The family office has a variety of functions. This is again branched depending upon the family office and the variation of clients and their requirements. As independent family office advisors, we oversee the different aspects of a family business. We play a significant role in the functioning and management of these family businesses. An essential part of our job is to provide Investment Management Services. Hence, our family office advisory team oversee all the investment decisions, and it constitutes one of our foremost objectives.
Family Office Investment Management Services
Generally, the financial services provided by multi-family offices include managing the client’s investment portfolios. However, as an individual family office, we specialise in other types of investments. These investments include club deals, co-investing, impact investing and private equity.
The different types of investments, as specified, are:
1. Angel Investing
It is the beginning of the Investment Management cycle. An angel investor is a person who invests at the beginning. However, this investment refers to the initial capital provided to the young entrepreneurs in need of it. Our clients invest in startup ideas or businesses. Hence, angel investments come in the form of extra cash for additional research, building a prototype, etc. It does not typically include large sums because it is provided in the earliest phases of the startup.
Angel investors do not usually invest in a known social circle or relations. These days the number of young entrepreneurs with startup ideas and in need of angel investments is increasing. They are focusing mainly on new technologies that could provide high potential returns. It has caused angel investing to be the latest trend. It has become a real investment category. The objective of the angel investor is to acquire equity in the company or else convertible debt from this investment.
2. Club Deals
These refer to Investment Management in large private companies or other such potential investment objects. Two or more investors make a club deal. Club deals originally referred to the alliances formed between two private equity firms to take down a third larger firm that was too big for them to take down individually. As a family office, we are widening our professional approach. We are diversifying clients investment approaches.
As a consequence of this, family office advisors are forming syndicates between themselves as well as with other private equity firms for Investment Management services. It is helping us acquire better and larger deals thus increasing the investment margin. It results in us receiving above-average returns on the deals and investments as a consequence of taking over large private companies. These deals seem attractive. However, they are challenging to coordinate and manage. It is because one part out of the three involved parties plays the leading role and performs all the necessary diligence on the other two. Family offices take up the purpose of executing the deal on behalf of the investors.
Another form of Investment Management, these are investments made alongside the principal professional investment. The scope of these investments covers a wide range of asset classes including private equity, real estate and hedge funds. So, it helps an investor by providing a medium to participate in investments that are not generally available to the public. Unlike the club deals that had multiple investors, co-investments have one clear particular investor.
This investor coordinates with the family office advisor and has complete authority and makes all the decisions as well as a significant investment. The benefit of this type of investment is the main investor has the expertise and orchestrates a unique deal; many secondary investors can benefit from this. Co-investments mostly have a single layer of fees. Therefore, it makes them very cost-effective and thus a prospect for the investors to take up.
4. Hedge Funds
These are alternative investment vehicles. Their main benefit lies in their flexibility. People can invest on a wide variety of assets in a hedge fund. These include fixed income, equities, currencies and commodities. Hence, their trades can be implemented through long and short positions, derivatives as well as leverages. It might seem slightly misleading. Most hedge funds do not provide immunity against all kinds of risks. Instead, they show a real positioning as compared to markets. Due to these features. Hedge funds play an essential role in asset allocation, providing uncorrelated return drivers and, reducing the overall risk of the portfolio. Nevertheless, hedge funds have a variety of investment strategies. These include:
- Long / Short Equity:
It takes long and short positions in stocks and sectors.
It takes long and short position approaches based on macroeconomic considerations. It includes predominantly investing in rates, sovereign credit and currencies.
- Relative Value or Arbitrage:
This approach consists of taking minimal directional market exposure or none at all.
This approach involves taking positions in companies affected by events such as restructurings, mergers, spin-offs and bankruptcies.
It is not a very widely available service in the case of most single-family offices. Even private banks have limited hedge funds, investment specialists.
Impact Investment Management Services
The purpose of these investments is to not only make a financial return on your assets but also to have an ‘impact’. These investments have a new goal. This goal is often environment or social oriented. Investors try to achieve this goal. It might often be confused with philanthropy. However, they are different from philanthropy in the sense that, unlike philanthropy, in the case of impact investments, the investor tries to get at least the sum he had invested back, preferably with a positive return.
The best way to explain these investments is through examples like microfinance. A large sum of money is provided as a loan to a local organisation in a developing country. Also, this organisation gives out small loans to the local population to start a business or for some other purposes. This local population can’t obtain such loans from a regular financial institution with proper rules and conditions. The goal of the investor who provides the main loan is to earn some interest as well as help these people obtain loans at liberal conditions. It enables those people to make a living. Thus, this approach results in a social impact. Other examples of impact investment include improving the environment, medical research or obtaining sustainable energy solutions.
The various asset classes included in impact investment include funds, private equity, direct investments and loans. Different industries and regions are focused on this. Hence, the primary source of impact investing deals are the independent family offices. Very few multi-family offices are active in this.
Passion Investments (trophy assets) – Investment Management Services
These are investments made mainly because of the ‘passion’ the investor feels for a particular object, rather than for the financial returns. For most wealthy families, however, these investments also bring decent returns.
Some examples are:
- Firstly, famous artworks and paintings
- Secondly, classic cars like Ferraris or Bugattis
- Unique places of real estate, landmarks
- Top-class luxury hotels
- Sport clubs
- Accessories like watches, sizeable gems and jewellery
- Lastly, rare wine bottles or bottles of whiskey and cognac
These are also sometimes called trophy assets because they are like trophies being added to the collection of the investor, earning unique places to be shown off.
Another option for investment management is through private equity. These are investments made into existing operating companies that are not listed on the stock exchange. It is done by equity or by providing financing in the form of private debt. Hence,the purpose of private equity investment firms is to acquire a controlling stake in the company they invest in. These are long-term investments. Therefore, it provides good revenue returns as well as a great influence. A considerable group of multi-family offices has experience with private equity investments. Many single-family offices are also active in this field.
These are direct investments into intangible assets such as forests, dairy farms, etc. They produce a direct return for investors. However, someone owns it privately. Real investments enable investors to visit the locations of their investments. They offer a constant return and provide a diversifying investment portfolio. A minimal number of multi-family offices have experience with this. We specialise in real investments and can be of help to you if this stands among your interests.
It is a direct investment or financing made into a privately held startup company. Its purpose is to support the next level of growth financially. These investments are often made to the internet and biotechnology-related companies. However, it can receive an above-average investment return when the company is ultimately brought to the stock exchange through IPO or taken over by an established company.