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Hall Road Investments #60 (Family Office Sherpa, Index & ESG)

See below for the latest newsletter. As always, if you want daily updates on what I’m looking at, start following the Hall Road LinkedIn page here.

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Happy reading.

The Sherpa Update

Raffles Family Office – have expanded their footprint in Hong Kong with the opening of new offices. They call it the “Raffles Ecosystem” and is a physical workspace in which single-family offices can house their operations. We are starting to see this Outsourced COO service becoming a more important value add from wealth managers.

UBS Family Office ServicesA good, short podcast episode from UBS FOS with Jeremy Langlois from Mirador LLC on shifting from Excel to cloud based consolidated performance reporting. He notes the “holy grail” that seems to be within reach – tax and performance reporting in one solution.

Hall Road has partnered with Mirador for clients looking at offshore platforms such as Addepar/Eton Solutions etc and Jeremy is excellent at explaining this sometimes confusing and complex aspect of managing the family office structure.

Stanford University - It was announced earlier this year that Stanford University had created a "Family Office Initiative" to provide a "central hub for Family Offices to share best practices, invest together, and professionalise the industry”. For our clients, one of the benefits of a Hall Road engagement is the network effect due to the number and diversity of our family office contacts.

Family Office Payments – Francois Botha (Simple, Forbes) has written this piece on the new breed of fintech that can be used by Family Offices for that most burdensome of admin – bill payments. They mention some of the global players in the space, one local solution provider that is getting traction and not mentioned is Australian based ONDA Group.

Direct Indexing – Cerulli has released this excellent whitepaper commissioned by Parametric. Outside my own personal belief that DI will be the next big thing in wealth management, the data points in this report should provide food for thought for anyone that manages assets for clients. As technology and frictional costs change, the ability for customised index strategies will increase. If you aren’t at least keeping an eye on this space, you will be playing catch up when your clients start asking why you aren’t providing a solution.

This follow up article provides some good devil’s advocate feedback from advisers on DI which should also be taken on board.

Wealth Management – The largest independent US robo advice has a problem. Clients want to invest in crypto currency, yet they cannot facilitate it through their current structure. The only option it seems is to outsource to a fund manager that can implement. The problem? They charge 200bps for the privilege. It’s an issue we see when assisting wealth managers here – how do you provide access to an asset class and remain true to your value proposition? The quote here is a good one when describing this conundrum for advisers: “the cleanest, perhaps, dirty shirt in the [crypto fund] hamper”.

The article itself is a very good overview of crypto within funds management with some practical components that should be of interest to anyone reading this and looking to launch a strategy in the space.

Family Office Equity HoldingsBloomberg trawled through the latest US 13F filings for single and multi-family office investments – some interesting movements from big offices in US equities

Direct Family Office Investment – Costa Asset Management has again shown that investing directly has its rewards, adding to its LAB Group investment they have scored another win with Symple.

BT – We all know the pain of system outage. BT Panorama, which holds around $160Bn in client money went down for an entire week. It’s one of the many reasons we encourage independence from a single custodian and to manage aggregation internally.

Bill Hwang – fascinating follow up story here from Bloomberg on the Archegos Family Office debacle. One thing that stuck out – those that are waiting for him to potentially start again. Also, “Hwang has promised to throw his weight, if not his money, behind at least three funds being launched by protégés.”

Factor Drift – as opposed to style drift, this article follows a recent BlackRock research piece on the historical benefits of multi factor portfolios. The article provides some good insight into how to manage portfolios using single and multi-factor approach – for all those looking at value, size etc as a starting point.

CLOs – this piece from Neuberger Burman on the maturing CLO market as it ticks over US$1 trillion in size. For a market so well publicised during the GFC, NB notes new investor types as they search for yield and how you can no longer ignore it as an asset class.

Proprietary Data Warehousing – I had an interesting conversation with a large multi-family office recently around proprietary data and how they warehouse it themselves as a method of control and mobility of outsourced services. This followed a conversation with data aggregator ICS (Marinya Family Office, Active Super recent agreement) and it seems that there is an increased ability for single and multi-family office/wealth manager firms to control their own data set.

This can be used as a source of truth for SaaS that don’t have local feeds set up or have customised output requirements for portfolio construction/management.

This also means that you can plug in best of breed global services that would otherwise require domestic customisation.

Perpetual - has acquired UHNW focussed firm Jacaranda FP. This wouldn’t be too interesting to me except Perpetual Private is the buyer as opposed to the usual suspects and I don’t know why they have acquired the firm. The recent profit report from Perpetual may shine some light – the private client business, multi asset and EGS focussed units are making money whilst the value managers continue to see outflow.

AMP – Darren Beesley, ex Perpetual MAG portfolio manager and head of portfolio management at AMP Capital is leaving the firm. This is interesting as he had just been promoted and shows how tough it is for AMP to hold onto staff.

Meetings – Onda Group (FO Admin), ICS (FO Data), Antler (VC), Mirador (MFO Admin/Addepar Demo).

ETFs & Indexing

AFR ETF Report – the annual ETF report is always the same. Issuers jostling for airtime to say basically the same thing as always – isn’t ETF growth amazing (big number), you can diversify with global ETFs (Amazon, Tesla), wealth managers are using them (just look at the independent report we commissioned), something about millennials (don’t buy a house, buy an ETF), insto clients are starting to use them more even though we have no way of telling, and how the rivers of flow will never stop.

If the AFR just interviewed just one person with something different to say, or without a vested interest, I would be pleased. At least they don’t lump ETFs with CFDs anymore.

Index Chart – I’m a massive fan of the Vanguard yearly index chart. I order three hard copies every year and stick one up in my office for kids and visitors to look at. It’s a wonderful illustration of how short-term noise can cloud long term investment. They also include some cool timelines on prime ministers, presidents and milestones over the last 21 years. You can view it here.

ESG & Philanthropy

ESG/SRI – as part of a larger family office research project, I interviewed family offices in the past two weeks on how they view ESG/SRI in terms of their investment portfolio. The feedback was pretty universal – we are not box tickers; the investment thesis comes first but our internal values remain an integral overlay and the impact of the next generation will be felt soon.

Oyu Tolgoi – I’ve been following the Rio Tinto story in regard to some of the governance issues related to disclosures around their Mongolian operations at Oyu Tolgoi (Turquoise Hill). I worked at this mine site back in 2003 (when it was just exploration drilling), running the laboratory with around 21 Mongolians. I lived in a Ger (Yurt), it was -45C with wind and it’s my only interesting story so I thought I’d bring it up here.



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