Author: Edward Marshall (Dentons) and Brian Adams (Excelsior Capital)
Synopsis (From Dentons)
Edward Marshall is joined by Brian Adams, president, and founder of Excelsior Capital. Brian leads the investor relations and capital markets arms of Excelsior. Brian has extensive experience in real estate private equity. Prior to forming Excelsior Capital, Brian co-founded Priam Properties, an institutional real estate private equity sponsor. Brian and Edward discuss the current state of the family office ecosystem on a global level, including tips for the NextGen to successfully maintain the family office structure, how to choose family office solutions and advisors, and how to develop the requisite culture needed to ensure that the family office attains its goals.
Hall Road Highlights:
Trends - baby boomer to millennial transfer shift is starting to occur in real time Senior family members starting to take a step back from running the investment office.
Transfer to a MFO platform, what was the reasons and external factors.
The reasons G1 starts the family office and how that has changed in the next generation with G2/G3 never having been asked to participate and therefore seeking more turnkey solutions without the need to manage the day to day.
Increased use of external managers where once the portfolio was run in house. The RFP process to find the right external partners
Suppliers that will be with the family for the long term, to reflect their personal backgrounds rather than the first generation.
Noted the small number of counterparties seeking a partnership model, coupled with the family’s lack of desire to become a counterparty for a wire-house.
When searching for a MFO or adviser, avoid the pitfalls of singular ownership structures (key person risk), wrong demographic (not matching the family’s age, shared experience and values).
Families should look at when choosing a MFO - focus on the culture of the firm (ask for referrals, understand the strategy), what is the DNA (wirehouse vs endowment), what is the technology piece (best in class reporting, cyber security, communication), think about your experience (investments seem to be the same, concentrate on interaction), qualitative issues seem to be the ones that blow families up.
Would you consider an admin only MFO offering that didn't have investments? Under one roof works better for them. It's hard when the investments and admin aren't under the same roof.
How do you work across the 3 generations? It's a challenge - encouraging entrepreneurship. Managing inflation, spend rate (4%), need to be clipping north of 10% net returns which is very hard over the long term, couple that with running a small business.
Tracking diverse personalities.
How do you encourage this growth in every generation? It's not easy. The best thing we have done is show the family partnership is there to allow them to take risk. Also to qualify what success means, and to avoid benchmarking to the outsized returns of the G1 business.
Make sure it's not just about the money, it can be for good or evil. Make sure you be mindful.
Culture - how do you manage the culture of the family? Shared experiences, getting outside the day to day. Third party facilitators in an external setting.
In the book "Thin Green Line" - Paul Sullivan reflects on the value of certain benchmarks. Avoid the Hedonic treadmill which is a theme for this family office.
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