The Family Office: A Practical Guide to Strategically and Operationally Managing Family Wealth

268 Pages·2018·3.48 MB·English

by  Boris Canessa

AA PPrraaccttiiccaall GGuuiiddee
to Strategically
and Operationally
Managing
Family Wealth
BORIS CANESSA
JENS ESCHER
ALEXANDER KOEBERLE-SCHMID
PETER PRELLER
CHRISTOPH WEBER
The Family Office
Boris Canessa • Jens Escher
Alexander Koeberle-Schmid
Peter Preller • Christoph Weber
The Family Office
A Practical Guide to Strategically and
Operationally Managing Family Wealth
Boris Canessa Jens Escher
Düsseldorf, Germany Duisburg, Germany
Alexander Koeberle-Schmid Peter Preller
Köln, Germany Bad Homburg, Germany
Christoph Weber
Essen, Germany
ISBN 978-3-319-99084-2 ISBN 978-3-319-99085-9 (eBook)
https://doi.org/10.1007/978-3-319-99085-9
Library of Congress Control Number: 2018955893
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Translator’s Preface
There is an old parable about the wise woman and a glass jar. She drops large
stones into the jar until no more will fit, and then asks a child whether the
container is full. “Yes, it is,” says the child. So the wise woman adds in smaller
rocks which tumble into the remaining spaces. When the child opines that
now the jar is full, the wise woman pours in pebbles, then sand, and finally
water. Each new material, smaller and finer than the one before, closes the
ever-shrinking gaps until truly the jar can hold no more.
As I helped shepherd this book from a focus on the German-speaking
world to a broader international outlook, I had that jar very much in mind.
Each of the five authors is a specialist in a field crucial to the operation of a
family office—law, family governance, leadership and succession and asset
analysis and investment. Their chapters serve the same function as those big
rocks, addressing the major weighty considerations that are involved with
establishing and operating a family office.
The numerous interviews in this book are the smaller rocks, helping to fill
the gaps that naturally arise between theory and practice. They contain
insights and considerations gleaned from real experience working or advising
a family office, building one from scratch, or being an owner of an established
family office.
The new final chapter of this book delivers the pebbles. It reflects two spe-
cific questions posed to each interview partner: Firstly, what are potential
traps that people face when looking to found or sustain a family office?
Secondly, what is the future of the family office? The answers sometimes con-
tradict each other, and that is fine. Real life contradicts itself sometimes as
well, especially as you move firmly into the realm of your own specific needs
and solutions.
v
vi Translator’s Preface
And the sand and water of our parable? That fine-grained knowledge is to
be provided by you and the generations that follow.
Königswinter, Germany Steven Sidore
Preface
The model of the family office dates back to medieval times. Its core function
was embodied by the figure of the majordomo, the highest-ranking servant
for a European house of nobility, entrusted to manage the house’s domestic
affairs. The first family office in the modern sense, the Morgan House, was
founded in 1838 by captain of industry J.P. Morgan to serve his family. The
office later took on the Vanderbilts, Guggenheims and DuPonts as clients,
evolving into the first multi family office.
The real breakthrough for the family office came in the 1980s, a period of
unprecedented wealth creation. Yet this had little to do with private jets,
yachts, holiday villas and imposing oak-paneled offices. Disenchanted with
the flaws inherent to commercial wealth management offerings, a growing
number of ultra high net worth individuals and entrepreneurial families—
first in the USA, then in Europe—simply began looking for alternatives.
Many saw the wisdom in Morgan’s choice to establish a separate, highly com-
petent “deputy” between the family and its financial service providers. These
new single family offices worked exclusively for their respective families to
preserve and expand the accumulated wealth for the generations to come.
Financial service providers did not fail to grasp the potential of this trend
as a potent business field for themselves. Wealth managers, larger auditing
firms and tax accountancies began developing their own in-house family
office-style service packages. Later, large financial institutions began offering
packages of services divorced from their classic private banking or wealth
management departments—the dawn of the commercial bank-bound multi
family office. Over time some of those providers withdrew from the market,
leading their former employees to found a wave of new, independent multi
vii
viii Preface
family office companies. These then served a clientele ranging from a handful
of families to a high two-digit number of families, all very individually and
hopefully free of conflict of interest.
The number of billionaires has grown sharply worldwide in recent years, with
especially powerful growth observed in China. For the first time in documented
history, 2017 counted more billionaires in Asia (637) than in the USA (563).
Driven by this ongoing global creation of affluence, the ranks of single family
offices have grown ceaselessly in recent years. At the same time, hundreds of
multi family offices have also arisen around the world, especially in Latin
America, the Middle East and Asia. With roughly $2.4 trillion expected to be
passed on to the next generation in the coming two decades, many affluent
families and wealthy individuals see real value in having a family office as a loyal
partner and competent advisor. They rest easier knowing they have an organiza-
tion working for them that can adapt to changing conditions and family dynam-
ics and scale as the family and its wealth grow more complex.
This book approaches the almost dizzying array of family office solutions as
its challenge and its mission. It was conceived as a forthcoming, transparent
and above all else practically minded introduction for affluent families in the
early stages of considering a family office. We, the five authors, are active prac-
titioners within the family office sphere, and some of us are also member-
owners of a family office. We try to write clearly and frankly about the
advantages and disadvantages of single family offices and multi family offices,
as well as classic bank-based wealth management without a family office. Our
goal at all times is to demystify the topic and lend courage for families to get
organized and undertake their first steps in this field.
The first edition of our book was written in German and aimed at the
German-speaking family office market. While a few books had already been
published on the topic, we felt collectively that those books were more aimed
at decision-makers at existing family offices or family officers looking to
deepen their technical knowledge. What was missing was an introductory
book for those who had sensed the issue of ‘conflicts of interests’ in dealing
with banks and other external consultants, yet lacked even the right questions
to begin a serious exploration of setting up an institution of their own, or
joining an existing one. The strong positive feedback we received showed that
our approach was warranted.
This second edition has been revised and updated to reflect the broader inter-
national market. The material has been grouped into three informal sections:
Part I: Family Office Fundamentals (Chaps. 1–3),
Part II: Family Office Tasks and Strategies (Chaps. 4–9),
Part III: Family Office Governance (Chaps. 10–14).
Preface ix
Some chapters have been rewritten entirely, others supplemented to appeal
outside Germany. Facts and figures have been refreshed. New trends on the
market have been incorporated. Many new interviews were conducted with
partners serving families from the Middle East, Africa, the US, Canada,
Mexico and Europe. We would like to thank all those family members and
family officers who spoke frankly and openly about their individual family
offices and their approach. We collected our observations together in this
book because we believe that sharing knowledge benefits both the field and
the families in it. We are grateful that our many interview partners chose to
join in this mission.
Special thanks go to Steven Sidore of In-Tense Translation for preparing this
manuscript. Mr. Sidore did much more than simply translate the German ver-
sion into English; he edited, restructured, re-wrote and drafted new chapters to
break them out of their ‘German’ mindset and ensure that they would speak to
a broad audience. He also supported and transcribed the book’s many inter-
views. Without him, this book would not have been published in this format.
Our thanks also go out to Palgrave Macmillan for agreeing to publish this
second international edition, and to our editors Ms. Tula Weis and Mr. Joseph
Johnson for their steady support. We also thank Ms. Stefanie Winter from
Springer Gabler who published the first edition of this book.
And of course our thanks go out to you, our readers, for putting your trust
in our insights. We believe this work will educate without overloading—and
open the door for you to start asking the right questions of your own advisors
and planning a solid foundation for this and future generations. For this, we
wish you all the best.
Düsseldorf, Germany Boris Canessa
Duisburg, Germany Jens Escher
Köln, Germany Alexander Koeberle-Schmid
Bad Homburg, Germany Peter Preller
Essen, Germany Christoph Weber
Contents
1 What is a Family Office? 1
Boris Canessa, Christoph Weber, and Alexander Koeberle-Schmid
1.1 W hy a Family Office Makes Sense 1
1.2 R easons for Founding a Family Office 4
1.3 E xpectations of the Family Office 7
2 How is a Family Office Structured? 11
Christoph Weber, Boris Canessa, and Alexander Koeberle-Schmid
2.1 Th e Development of the Family Office: From Part of a
Firm to a Separate Entity 11
2.2 S tructures and Models of Family Office 15
From the United Kingdom: “I think, for me, if I had capital at
that level, I’d find it empowering.” 23
Interview with Simon Foster
3 What are the Fundamental Success Factors for a Family
Office? 31
Boris Canessa, Christoph Weber, and Alexander Koeberle-Schmid
3.1 F ounding a Single Family Office: How Much Money is
Needed? 31
3.2 S uccess Factors for a Single Family Office 37
3.3 Founding a Closed Multi Family Office 39
3.4 Success Factors for a Multi Family Office 46
From Germany: “A family office will sink or swim based on
the qualifications and aptitudes of its personnel.” 53
Interview with Klaus Kuder
xi