The family office that mega-wealth built

Here’s a tantalising concept: a private bank dedicated to managing your assets and the family business. The family office is taking off for Australia’s wealthiest families and it’s a trend that's likely to trickle down. A specialised part of the business, the family office provides anything from staff and travel management services to supervision of trusts and investment, and might become the vehicle for the globalisation of Australian family businesses, serving as the place for increased networking for family business owners around the world.

According to the Eureka Report, there are 250 single family offices providing high quality professional services to Australian family business.

Eureka Report says the top 100 family offices in the country service the likes of Gina Rinehart, Andrew Forrest and Clive Palmer. There are also lesser-known players such as mining billionaire Chris Wallin and entrepreneur Paul Fudge. These 250 family offices in Australia accounted for $230 billion in assets in December 2012. According to the family office network group, the Table Club, that’s up $16.38 billion, or 7.7 per cent, on the previous year. The Table Club estimates that the top 20 family offices were worth a whopping $103.9 billion in 2012, up from $88.8 billion. The entry point seems to be around $100 million.

Services provided by family offices are varied. They include estate planning, family governance, generational succession, philanthropic services, investment tax and advisory needs and, in some cases, financial and business education for the children and subsequent generations.

Family offices would be particularly effective for well-established family businesses in their third generation where the majority of family members have little or no involvement in the business and are more likely to have roles as shareholders in a large corporation. However, the Australian family office sector is still largely controlled by first and second generations. Analysis by the Table Club suggests that as the next generation takes over in the next few years, there will be shift in investment focus away from core wealth creation to preservation.

The family office brief and composition depends on the nature of the family business. The key personnel can include investment advisors, fund managers, stock brokers, commercial lawyers, accountants, financial planners, tax and investment specialists and business and property development experts. The brief itself can vary from family business to family business. It can range from investment advice and wealth management to providing support services for family members, including education.

The family office concept probably started in Melbourne. Certainly, it was home to some of Australia’s largest companies and mining houses, like BHP and Rio Tinto which were started substantially in Melbourne with old money backing from families like the Baillieus. Melbourne also has had high profile families such as Myer, Smorgon, Liberman, Besen, Gandel, Fox, Grollo and Hains to name a few. The wealth of the family offices in Melbourne and Sydney is fairly evenly divided at $63.05 billion and $63.83 billion, respectively. There are more family offices in Melbourne but there is more money in Sydney.

James Burkitt, the chief executive of the Table Club, says the family office is becoming more generalised. “I am seeing new pockets of wealth all the time because there are liquidity events that are under the radar that haven’t shown up in the rich list,” Burkitt says. “As more money is flowing into the superannuation pipe there is more private equity allocation, they are hungry for deals. The private equity managers are courting a lot of the family owned businesses. We’re seeing quite a lot of activity from the corporate advisory guys and accounting firms going to these family businesses.”

And with multi-family office handling accounts of many families, some could come in for as little as a few million. Multi-family offices are proliferating, taking in smaller sized family businesses. According-to The Wall Street Journal, their numbers have increased by 33 per cent in the past five years to more than 4000 in the US alone. There’s a similar trend in Europe. We can expect the same to happen here.

Burkitt says more family businesses will be globalising.

He says many family offices around the world are now talking to each other and the Table Club is connecting them, bringing them together and hosting various events. “At the Table Club, our families talk to each other about how they approach issues like structure and corporate governance and boards through to philanthropy,” Burkitt says.

And the new generation of family business owners, he says, are now more inclined to network.

“I find the next generation in their 30s and 40s are a lot more active now in their networking. You see it on LinkedIn and to an extent on Facebook,” he says. “They’re travelling a lot and building up networks all around the world

“They are looking for deal flow from a variety of sources, not the traditional channels that they may have received from a private bank. They are now looking all over the place.”

What that means is that the family office will be playing a more prominent role with family businesses. We can expect it to reshape the sector.