UBS rides wave of family office interest

Investment bank UBS will announce today the establishment of a new Global Family Office business in Australia to service the needs of the nation's wealthiest and most powerful families and help them forge partnerships with similar businesses in Asia and other parts of the world.

The venture will bring together the investment banking and wealth management businesses of UBS in Australia to cater for the needs of the bank's existing family office clients and others among the top 50 family offices in Australia.

It comes as more family offices are providing lending to small-cap companies to replace lending by senior banks that tend to carry more restrictive covenants and are looking for more opportunities to invest offshore.

A family office is a private company that manages investments for a single family.

"Over the last two years we have seen client needs in the Asia-Pacific and especially Australia evolving. In particular, family offices are looking beyond the usual investment themes for exclusive opportunities in private markets, alternative investments and philanthropic services," UBS Australasia chief executive Matthew Grounds told The Australian.

Future Fund chairman David Gonski, who will launch the new UBS venture with Westfield executive chairman Frank Lowy at a function in Sydney on Sunday, said philanthropy had an increasing role in the work of family offices.

"Philanthropy has become much more sophisticated for families in the past five to 10 years. They don't just see it as making donations. They want to get cogent results for society from their donations," Mr Gonski said.

"The beauty of the family office is that not only can they look after administrative issues, they can help the family members make demands that they see results from their giving."

Mr Gonski, whose son Michael is a key member of Philanthropy Australia's New Generation of Giving program, said the business of giving needed to be considered more carefully by businesspeople.

"It is amazing how many people I have seen apply great genius to making their money but don't apply the same rigour in trying to give some of it away," he said.

The inaugural Wealth-X and UBS Billionaire Census 2013 launched yesterday in Hong Kong found there were 32 billionaires worth $US92 billion ($97bn) in Australia.

The Myer Family Company has more than $2bn under management and advice and $5bn under administration, and serves the wealth management needs of families, individuals, foundations, charities and institutions. Its prestigious family office directly manages more than $1bn.

Other family offices include those established for the likes of the Hains, Smorgon, Pratt, Packer, Rinehart and Forrest families.

But it is a competitive space. Wealth management platforms run by the likes of Citigroup and the Australian private banks such as National Australia Bank, Westpac, ANZ, Commonwealth and Macquarie all service families with wealth over $100m.

UBS is banking on leveraging the expertise and reach of its Global Family Office established two years ago which focuses primarily on its top 250 largest institution-like or professional family office prospects and clients, who represent about 2 per cent of its total ultra high net worth client base around the world.

"One thing we have noted is that family offices are also looking to partner up with other family offices for co-investment opportunities. It is important to look at what other family offices around the world are doing," UBS Wealth Management Australia head Michael Chisholm said.

"This is something we think is unparalleled in Australia with our product, to offer these global networking opportunities."

UBS GFO Australia head David Wilson said the new venture would target "30-50 family office-type clients in Australia".

But he noted there was increasing interest from family offices offshore to partner with their Australian equivalents.

"We have family offices offshore queuing up to invest alongside Australian family offices in Australia. It could be in agriculture, property, tourism, healthcare. There is a bunch of different areas they are open to. There is going to be enormous demand coming from Asia for food security and food safety," he said.

"At the same time we have seen a desire from Australian family offices to invest in the US and other places offshore to diversify their risk."

Pegasus Securities chief executive Michael Brown noted recently that more so-called "family" debt -- that is, non-institutional, long-term unsecured bonds -- was being raised by a growing number of small-cap industrials to reduce or replace "restrictive or controlling or reluctant" senior banks.

Companies to have done such raisings include PMP, Cash Converters, G8 Education, Mackay Sugar and Silver Chef.

The so-called family debt funds are coming from family offices seeking yield and provide companies with a more flexible debt structure.

Myer Family Company chief Peter Hodgson said recently that the group was actively looking at such situations.

"There is an engineering company where we have come in and provided subordinated debt, replacing bank debt. It is something we are very keen on," he said.

"It is partially in response to the dislocation in the markets that we saw between 2007 and 2008 as banks pulled back on their leverage, and not all private companies have the ability or scale to put in equity," Mr Hodgson said. "So we can bridge that gap. What was once leveraged at five times is now leveraged at three times."

"But you need to be careful with the sectors and the analysis. We have a large investment team so we are quite happy to roll our sleeves up and do the cashflow analysis to get into that level of detail."