of a time-limited philanthropic time horizon, as a percentage of FOs that recognize the challenge
Administrative complications 28% Generational transition 18% A short time frame complicating donations 15% Poor performance of the time-limited philanthrophic donations 15% A board of directors lacking skills and experience 15% Poor communication between the family and the recipients 13% Poor guidelines on where the money can be donated 13% No real challenge 7% 0% 5% 10% 15% 20% 25% 30%
Source: Rockefeller/Campden
IMPACT INVESTING VS. PHILANTHROPY (VI/VI) 30/48 CH 1 – FAMILY OFFICE MARKET
1.1 MARKET OVERVIEW
1.2 MARKET DYNAMICS
1.3 FO UNIQUENESS
1.4 IMPACT INVESTING AND PHILANTHROPY
1.5 SUBSTITUTES TO CD
INHOUDSOPGAVE 31/48 Impact investment in access to finance could be seen as a substitute to Cardano Development.
IMPACT INVESTING PERCENTAGE OF FOs ACTIVE IN SECTOR Education 45% • The most common areas of impact investing are education, agriculture/food, and energy and Agriculture and food 45% resource efficiency. • When looking at impact investing, these are all Energy end resource efficiency 43% substitute areas that family offices can invest in. • Roughly 22%of FOs engaged in impact investing Healthcare and wellness 38% invests in the area of “access to finance”. • Considering Cardano Development’s focus on Environmental conservation 34% frontier markets with the goal of implementing financial instruments that result in sustainable, Housing and community development 34% resilient and inclusive markets in underserved economies, the area of “access to finance” within Sustainable consumer products 29% impact investing could be a good area to promote Cardano Development in. Job creation 26%
Women’s empowerment 26% Examples of substitutes to Cardano Development: • Social impact bonds/funds Access to finance 22% • Microfinance loans • Through organizations (e.g. RSF Finance, ImpactAssets) Sustainable infrastructure 22% • Venture capital/private equity investments Infrastructure 11% UBS/Campden Wealth
SUBSTITUTES TO CARDANO DEVELOPMENT (I/III) 32/48 Impact funds can be seen as competing with CD and are suggested as a potential source of investment.
CHERRY PICKING Contrary to the data suggesting that most family office impact investments occur through direct private equity, most interviewees implied that funds are a more popular vehicle. It saves time and effort and requires less commitment from the family office to be actively involved.
NUMBERS Averagegrossrealized returns by impact funds for private marketsinvestmentsin 2018 • GIIN has held a survey amongst 266 impact investors during January and February 2019. All data on this slide is regarding 2018 and plans for 2019. • 85% of impact funds principally target market-rate or closer to market-rate returns, 15% target returns closer to capital preservation. • 11% of impact funds AUM are in Fin services (excluding microfinance).
GIIN Annual Impact Investor Suvery 2019, Interviews
SUBSTITUTES TO CARDANO DEVELOPMENT (II/III) 33/48 Family offices keen to donate with economic and social impact might be interested in the goal of CD.
PHILANTHROPY Education and health • The most popular causes that are being - e.g. childhood development, 90% philanthropically supported are education and primary/secondary education, further health, economic and social impact and the education, health. environment. • For family offices that want to support causes Economic and social impact - e.g. financial inclusion, entrepreneurship, philanthropically, organisations focussed on causes 45% shown from the table on the right can be substitutes economic and community development, to Cardano Development. research, arts, culture, sports. • Roughly 45%of family offices engaged in Environment philanthropy gives to organisations occupied with - e.g. climate change, conservation and animal 33% “economic and social impact”. rights, food security/agriculture. • Considering Cardano Development’s focus on Political and civil having an impact on financial markets in frontier - e.g. human rights/civil liberties, religious 17% economies, a family office supporting the cause of causes. “economic and social impact”, could be interested in philanthropic giving to Cardano Development. Conflict and peace - e.g. international and global affairs, 11% ExamplesExamples of of substitutesdirect substitutes to Cardano to CardanoDevelopmentDevelopment: peace/conflict resolution, disaster relief. •withinLocal this companies/charities cause: in frontier economies • Organisations teaching financial skills Other 5%
UBS/Campden Wealth
SUBSTITUTES TO CARDANO DEVELOPMENT (III/III) 34/48 Chapter 2 – Identifying potential partners This chapter contains the identification of FO partners; explaining the criteria used to generate a shortlist.
WHICH FAMILY OFFICES ARE ATTRACTIVE POTENTIAL INVESTORS FOR CARDANO DEVELOPMENT’S PROJECTS?
KEY FACTORS FOR FAMILY INTERESTING FAMILY OFFICE SELECTION OFFICES
Geographical location 25 have been identified
Generation running or influencing Shortlist of SFOs and MFOs can be FO strategy found in the appendix
Industry background
Team analysis
FAMILY OFFICE MARKET CONCLUSION 36/48 Generation, industry background and geographical location have influenced our key criteria for selection.
GENERATIONAL PREFERENCES INDUSTRY BACKGROUND Older generations often regard impact investing as “soft” The industry where the family has made their money is including the idea that returns are low. Younger generations very important, since they are often investing in that are often more interested in impact investing. Regardless, it same industry. However, happens that the family changes is important that the reputation of the family is protected. their mind for instance when their background is in fossil fuels and they want to do something with their money which is good for the environment by impact investing.
GEOGRAPHICAL DIFFERENCES
RISK/RETURN TRADEOFF ORGANIZATIONAL STRUCTURES The location of a family office may speak to its desired Organizationalstructures differbetweentwoidentified risk/return tradeoff: extremeson both sides of thespectrum: • US: focus on growth, including high returns • Scandinavian FOs: family itself is often not involved, • EU: mainly growth preservation, more risk averse lot of autonomy for the family office. • Asia: least risk tolerance, often young family offices • Middle Eastern FOs: family often takes care of everything itself, almost no family offices exists.
Interviews
SELECTION 37/48 The longlist of family offices has been retrieved from Preqin, which resulted in a list of 422 FOs.
Preqin has, amongst others, a database with investors of all different kinds, like banks, fund FILTER ON FAMILY OFFICES managers and family offices. 585 267 MFO & 301 SFO, MFO & SFO complemented by own findings 422 WEBSITES Without a website it is difficult to assess the potential of a family office, therefore only family offices with websites are taken into The FO longlist with 238 account. MFOs and 184 SFOs has
been used as starting LONGLIST FO point for the creation of the shortlist with potentially interesting family offices for Cardano Development.
FAMILY OFFICES LIST (I/II) 38/48 25 potential interesting family offices were identified from the initial shortlist which consisted of 65 FOs.
25 interesting 422 family offices Shortlist: 8 interesting FOs Adding extra 26 SFO & extra found criteria FOs 31 MFO online
Mentions impact on • Interested in See Appendix A2 website? frontier/emerging markets? Yes, a lot. • Interested in financial products? Yes, but limited. • Location FO. No. • Industry in which the FO acquired its capital.
FAMILY OFFICES LIST (II/II) 39/48 Chapter 3 – Route to market This chapter lays out CD's route to the FO market , detailing relationship building and offer requirements.
WHAT WOULD BE A SUITABLE ROUTE TO MARKET FOR CARDANO DEVELOPMENT?
NETWORK-BASED CRITERIA FOR THE OFFERING & FOCUSSING EFFORTS APPROACHES APPROACHES RELATIONS
Be able to prove a clear track Match & capital type are more Geographic proximity Conferences record important than size & yield
Communicate intent for long- Younger generation Personal introductions Honesty and credibility are key term cooperation
Be able to prove measurable The goal in mind should be to Similar sector Online interactions impact progress aligned missions
Tailor the proposal and approach to the family office
Differentiate between impact investing and ESG
Team analysis
FAMLIY OFFICE MARKET CONCLUSION 41/48 CH 3 – ROUTE TO MARKET
3.1 GETTING IN TOUCH
3.2 OFFERING & RELATIONS
INHOUDSOPGAVE 42/48 Proactive efforts to engage family offices are limited by CD’s time and means and should be well-scoped.
• Allows for a concentrated, focussed use of available GEOGRAPHIC time and means. PROXIMITY • Easier building of the important interpersonal relationships.
• Younger generations of a family find impact YOUNGER investing more important than older generations. GENERATION They do generally require approval of the older principal. • Newer family offices are generally more willing to take risk because they prioritize capital growth, but do so only if high returns are possible. SIMILAR SECTOR • Family offices are more willing to invest in sectors in which they have expertise. • For example, family offices which sprung from successful fintech activitiesmight be good candidates for partnering with CD.
The Family Office Book (Wilson, 2012) & Interviews
GETTING IN TOUCH (I/III) 43/48 Cold contacting is almost never successful; a focus on events and networked introductions is more effective.
3 COMMUNITY-BASED APPROACHES 4 CRITERIA FOR THE APPROACH
Conferences Be able to prove a clear track record
Personal introductions by network Communicate intent for long-term cooperation
LinkedIn Be able to prove measurable impact STRATEGY • Shared connections • Interaction on posts Tailor the proposal and approach to the FO
According to Pymwymmic, about 50%of receiving an No one-size-fits-all approach exists for FOs. However, a investment from family offices is based on their belief in the crucial criterium many look for is a proven track record. team. There will always be changes to the business plan, Especially for CD, where the start-up risk perception may especially in CD’s uncertain operating environment. The be mitigated by the overall track- record, this is a key personal touch is thus key. What’s more, family offices do point to present. Moreover, most FOs like to be not feel time pressure to find investments. Therefore they involved for the long term, because they want to see have no need to take cold-calls and go through pitch decks. measurable impact results. Nevertheless, be precise RATIONALE In conclusion, an engaging and interesting first personal when creating a tailor-made approach to show meeting/introduction is key. willigness to invest in the partnership.
Interviews
GETTING IN TOUCH (II/III) 44/48 Additionally, it is important to clearly communicate that CD is in the impact and not in the ESG segment.
IMPACT INVESTING Investments in companies which delivers products and services that can generate measurable, beneficial social or environmental impact alongside financial return.
ESG IS ABOUT RISK MANAGEMENT WITHIN A COMPANY, IMPACT INVESTING IS ABOUT WHAT A COMPANY DELIVERS
ENVIRONMENTAL, SOCIAL AND GOVERNANCE Investments in companies which are using environmental, social and governance factors in an entity's operations with a view to enhancing risk management.
The Asset
GETTING IN TOUCH (III/III) 45/48 CH 3 – ROUTE TO MARKET
3.1 GETTING IN TOUCH
3.2 OFFERING & RELATIONS
INHOUDSOPGAVE 46/48 The importance of a good match and the right type of capital trumps finding the right ticket size and yield.
TICKET SIZE AND YIELD FINDING THE RIGHT MATCH TANGIBLE IMPACT Ticket size • Finding the right match is heavily • Making impact tangible is • According to a fund manager, a dependent on circumstancesand important so that FOs can see the ticket size of $1-$2 mln is generally timing. A certain degree of result of their investments / what on the high side for impact coincidence is involved. the result of their investments will investing in yet unknown partners. be. • Spend more time asking questions • Tickets of approximately $250k- and listening than speaking. • Proactively relating CD’s activities $500k are prefereable. Finding common ground for an to the SDGs is also useful in investment is best done by looking stimulating the impact feeling. Yield for ways to fit their wishes onto CD’s • One interviewee noted that above- business possibilities. The other way interest yields of about 3-5% are around is likely more difficult and acceptable. makes the FO feel less heard.
• A fund manager stated that they look for 15%, providing a 10% yield to their clients. PATIENCE AND A PORTION OF LUCK ARE KEY • Low-yield loans might not be worth There is no guarantee that FOs will invest in CD initiatves, even if their principal has been the administrative costs. active in the same geographical scope and market segment. It is a game of patience and relationship building of which the goal should not be to obtain investment, but to execute on CD’s mission. Interviews & Team analysis
OFFERING & RELATIONS (I/II) 47/48 The intention of a relation should be to both develop parties’ mission; an investment is not the final goal.
INTERPERSONAL RELATIONS BASED ON ALIGNED MISSIONS
• The most likely motive for FOs HONESTY to invest in a CD initiative is the Develop candid and genuine relationships with those in the CD alignment of missions. Since the network. Interpersonal skills and qualities form the basis for investments are heavily obtaining investment, of which honesty is an often recurring factor. dependent on circumstances and timing, it is best to invest in the interpersonal relationships. Moreover, honesty and CREDIBILITY: credibility are arguably the most WHAT CD DOES AND DOES NOT DO important factors in whether a It is important to outline what CD does, but also what CD does not do. family office will eventually The rapport and credibility provides possible investors with a clear make an investment. image of the topics for which they can rely on CD. • Therefore, the goal of developing + the relationshipwith the family office should not be to eventually obtain an investment. Rather, it SHARED VISION should be to share thoughts, Achieving the shared vision is positive in any case. Investments may insights and connections in order or may not occur along the way, but should never be the end goal. to achieve a shared vision.
Interviews & Team analysis
OFFERING & RELATIONS (II/II) 48/48