Cut-Rate Family Office By Robert Milburn As the single family office industry consolidates, surviving single family offices are hanging on by slashing pricey overhead. One way is to hire outside investment teams and many single family offices are availing themselves of this outsourcing option. One of the winners of this trend is wealth manager Pittsburgh-based Greycourt & Co in Pittsburgh. Prior to 2010, Greycourt was primarily a consultant to family offices, merely advising on portfolio decisions. Greycourt advises on $9.2 billion in client assets. The firm, with 41 employees, has 70 client relationships, both wealthy individuals and institutions, with an average account of about $130 million. Greycourt charges a minimum annual fee of $200,000 on discretionary assets and $125,000 on non-discretionary. That fee can be negotiated. Pittsburgh Skyline But the financial crisis upended that business model. Now, says Greycourt’s founder, Gregory Curtis , 70% of new clients coming through the doors are looking for an outsourced CIO. “During the financial crisis, wealthy families were either panicking or frozen,” he says. Investment teams were understaffed and barely able to keep up with the fast collapsing financial markets. Portfolios were indiscriminately battered and wealthy families grew increasingly leery of complicated and costly investment strategies like hedge funds, which were pitched as stable ballasts but inevitably stumbled along with the market. So the emerging practice of outsourcing a family’s investment picks gathered in earnest after the financial crisis, when costly Dodd-Frank regulatory requirements also added on significant overhead costs. As Penta has noted before, the annual cost of running a $100 million family office is 1% of assets annually, about four or five times more expensive than running, say, $1 billion. That is a high hurdle to clear for smaller family offices, says Bob Casey senior managing director of research for The Family Wealth Alliance, especially when real Treasury yields are essentially zero. “It’s treacherous to try to preserve the family’s real purchasing power in this environment, where traditional, conservative investments alone don’t keep your head above water,” he says. According to a Family Wealth Alliance survey, half of single family offices with $100 million to $500 million in assets now think they lack sufficient expertise to analyze investments themselves. That explains why two-thirds of family offices below $100 million now use external CIOs. An outsourced chief investment officer allows the family to maintain the same level of control over assets while shedding the family office of the added internal expense. That allows wealthy folks to focus their attention on the performance numbers, obscuring the day-to-day investment policy debate, says Casey. Greycourt, watching all this unfold, pounced on the opportunity. The firm debated internally about how best to serve these new clients coming through the door with less than $30 million in asset but wanting more than just advisory services. To keep up with all the new demand, Greycourt’s Curtis finally opened up the Greycourt Partners Fund to clients in 2010. The fund was originally created to invest on behalf of the firm’s partners, but was adapted for Greycourt’s newer clientele looking for active managers rather than just hand-holders. The Greycourt Partners fund invests in stocks, hedge funds, credit and opportunistically in high yield fixed income, after which Greycourt fills in the rest of a portfolio’s typical asset allocation mix. So if a client had say $30 million, $20 million could be put in the fund and the remainder in bonds and private equity and private real estate. It’s easy to see the attraction. With the partners’ wealth invested alongside that of clients, the clients can sleep easy that Greycourt’s management will vigilantly monitor the fund. The fee to invest starts at 100 basis points but can be negotiated. The average client pays between 50 and 75 basis points. Greycourt will not disclose the fund’s performance which has yet to go through a bear market.
Posted on: Tue, 08 Jul 2014 04:09:32 +0000
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