Family offices get ‘war chests’ for market swings, says Deutsche Bank
[LONDON] Family offices are building up credit lines to seize business opportunities and manage risk, said Deutsche Bank, highlighting the growing sophistication of investment firms for the mega-rich.
More than half of family offices see leverage as an important part of their investments, with about a quarter citing the topic as “strategic” in significance, Germany’s biggest lender found in a report published Wednesday (Oct 15). The report was based on a survey done this year of 209 money managers for the wealthy.
Even as trade tensions trigger volatility like Friday’s (Oct 10) US stocks rout, family offices are preparing better than in previous economic cycles.
This includes making long-term plans for credit lines that can re-balance portfolios and build “war chests” to pounce on favourable deals, said the report.
Real estate investments were the most common reason for the family offices questioned earlier this year for increasing leverage over the past 12 months, the survey said. About a third of the overall respondents said that leverage was not a consideration for their investments.
“Family offices are getting ready for a market opportunity,” Adam Russ, global head of wealth management and business lending at the Frankfurt-based firm’s private bank, said in an interview. “Overall, they’re being more proactive and institutional in their mindset to leverage.”
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Family offices are a booming area of finance that remain relatively unknown, even as their access to deep pools of capital make them increasingly involved in markets for buyouts, second-hand private equity and real estate. Some are even taking activist positions at listed companies.
As they usually serve a single or small group of clients, family offices are often able to be more nimble than other investors, though the growing size of the largest of that cohort means they now often have to behave, in some ways, more like institutional money managers.
At least a fifth of the world’s 500 richest people now have a family office, helping to preserve fortunes totalling more than US$4 trillion, based on the Bloomberg Billionaires Index.
Some of the largest family offices also often hire former executives from Wall Street firms and other institutional money managers, helping to advance their operations.
Ray Dalio’s namesake family office hired a JPMorgan Chase veteran this year as its deputy chief executive officer, adding another of the Wall Street giant’s long-time staffers to its top ranks.
UK billionaire Michael Spencer similarly recruited a onetime Schroders executive to lead his family office, IPGL, expanding the investing capabilities of the firm for one of Britain’s biggest fortunes.
“You can tell family offices have invested in talent,” Russ said. “I don’t see that trend stopping.” BLOOMBERG
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