Stonehage Fleming Continues its Expansion in Jersey
Stonehage Fleming, one of the world’s leading independently owned family offices, announces the appointment of Rudi Bodenstein as Director within the Family Office division in Jersey.
With nearly 30 years industry experience, Rudi joins Stonehage Fleming from FNB International Trustees Ltd where, as Director, he spent eight years developing and implementing business strategy for the expansion of the fiduciary and advisory business. Before relocating to Jersey in 2008, Rudi was a Partner in a South African law firm and Attorney of the High Court of South Africa for eighteen years and specialised in litigation, trust and estate planning, personal and family law as well as international structuring.
Rudi will work closely with Paul Roper, Partner, to develop and drive forward the ‘Emerald Offering’, which is the Group’s in-house Trust and Investment service designed to offer a competitive solution to solve the intergenerational succession planning and wealth preservation requirements of clients and their families who may not require the full Family Office service.
Commenting on the appointment, Ana Ventura, Partner and Head of Family Office, Jersey said: “I am pleased to welcome Rudi to Stonehage Fleming and his appointment reflects the growing importance of Jersey to the Group. The needs of our clients are constantly evolving and Rudi’s experience will contribute significantly to our already existing talented and dedicated team, as well as the strategic vision we have for Stonehage Fleming as The International Family Office.”
Rudi Bodenstein said: “As the largest multi-family office in Europe, Stonehage Fleming offers an award-winning proposition and boasts an impressive international client base. The Group are true pioneers within the family office industry and I look forward to developing the Emerald offering. It is an exciting time for the company and I am excited to be a part of the journey.”
Building wealth across generations – the four pillars of capital
Building up great wealth is one thing; holding onto it through multiple generations is another as borne out by the UK’s latest The Sunday Times Rich List. Analysis of the data by the Centre for Economics and Business Research showed that Britain’s very rich are a changing cast of characters with two thirds having only entered the list since 2000.
“This debunks the popular idea that great wealth is largely inherited, and gives credence an old English saying “from clogs to clogs in three generations”, says Johan van Zyl, CEO of Stonehage Fleming in South Africa.
“It takes great energy and ability to raise a person’s material wealth status; however these two traits are often not continued further down the generational line.
Read full article via Money Marketing
Why now is a good time to take your money offshore
Independent international family office; Stonehage Fleming South Africa says that wealthy South African investors should look to invest 100% of their long-term surplus assets offshore.
Surplus assets need to be defined for each individual or family, taking into account their total wealth and their unique long-term strategy and risks.
The process is then about understanding assets that would not be required in South Africa for at least the next ten to fifteen years. It is important to retain sufficient assets to live comfortably, whilst preserving a buffer for business interests and unexpected contingencies.
Read more via BusinessTech
Art buyers find few investment masterpieces
“Owning and managing an art collection is a complex business, requiring investment of time and advice from a variety of experts,” says Steve Kettle, partner at wealth manager Stonehage Fleming, which advises its clients on their art as well as other assets.
“Many of these experts will have their own agenda and, unlike investment management, the art world is almost entirely unregulated. This means it is one of the most manipulated markets in the world. You only know the actual value of a piece of art once it is sold.”
Read more via Financial Times
Stonehage Fleming Continues its Expansion in Jersey
Stonehage Fleming, one of the world’s leading independently owned family offices, announces the appointment of Rudi Bodenstein as Director within the Family Office division in Jersey.
With nearly 30 years industry experience, Rudi joins Stonehage Fleming from FNB International Trustees Ltd where, as Director, he spent eight years developing and implementing business strategy for the expansion of the fiduciary and advisory business. Before relocating to Jersey in 2008, Rudi was a Partner in a South African law firm and Attorney of the High Court of South Africa for eighteen years and specialised in litigation, trust and estate planning, personal and family law as well as international structuring.
Rudi will work closely with Paul Roper, Partner, to develop and drive forward the ‘Emerald Offering’, which is the Group’s in-house Trust and Investment service designed to offer a competitive solution to solve the intergenerational succession planning and wealth preservation requirements of clients and their families who may not require the full Family Office service.
Commenting on the appointment, Ana Ventura, Partner and Head of Family Office, Jersey said: “I am pleased to welcome Rudi to Stonehage Fleming and his appointment reflects the growing importance of Jersey to the Group. The needs of our clients are constantly evolving and Rudi’s experience will contribute significantly to our already existing talented and dedicated team, as well as the strategic vision we have for Stonehage Fleming as The International Family Office.”
Rudi Bodenstein said: “As the largest multi-family office in Europe, Stonehage Fleming offers an award-winning proposition and boasts an impressive international client base. The Group are true pioneers within the family office industry and I look forward to developing the Emerald offering. It is an exciting time for the company and I am excited to be a part of the journey.”
Building wealth across generations – the four pillars of capital
Building up great wealth is one thing; holding onto it through multiple generations is another as borne out by the UK’s latest The Sunday Times Rich List. Analysis of the data by the Centre for Economics and Business Research showed that Britain’s very rich are a changing cast of characters with two thirds having only entered the list since 2000.
“This debunks the popular idea that great wealth is largely inherited, and gives credence an old English saying “from clogs to clogs in three generations”, says Johan van Zyl, CEO of Stonehage Fleming in South Africa.
“It takes great energy and ability to raise a person’s material wealth status; however these two traits are often not continued further down the generational line.
Read full article via Money Marketing
Why now is a good time to take your money offshore
Independent international family office; Stonehage Fleming South Africa says that wealthy South African investors should look to invest 100% of their long-term surplus assets offshore.
Surplus assets need to be defined for each individual or family, taking into account their total wealth and their unique long-term strategy and risks.
The process is then about understanding assets that would not be required in South Africa for at least the next ten to fifteen years. It is important to retain sufficient assets to live comfortably, whilst preserving a buffer for business interests and unexpected contingencies.
Read more via BusinessTech
Art buyers find few investment masterpieces
“Owning and managing an art collection is a complex business, requiring investment of time and advice from a variety of experts,” says Steve Kettle, partner at wealth manager Stonehage Fleming, which advises its clients on their art as well as other assets.
“Many of these experts will have their own agenda and, unlike investment management, the art world is almost entirely unregulated. This means it is one of the most manipulated markets in the world. You only know the actual value of a piece of art once it is sold.”
Read more via Financial Times
Stonehage Fleming's flagship fund produces outstanding returns
“Despite some nervousness, equities remain the asset class of choice” Gerrit Smit, Head of Equity Management, Stonehage Fleming.
Since launching in August 2013, the Stonehage Fleming Global Best Ideas Equity Fund has returned 47.2%*, compared to MSCI World All Countries Index of 39.0%*. The fund has attracted assets from private, professional and institutional investors and now has assets under management of over US$650 million.
Read full article via FA News
Interview: Gerrit Smit on why the global tech rally is far from over
Listen here to the podcast to hear Smit’s views on tech giants such as Tencent, Naspers, Microsoft, Apple, Amazon and Tesla and why he believes the tech rally of recent years still has plenty of legs. Listen here>>
In this episode of TechCentral, Duncan McLeod chats via Skype to Gerrit Smit, fund manager at London-based wealth management company Stonehage Fleming, which invests billions of dollars on behalf of ultra-high-net-worth individuals.
Thirty percent of Stonehage Fleming’s Global Best Ideas (GBI) Fund is made up of investments in the technology space, including in companies such as Visa, PayPal, Tencent and Accenture.
Smit, who is head of the equities management team, has overall responsibility for the business unit, along with its portfolio management and equity research functions.
He joined Stonehage Fleming in 2008 after 25 years of investment experience as equities analyst, chief investment strategist and chief investment officer for Sanlam’s international portfolios in London, and heading a boutique fund manager’s investment research.
In the podcast, Smit explains why he believes there’s still plenty of upside for some of the world’s biggest tech stocks, despite the strong rally they’ve enjoyed in recent years.
But what are the best metrics for determining whether these shares still make good investments or not? Smit explains why he focuses on top-line growth and on free cash flow, in particular.
Stonehage Fleming's flagship fund tops £500m
Assets under management (AUM) for the Stonehage Fleming Global Best Ideas Equity Fund have passed the £500 million mark.
Since launching in August 2013, the £514 million fund has attracted assets from both private, professional and institutional investors and has returned 78.7 percent over the last four years, compared to the Global Equity peer group average of 52.8 percent.
Fund manager Gerrit Smit runs a concentrated, high conviction portfolio of 24 stocks that are chosen for their sustainable growth potential, strong management team, strategic competitive edge and value according to the firm. The portfolio has very low turnover, over the past 12 months Mr Smit has only sold two positions and initiated one.
Current investments include companies such as Visa, Alphabet, Nestle, Estée Lauder, PepsiCo and Accenture with technology stocks now making up 28.8 percent of the fund.
Mr Smit said: “There has been some general nervousness of equities which are now in the eighth year of a bull market, but this needs to be weighed against global economic fundamentals, which in our view continue to favour investment in quality companies.
“The US consumer and manufacturing sector show strong confidence and economic performance has improved in Europe too. Most importantly, we continue to stick to our philosophy that a good business remains a good business irrespective of potential short-term tactical setbacks in its share price, and it will continue to reward investors over time.”
The fund had previously been available exclusively to clients of Stonehage Fleming, but has been open to outside investors since 2016. It is now available on seven platforms and across three jurisdictions, with more under consideration.
Stonehage Fleming provides a range of services to over 250 wealthy families. The group advises on over £35 billion of assets and employs over 540 people in 11 offices in eight jurisdictions around the world.
Stonehage Fleming fund passes £0.5bn
Stonehage Fleming, the independently owned family office, says its Global Best Ideas Equity fund has seen assets under management pass the £0.5bn mark, as the number of external client investors continues to grow.
Only available since 2016 to investors who are not clients of Stonehage Fleming, the fund is run as a concentrated portfolio of some 24 stocks, and aims for exposure to businesses with sustainable growth potential. Turnover is low, with just two positions sold in the past 12 months and one initiated. Current holdings include Visa, Alphabet, Nestle, Estee Lauder, PepsiCo and Accenture. The investor base includes both private, professional and institutional investors, but more distribution is being considered beyond the current availability via seven platforms in three jurisdictions.
Portfolio manager Gerrit Smit said: “There has been some general nervousness of equities which are now in the eighth year of a bull market, but this needs to be weighed against global economic fundamentals, which in our view continue to favour investment in quality companies. The US consumer and manufacturing sector show strong confidence and economic performance has improved in Europe too. Most importantly, we continue to stick to our philosophy that a good business remains a good business irrespective of potential short-term tactical setbacks in its share price, and it will continue to reward investors over time.”
Stonehage Fleming's flagship fund produces outstanding returns
“Despite some nervousness, equities remain the asset class of choice” Gerrit Smit, Head of Equity Management, Stonehage Fleming.
Since launching in August 2013, the Stonehage Fleming Global Best Ideas Equity Fund has returned 47.2%*, compared to MSCI World All Countries Index of 39.0%*. The fund has attracted assets from private, professional and institutional investors and now has assets under management of over US$650 million.
Read full article via FA News
Interview: Gerrit Smit on why the global tech rally is far from over
Listen here to the podcast to hear Smit’s views on tech giants such as Tencent, Naspers, Microsoft, Apple, Amazon and Tesla and why he believes the tech rally of recent years still has plenty of legs. Listen here>>
In this episode of TechCentral, Duncan McLeod chats via Skype to Gerrit Smit, fund manager at London-based wealth management company Stonehage Fleming, which invests billions of dollars on behalf of ultra-high-net-worth individuals.
Thirty percent of Stonehage Fleming’s Global Best Ideas (GBI) Fund is made up of investments in the technology space, including in companies such as Visa, PayPal, Tencent and Accenture.
Smit, who is head of the equities management team, has overall responsibility for the business unit, along with its portfolio management and equity research functions.
He joined Stonehage Fleming in 2008 after 25 years of investment experience as equities analyst, chief investment strategist and chief investment officer for Sanlam’s international portfolios in London, and heading a boutique fund manager’s investment research.
In the podcast, Smit explains why he believes there’s still plenty of upside for some of the world’s biggest tech stocks, despite the strong rally they’ve enjoyed in recent years.
But what are the best metrics for determining whether these shares still make good investments or not? Smit explains why he focuses on top-line growth and on free cash flow, in particular.
Stonehage Fleming's flagship fund tops £500m
Assets under management (AUM) for the Stonehage Fleming Global Best Ideas Equity Fund have passed the £500 million mark.
Since launching in August 2013, the £514 million fund has attracted assets from both private, professional and institutional investors and has returned 78.7 percent over the last four years, compared to the Global Equity peer group average of 52.8 percent.
Fund manager Gerrit Smit runs a concentrated, high conviction portfolio of 24 stocks that are chosen for their sustainable growth potential, strong management team, strategic competitive edge and value according to the firm. The portfolio has very low turnover, over the past 12 months Mr Smit has only sold two positions and initiated one.
Current investments include companies such as Visa, Alphabet, Nestle, Estée Lauder, PepsiCo and Accenture with technology stocks now making up 28.8 percent of the fund.
Mr Smit said: “There has been some general nervousness of equities which are now in the eighth year of a bull market, but this needs to be weighed against global economic fundamentals, which in our view continue to favour investment in quality companies.
“The US consumer and manufacturing sector show strong confidence and economic performance has improved in Europe too. Most importantly, we continue to stick to our philosophy that a good business remains a good business irrespective of potential short-term tactical setbacks in its share price, and it will continue to reward investors over time.”
The fund had previously been available exclusively to clients of Stonehage Fleming, but has been open to outside investors since 2016. It is now available on seven platforms and across three jurisdictions, with more under consideration.
Stonehage Fleming provides a range of services to over 250 wealthy families. The group advises on over £35 billion of assets and employs over 540 people in 11 offices in eight jurisdictions around the world.
Stonehage Fleming fund passes £0.5bn
Stonehage Fleming, the independently owned family office, says its Global Best Ideas Equity fund has seen assets under management pass the £0.5bn mark, as the number of external client investors continues to grow.
Only available since 2016 to investors who are not clients of Stonehage Fleming, the fund is run as a concentrated portfolio of some 24 stocks, and aims for exposure to businesses with sustainable growth potential. Turnover is low, with just two positions sold in the past 12 months and one initiated. Current holdings include Visa, Alphabet, Nestle, Estee Lauder, PepsiCo and Accenture. The investor base includes both private, professional and institutional investors, but more distribution is being considered beyond the current availability via seven platforms in three jurisdictions.
Portfolio manager Gerrit Smit said: “There has been some general nervousness of equities which are now in the eighth year of a bull market, but this needs to be weighed against global economic fundamentals, which in our view continue to favour investment in quality companies. The US consumer and manufacturing sector show strong confidence and economic performance has improved in Europe too. Most importantly, we continue to stick to our philosophy that a good business remains a good business irrespective of potential short-term tactical setbacks in its share price, and it will continue to reward investors over time.”
What families want
If you’re keen to entice family office capital into your latest fund, a coffee with Richard Clarke-Jervoise would be time well spent. As head of the private capital investment team at multi-family office Stonehage Fleming, he is acutely attuned to what makes an investment proposition ‘family-friendly’.
While institutions think in terms of assets and liabilities, families think in terms of wealth creation and wealth preservation; private equity fits squarely into ‘wealth creation’.
“Private equity is very intuitive for a family, because for most families, that’s where their wealth came from, it was created by a private company of one sort or another, so they get that. And they understand risk completely from that point of view.”
The ‘wealth creation’ approach translates into a strong bias towards growth; in the past year Stonehage Fleming has invested with Abry Partners, Summit Partners, Centerbridge Partners, HgCapital, Insight Venture Partners and New Mountain Capital, among others.
No two families are the same, Clarke- Jervoise points out. But they are often extremely long-term in thinking, yet impatient to see results; considered in investment decisions, yet willing to take risks well beyond an institutional investor. Above all, they are their own masters.
The exact number of family offices out there – and the exact amount of capital at their disposal – is, for obvious reasons, hard to pin down, but recent estimates have put their wealth at around $4 trillion.
And they are becoming increasingly interested in alternatives. Respondents to the UBS/Campden Wealth Global Family Office Report 2016, a survey of 242 family offices, indicated on average 22.1 percent of their assets is allocated to private equity, up from 19.8 percent the previous year.
Between 2010 and 2015, the proportion of capital raised globally for private equity from family offices grew from 4 percent to 6 percent, according to the Alternative Investment Council and Preqin.
Family offices are becoming too big for general partners to ignore. And these investors are good people to have in your fund. Having some key family offices among your LP base can act as “external validation”, says Bracken White, a managing director at Probitas Partners. “These are people that invested with you because they chose to, whereas certain institutional investors may invest with you because they have an allocation they need to get out the door.”
If a family office well-known for being thoughtful and highly disciplined in assessing investments is an LP in your fund, “that can tell other investors that smart money is investing in you”, White adds.
FAMILY AFFAIRS
Stonehage Fleming looks after more than 250 families with anything from millions to billions, providing a wide range of services, including the fiduciary side of asset management, legal advice from its in-house law firm, investment management, property management and art management.
The families range from first generation to third generation and way beyond, and include chief executives of banks, supermarkets, industrial firms – and private equity general partners. “We’ve got a lot of GPs as clients,” Clarke-Jervoise says, “and that’s a growing portion of our client base.” About 30 of these families invest in private equity through Stonehage Fleming.
The firm has three teams covering the asset class: the funds team; the corporate finance team, which helps clients make direct investments; and FPE Capital, a private equity firm with which Stonehage Fleming has an affiliate relationship and which manages funds on behalf of its clients and third-party clients.
Whether families choose to access private equity through Stonehage Fleming is not simply a matter of size, Clarke-Jervoise says. “The thing that determines whether they do [private equity] with us or potentially with someone else is really whether they want to invest in the resource to do it themselves,” he says.
“One of the things that characterises PE compared with all the other asset classes is it is very resource-intensive. People who work in the industry take that for granted and the larger investors typically have dedicated teams covering not only the investing but the reporting, the tax administration, the capital calls and distributions.”
HOW MUCH WILL IT COST?
Families, Clarke-Jervoise says, don’t consider the cost in terms of basis points on assets under management. “They look at ‘how much is this costing me? Is it costing me a couple of hundred thousand or is it costing me millions to administer?’”
The easiest way for wealthy individuals and families to invest in private equity is through feeder funds offered by banks, but “a lot of them say they get a pretty rough deal from the banks who are notoriously hungry for fees”, Clarke-Jervoise says. Stonehage Fleming charges its clients a flat fee based on the assets it manages for them, regardless of the types of financial products they’re investing in.
The private equity programme charges on the basis of NAV and invested capital, rather than committed capital. “You can’t get away from the fact that it’s an expensive asset class to access,” Clarke- Jervoise concedes. “Of course we charge for our services, but we try and avoid the adverse selection you get with a lot of the banks which push product because it’s very profitable for them to do that.”
There is no performance fee. “Philosophically, it was just something the firm felt the clients would struggle to understand and they’re quite resistant to,” Clarke- Jervoise says. By charging fees only on invested capital Stonehage Fleming is certainly ahead of the pack; despite prominent members of the industry such as Terra Firma’s Guy Hands speaking out against the practice of charging fees on committed capital, it remains the norm for more than 90 percent of buyout funds and close to 90 percent of growth funds according to recent data from Preqin.
Of course, applying these management fees is to account for the initial costs of a fund that will only call its capital in increments over a number of years. Nevertheless, Clarke-Jervoise doesn’t see this remaining universally accepted. “I would be very surprised if in 10 years’ time much more than 50 percent of the asset class was charging on the basis of committed capital,” Clarke-Jervoise predicts. “It’s just such an anomaly within investment management as an industry. There are very good reasons for it, but I just think people will eventually say ‘we’re not prepared to pay for that.’”
EVERY LAST DROP
Another element eating into the overall returns for family offices – and one which particularly displeases them – is the way fund managers, having raised a fund, often For example, the idea that, having committed $10 million to a private equity fund, only $8 million or even $5 million ends up being invested is extremely unappealing.
“Our clients look at all the performance numbers that come through private equity managers, and they’re good, but they are typically internal rates of return; and that IRR is on potentially only 50 percent of invested capital rather than the full amount of an investor’s commitment,” Clarke-Jervoise explains.
Family offices would know if they had been getting a 15 percent return on the 10 percent they have allocated to private equity, he says; in reality, the allocation ends up returning only around 7.5 percent. “Trying to be fully invested is what families find really hard,” he says. “Why do they find that harder than institutions? Because institutions have entire teams whose job it is to do cashflow modelling and asset allocation to ensure that at all times they are fully invested. Certainly, the families we look after don’t have those resources.”
Stonehage Fleming pushes fund managers hard to be as close to fully invested as possible. And it calls the capital in its own private equity programmes to a fixed schedule – and fast. “We give our clients a very clear capital call schedule. We say: ‘we’ll call this on day one, this a year later, and this two years later’, so they know 100 percent of their capital will be called within a fixed period of time and can plan what they do with their cash around that.”
Stonehage Fleming’s 2016 private equity programme made its first capital call in September 2016 and its second in January 2017, at which point more than 80 percent had been called. The full programme has been deployed into underlying managers, who in turn have called only around 10 percent of capital. The 2016 programme is currently sitting at around 5 percent IRR. “We use a permanent capital vehicle which we invest a significant portion of the fund in to reduce the cash drag,” Clarke-Jervoise explains. “It’s similar to using a significant secondaries portfolio at the start of a fund and allows you to get money in the ground working in private equity assets.”
WANTED: BETTER FUND MANAGERS
Tied into concerns over fees and capital efficiency is the issue of gross-to-net spread, something to which the majority of GPs are only just starting to pay attention. “They’re great investors, they’re not very good fund managers,” Clarke-Jervoise says of GPs. “The IR guy or the finance guy really understands the component parts of net performance, quite often the deal-doers have got no clue about net performance.” The data on this are stark.
Across the last 15 years the median spread between gross and net for all buyout funds is 8.59 percent, based on a net IRR of 16.01 percent, according to CEPRES, a tech platform that allows GPs and LPs to exchange confidential performance data. Interestingly once you include private debt, venture capital and infrastructure funds in the sample, the average spread comes down to 6.32 percent; there are clearly more efficient managers in those asset classes.
LEVERING LEVERAGE
Aside from slashing fees – which, in today’s environment, is not on the agenda for most GPs – there are several levers that can be pulled to narrow the spread between gross and net returns.
One is a credit facility. Clarke-Jervoise sees the benefits of such facilities for managing out the J-curve and simplifying capital calls; however, he is cautious about “the more egregious versions” in which capital is only called once a year. “In some cases, it’s ending up really as fund leverage,” he says. Annual capital calls can also challenge LPs – having up to 25 percent of your fund commitment called in the space of a day pushes both families and institutions to keep more money in cash.
“People talk about Swiss and German institutions who will keep all their unfunded commitments in cash. It means they’ve got a hell of a lot of cash, particularly in what has been up until quite recently a negative interest rate environment; they’re actually paying to keep it in cash.” Another lever is the use of cross-fund investment, mopping up the tail-end capacity of one fund with a portion of one of the next fund’s deals. Both can be viewed with suspicion by investors, but both have their uses from a capital-efficiency perspective.
Although positive about the resilience and potential for innovation within the industry, Clarke-Jervoise does have his concerns, particularly with regards to how private equity will navigate the next downturn. “I worry about what will happen to the industry post the next crash. Everyone says private equity had quite a good crisis, and I do worry that the next one won’t be quite as good,” he says. “I worry about the complacency within parts of industry that you saw within hedge funds previously, and you saw what happened to the hedge fund industry.”
Clarke-Jervoise notes a tendency for those within the industry to talk “to themselves in a kind of echo-chamber that can lead to them becoming disconnected with the outside world”. “I just worry there is a perception – and we definitely see it with clients – that private equity managers are quite greedy.
The industry needs to be quite wary of that.” Fund managers should take note of Clarke-Jervoise’s warning; what family offices think of private equity managers will only become more influential.
Stonehage Fleming win STEP Multi Family Office Team Award for 3rd Consecutive Year
We are delighted to announce that Stonehage Fleming has won the prestigious STEP (Society of Trust and Estate Practitioners) Private Client Award for Multi Family Office Team for the third consecutive year. The STEP awards are recognised as a mark of excellence amongst the global private wealth advisory community, with submissions subject to rigorous analysis by a panel of highly qualified independent judges.
As the largest Multi Family Office in the EMEA region and one of the largest in the world, we have exceptional experience in meeting the often complex needs of wealthy families. We are really proud to have received this independent endorsement of our capabilities from STEP for the second consecutive year and the third time in aggregate.
The Judges said: ‘Stonehage Fleming’s depth of talent, breadth of specialised platforms and services, and focus solely on family office services, set it apart from the others.’
Why you want a family office in your fund
It is that thoughtfulness that Clarke-Jervoise is known for among the GPs with whom Stonehage Fleming invests.
“Richard Clarke-Jervoise is a very knowledgeable, experienced private equity investor who has been around a long time and has a lot of sensible insights into what’s happening in the market,” Carter said. Collins agreed, describing Clarke-Jervoise as “an incredibly thoughtful investor” who is “always willing to take the time to offer advice or perspective on a particular market issue”.
“We appreciate the perspective of limited partners who invest across a number of different asset classes and are able to ‘see the forest through the trees’. Richard - and the team [at Stonehage Fleming] – are that kind of investor.”
Look out for the exclusive interview with Richard Clarke-Jervoise in the September issue of Private Equity International. Read more via Private Equity International
What families want
If you’re keen to entice family office capital into your latest fund, a coffee with Richard Clarke-Jervoise would be time well spent. As head of the private capital investment team at multi-family office Stonehage Fleming, he is acutely attuned to what makes an investment proposition ‘family-friendly’.
While institutions think in terms of assets and liabilities, families think in terms of wealth creation and wealth preservation; private equity fits squarely into ‘wealth creation’.
“Private equity is very intuitive for a family, because for most families, that’s where their wealth came from, it was created by a private company of one sort or another, so they get that. And they understand risk completely from that point of view.”
The ‘wealth creation’ approach translates into a strong bias towards growth; in the past year Stonehage Fleming has invested with Abry Partners, Summit Partners, Centerbridge Partners, HgCapital, Insight Venture Partners and New Mountain Capital, among others.
No two families are the same, Clarke- Jervoise points out. But they are often extremely long-term in thinking, yet impatient to see results; considered in investment decisions, yet willing to take risks well beyond an institutional investor. Above all, they are their own masters.
The exact number of family offices out there – and the exact amount of capital at their disposal – is, for obvious reasons, hard to pin down, but recent estimates have put their wealth at around $4 trillion.
And they are becoming increasingly interested in alternatives. Respondents to the UBS/Campden Wealth Global Family Office Report 2016, a survey of 242 family offices, indicated on average 22.1 percent of their assets is allocated to private equity, up from 19.8 percent the previous year.
Between 2010 and 2015, the proportion of capital raised globally for private equity from family offices grew from 4 percent to 6 percent, according to the Alternative Investment Council and Preqin.
Family offices are becoming too big for general partners to ignore. And these investors are good people to have in your fund. Having some key family offices among your LP base can act as “external validation”, says Bracken White, a managing director at Probitas Partners. “These are people that invested with you because they chose to, whereas certain institutional investors may invest with you because they have an allocation they need to get out the door.”
If a family office well-known for being thoughtful and highly disciplined in assessing investments is an LP in your fund, “that can tell other investors that smart money is investing in you”, White adds.
FAMILY AFFAIRS
Stonehage Fleming looks after more than 250 families with anything from millions to billions, providing a wide range of services, including the fiduciary side of asset management, legal advice from its in-house law firm, investment management, property management and art management.
The families range from first generation to third generation and way beyond, and include chief executives of banks, supermarkets, industrial firms – and private equity general partners. “We’ve got a lot of GPs as clients,” Clarke-Jervoise says, “and that’s a growing portion of our client base.” About 30 of these families invest in private equity through Stonehage Fleming.
The firm has three teams covering the asset class: the funds team; the corporate finance team, which helps clients make direct investments; and FPE Capital, a private equity firm with which Stonehage Fleming has an affiliate relationship and which manages funds on behalf of its clients and third-party clients.
Whether families choose to access private equity through Stonehage Fleming is not simply a matter of size, Clarke-Jervoise says. “The thing that determines whether they do [private equity] with us or potentially with someone else is really whether they want to invest in the resource to do it themselves,” he says.
“One of the things that characterises PE compared with all the other asset classes is it is very resource-intensive. People who work in the industry take that for granted and the larger investors typically have dedicated teams covering not only the investing but the reporting, the tax administration, the capital calls and distributions.”
HOW MUCH WILL IT COST?
Families, Clarke-Jervoise says, don’t consider the cost in terms of basis points on assets under management. “They look at ‘how much is this costing me? Is it costing me a couple of hundred thousand or is it costing me millions to administer?’”
The easiest way for wealthy individuals and families to invest in private equity is through feeder funds offered by banks, but “a lot of them say they get a pretty rough deal from the banks who are notoriously hungry for fees”, Clarke-Jervoise says. Stonehage Fleming charges its clients a flat fee based on the assets it manages for them, regardless of the types of financial products they’re investing in.
The private equity programme charges on the basis of NAV and invested capital, rather than committed capital. “You can’t get away from the fact that it’s an expensive asset class to access,” Clarke- Jervoise concedes. “Of course we charge for our services, but we try and avoid the adverse selection you get with a lot of the banks which push product because it’s very profitable for them to do that.”
There is no performance fee. “Philosophically, it was just something the firm felt the clients would struggle to understand and they’re quite resistant to,” Clarke- Jervoise says. By charging fees only on invested capital Stonehage Fleming is certainly ahead of the pack; despite prominent members of the industry such as Terra Firma’s Guy Hands speaking out against the practice of charging fees on committed capital, it remains the norm for more than 90 percent of buyout funds and close to 90 percent of growth funds according to recent data from Preqin.
Of course, applying these management fees is to account for the initial costs of a fund that will only call its capital in increments over a number of years. Nevertheless, Clarke-Jervoise doesn’t see this remaining universally accepted. “I would be very surprised if in 10 years’ time much more than 50 percent of the asset class was charging on the basis of committed capital,” Clarke-Jervoise predicts. “It’s just such an anomaly within investment management as an industry. There are very good reasons for it, but I just think people will eventually say ‘we’re not prepared to pay for that.’”
EVERY LAST DROP
Another element eating into the overall returns for family offices – and one which particularly displeases them – is the way fund managers, having raised a fund, often For example, the idea that, having committed $10 million to a private equity fund, only $8 million or even $5 million ends up being invested is extremely unappealing.
“Our clients look at all the performance numbers that come through private equity managers, and they’re good, but they are typically internal rates of return; and that IRR is on potentially only 50 percent of invested capital rather than the full amount of an investor’s commitment,” Clarke-Jervoise explains.
Family offices would know if they had been getting a 15 percent return on the 10 percent they have allocated to private equity, he says; in reality, the allocation ends up returning only around 7.5 percent. “Trying to be fully invested is what families find really hard,” he says. “Why do they find that harder than institutions? Because institutions have entire teams whose job it is to do cashflow modelling and asset allocation to ensure that at all times they are fully invested. Certainly, the families we look after don’t have those resources.”
Stonehage Fleming pushes fund managers hard to be as close to fully invested as possible. And it calls the capital in its own private equity programmes to a fixed schedule – and fast. “We give our clients a very clear capital call schedule. We say: ‘we’ll call this on day one, this a year later, and this two years later’, so they know 100 percent of their capital will be called within a fixed period of time and can plan what they do with their cash around that.”
Stonehage Fleming’s 2016 private equity programme made its first capital call in September 2016 and its second in January 2017, at which point more than 80 percent had been called. The full programme has been deployed into underlying managers, who in turn have called only around 10 percent of capital. The 2016 programme is currently sitting at around 5 percent IRR. “We use a permanent capital vehicle which we invest a significant portion of the fund in to reduce the cash drag,” Clarke-Jervoise explains. “It’s similar to using a significant secondaries portfolio at the start of a fund and allows you to get money in the ground working in private equity assets.”
WANTED: BETTER FUND MANAGERS
Tied into concerns over fees and capital efficiency is the issue of gross-to-net spread, something to which the majority of GPs are only just starting to pay attention. “They’re great investors, they’re not very good fund managers,” Clarke-Jervoise says of GPs. “The IR guy or the finance guy really understands the component parts of net performance, quite often the deal-doers have got no clue about net performance.” The data on this are stark.
Across the last 15 years the median spread between gross and net for all buyout funds is 8.59 percent, based on a net IRR of 16.01 percent, according to CEPRES, a tech platform that allows GPs and LPs to exchange confidential performance data. Interestingly once you include private debt, venture capital and infrastructure funds in the sample, the average spread comes down to 6.32 percent; there are clearly more efficient managers in those asset classes.
LEVERING LEVERAGE
Aside from slashing fees – which, in today’s environment, is not on the agenda for most GPs – there are several levers that can be pulled to narrow the spread between gross and net returns.
One is a credit facility. Clarke-Jervoise sees the benefits of such facilities for managing out the J-curve and simplifying capital calls; however, he is cautious about “the more egregious versions” in which capital is only called once a year. “In some cases, it’s ending up really as fund leverage,” he says. Annual capital calls can also challenge LPs – having up to 25 percent of your fund commitment called in the space of a day pushes both families and institutions to keep more money in cash.
“People talk about Swiss and German institutions who will keep all their unfunded commitments in cash. It means they’ve got a hell of a lot of cash, particularly in what has been up until quite recently a negative interest rate environment; they’re actually paying to keep it in cash.” Another lever is the use of cross-fund investment, mopping up the tail-end capacity of one fund with a portion of one of the next fund’s deals. Both can be viewed with suspicion by investors, but both have their uses from a capital-efficiency perspective.
Although positive about the resilience and potential for innovation within the industry, Clarke-Jervoise does have his concerns, particularly with regards to how private equity will navigate the next downturn. “I worry about what will happen to the industry post the next crash. Everyone says private equity had quite a good crisis, and I do worry that the next one won’t be quite as good,” he says. “I worry about the complacency within parts of industry that you saw within hedge funds previously, and you saw what happened to the hedge fund industry.”
Clarke-Jervoise notes a tendency for those within the industry to talk “to themselves in a kind of echo-chamber that can lead to them becoming disconnected with the outside world”. “I just worry there is a perception – and we definitely see it with clients – that private equity managers are quite greedy.
The industry needs to be quite wary of that.” Fund managers should take note of Clarke-Jervoise’s warning; what family offices think of private equity managers will only become more influential.
Stonehage Fleming win STEP Multi Family Office Team Award for 3rd Consecutive Year
We are delighted to announce that Stonehage Fleming has won the prestigious STEP (Society of Trust and Estate Practitioners) Private Client Award for Multi Family Office Team for the third consecutive year. The STEP awards are recognised as a mark of excellence amongst the global private wealth advisory community, with submissions subject to rigorous analysis by a panel of highly qualified independent judges.
As the largest Multi Family Office in the EMEA region and one of the largest in the world, we have exceptional experience in meeting the often complex needs of wealthy families. We are really proud to have received this independent endorsement of our capabilities from STEP for the second consecutive year and the third time in aggregate.
The Judges said: ‘Stonehage Fleming’s depth of talent, breadth of specialised platforms and services, and focus solely on family office services, set it apart from the others.’
Why you want a family office in your fund
It is that thoughtfulness that Clarke-Jervoise is known for among the GPs with whom Stonehage Fleming invests.
“Richard Clarke-Jervoise is a very knowledgeable, experienced private equity investor who has been around a long time and has a lot of sensible insights into what’s happening in the market,” Carter said. Collins agreed, describing Clarke-Jervoise as “an incredibly thoughtful investor” who is “always willing to take the time to offer advice or perspective on a particular market issue”.
“We appreciate the perspective of limited partners who invest across a number of different asset classes and are able to ‘see the forest through the trees’. Richard - and the team [at Stonehage Fleming] – are that kind of investor.”
Look out for the exclusive interview with Richard Clarke-Jervoise in the September issue of Private Equity International. Read more via Private Equity International