Summary: A proliferation of family office structures in Australia has been driven in part by lessons learned during the GFC as the most affluent families seek to create the best oversight and structures to manage their wealth.
|Key take-out: Family office structures give confidentiality, control, flexibility and value for money.|
Key beneficiaries: General investors. Category: Economics and strategy.
Who are Australia’s wealthiest families and how do they invest? We already know some of the biggest names in business: The Packer, Pratt and Lowy families are household names, but how do they structure their investments?
Now for the first time, through Eureka Report’s publication of family office tables, we can see which Australians have the ultimate investment vehicle, the family office. (See below.)
Family office structures are devised by wealthy families to ‘professionalise’ their money management: They are all-encompassing wealth management vehicles designed to create top quality oversight and the best possible structure for that most difficult of tasks…running the family money.
Remarkably, a new survey shows high net worth Australians have been rushing to form family offices: In fact Australia now boasts an estimated 250 single family offices. There are only 2,700 single family offices globally …In other words Australia is heavily over-represented when it comes to serious money.
Moreover, it’s not just celebrity rich listers who operate family offices. Our list includes well-known players such as Rinehart, Lowy and Packer, but also contain the likes of the slightly lesser-known tycoons including television entrepreneur Bruce Gordon, property developer Bob Ell and retailing king Brett Blundy.
Going by the above figures, Australia is home to more than 9% of all single family offices. Yet Australia only commands less than 2% of global GDP.
According to UK consultants WealthInsight, there has been a boom in family offices in this country over the past 15 years, with most of our wealthiest families laying claim to some form of family office.
Scott AJ MacDonald of the International Family Office Association – a family office specialist – says a loss of faith in the traditional banking system following the global financial crisis has helped drive their rise in popularity in recent years.
“Families are bringing in-house due diligence, asset allocation, the constitution, the legacy, the mission statement and those issues that relate to managing the family. It’s a case of building a platform internally versus outsourcing all or part of it, as was the previous model.”
The lure of the family office centres on the broad range of services covered, including generational succession, family governance, estate planning and philanthropic services, as well as the usual investment, tax and advisory needs.
MacDonald says confidentiality, control and flexibility are not the only benefits of a family office. It can also be a lot cheaper than outsourcing to a private bank, he says.
Despite family offices having a long history in Europe and the US, they have really only become popular here as our richest have added to their staggering wealth, and as they’ve gotten older. The average rich lister is a sprightly 65, compared to an average age of 56 when the list was first compiled in 1984.
Indeed, with the amount of money these families have, and the rate at which it’s growing, a good succession plan would certainly seem to be in order.
The top 20 family offices in Australia were worth a staggering $103.9 billion, while the top 100 had a combined wealth of $177.48 billion at December 2012, according to family office network group, The Table Club.
As expected, most family offices in this country have been created in recent years by first generation wealth, although there are some that are older, such as the Fairfax and Myer families, which have had some form of family office structure for six generations.
Of these few older family offices, some have even established sub-family offices as the wealth is passed down from generation to generation. For example eight offshoots of the Smorgon family have their own branch within the wider Smorgon family office.
Within this world of immense wealth, it’s generally assumed that about $200 million is the minimum asset base required to establish a single family office, efficiency-wise. For those who do not make the grade, multi-family offices are an alternative.
As the name suggests, a multi-family office is one that manages the wealth of a number of families, and while popular in the US, are relatively scarce here. Some multi-family offices accept clients with as little as $5 million, opening the door to a world of new possibilities and opportunities for high net worth individuals.
Of the 5,000 family offices (including single and multiple structures) around the globe, it’s estimated that 2,300 operate as multi-family offices, with about $US800 billion in funds under management.
From the table below, it’s clear that while Australia is ahead of the game in terms of single family offices, the opposite is true when it comes to multi-family offices. This segment is much smaller than its counterparts in the US and Europe.
The Myer Family Office is perhaps the most well-known of these multi-family offices, representing not only Australia’s wealthiest families, but also the Myer Family itself. Myer national head of Family Office Services, Michael Smolders, says that a lot of Myer’s clients have between $30 million and $200 million in wealth, although they also have quite a number above that level.
There’s no set amount of wealth required to join, but the minimum annual fee is $50,000.
Smolders says the company has seen decent growth since it opened its doors in 1999 and now services about 100 families, with offices in Sydney, Melbourne, Brisbane and Perth.
Services include succession and estate planning, taxation, investments, advisory and philanthropy. They’ll even throw in financial education for children if needs be. (To read more on educating wealthy offspring see Helping rich kids break the rule... and keep the inheritance).
Family Office Research and Management (FORM) is another multi-family office operation that appears on the list. FORM, unlike the Myer Family Company, is not a one-stop shop. Tom Murphy, managing partner of FORM, says his company focuses purely on “holistic investment advice”, and does not offer taxation, estate planning or other broader services.
Murphy is reluctant to give details on the number of families FORM has on its books, only saying “it’s less than 50”.
Where’s all the wealth?
Looking at the sector state by state, New South Wales is home to the biggest number of single family offices, while Western Australia has a fairly low concentration. Despite this, the average assets under management (AUM) per single family office in WA easily dwarf that of the other states.
With an army of experts behind them, these families are open to atypical investment ideas. In fact, there’s a requirement for knowledge about alternative assets and new types of asset structures.
Murphy gives a rare insight into where Australia’s wealthiest families are focusing their attention of late.
“One of the developments we’ve seen is an appetite for unusual international equity opportunities, including the frontier markets. For the past two years, we’ve been investing on behalf of our clients in Africa. Our competitors do not.”
“We have seen a renewed interest in foreign currency-denominated equities, particularly of the North American variety, and direct debt securities (developed markets – sterling, euro and US dollar-denominated).”
Building wealth on wealth
Property has been a boon for these wealthy families. According to the below table from WealthInsight, 21% of families who have established single family offices acquired their wealth in real estate. Retail and fashion is where 11% got rich, while financial services accounts for just 5.5% of single family offices.
Looking at each state independently, WealthInsight says 45% of family offices in NSW are in real estate, while 43% of Victoria’s family offices are all about retail and fashion.
No prizes for guessing which industries dominate in WA … that’s right, basic materials and manufacturing, with 33% of family offices in the state acquiring their wealth through these areas.
A breakdown of the number of single family offices in each sector is given in the table below.
Family offices give Australia’s richest families an element of control over their wealth that will always be lacking in traditional private wealth management. The growth potential for this sector is astounding, especially for the multi-family office segment, which is much less developed than its counterparts in the US and Europe. What’s more, from the list below it’s clear Australia’s army of very wealthy families have not just been making profits in recent times but attempting to invest them wisely too.
|Family Office Sector in Australia, Dec 2012|
|Rank||Family Office||Location||Generation||SFO Head, age 2012 70yo||$ mil (acc to BRW 2012)|
|DBR & Generation||VIC|
|Victor Smorgon Group||VIC|
|13||Australian Capital Equity (Stokes)||WA||1st||2,790|
|14||Portland House (Hains)||VIC||1st||2,200|
|22||Myer Family Company - Multi||VIC||2,000|
|28||Mutual Trust -Multi||VIC||1,500|
|34||John van Lieshout||QLD||1st||1,250|
|36||Century Plaza (Lew)||VIC||1st||1,150|
|37||Fraid & Fried||VIC||1st||1,150|
|44||Chau Chak Wing||OS||1st||1,000|
|46||Terrace Tower Group (Saunders)||NSW||960|
|66||RG Capital (Grundy)||NSW||760|
|73||GGB Wealthcare - Multi||NSW||700|
|83||Juilliard Group (Werdiger)||VIC||640|
|84||Belgiorno - Nettis||NSW||640|
Source: The Table Club