Every family has its pain points. For large multigenerational families, the key question is whether they can identify and resolve them, Dirk Jungé, chairman of Pitcairn, believes.
Back in the early 1980s, the Pitcairn family office faced a perfect storm. At that point, 50% of Pitcairn’s assets were in the stock of PPG Industries, the plate glass and paint company co-founded by John Pitcairn in 1883 and the primary source of the family fortune. Another 30% was in publicly traded stocks. The remainder was in venture capital, oil and gas investments, real estate and car leasing dealerships.
Fourth and fifth generations of Pitcairns were becoming adults, swelling the clan’s ranks to more than 300 people. While the company had always paid dividends to family shareholders, many in the younger generations wanted more liquid investments. With sweeping changes to the tax laws looming, it began a series of restructurings—some of which were to take advantage of capital gains tax laws at the time—that resulted in Pitcairn liquidating its holding company and selling the nearly 15% stake it still held in PPG Industries.
The holding company also decided to liquidate at that time partly to take advantage of the way property sales were recognized. The tax code was about to change under the Tax Reform Act of 1986 and the company had a window of only 15 months to act. “It allowed us to liquefy the assets for the family and enter a new relationship with members of the Pitcairn family which is called ‘free association.’ If their assets are now freed up, they [could] decide whether they want to stay or they want to go,” says Jungé, a fourth-generation Pitcairn.
Many stayed, but many left. Painful and arduous as the process was, the experience provided Pitcairn unique insights into complex multigenerational wealth transfers, giving it the ability to see around corners and anticipate problems other affluent families could not envision.
“The family office really had to shift gears,” says Leslie Voth, who succeeded Jungé as Pitcairn’s CEO in 2012. “We as a family office had to work with each household to understand there’s no more operating business, this is what you’ve inherited; it’s a combination of trust assets and partnerships—some things collective and some things individual.”
Thomas Livergood, CEO and founder of the Family Wealth Alliance, commends Pitcairn for surviving their rocky period in the 1980s, when the company sold its stake in PPG. “Some families stubbornly hang on to their family-origin stock and for too long. The Pitcairns made a tough call and got it right,” he says, noting that selling family-origin stock is always a momentous occasion for a family. “I doubt it was a unanimous decision. Having said that, they did decide as one voice, which is quite commendable and not all that common that they held together on this critical move.”
American economic history is riddled with tales of families going from shirtsleeves to shirtsleeves in a few generations. Take the famously wealthy Vanderbilts. When they held a family reunion for 120 members at Vanderbilt University in 1973, there were said to be no millionaires left. Today, the Pitcairn family’s wealth has not only made it past the second and third generations intact, they’ve now reached the sixth—with 672 family members. They now capitalize on that success to help other clans through their multifamily office, organized as a trust company known simply as “Pitcairn.”
Back in 1987, Jungé was enthusiastic about the conversion to a multifamily office (MFO) format. Pitcairn had been networking informally with other family offices for decades. As some of the country’s big industrial families began to struggle or meet challenges, they would call Pitcairn for advice. “A steady stream of families that either had a single-family office or were thinking of launching one would say can you help us?” Jungé says. Given the scalability of Pitcairn’s resources, management was confident there would be a market for its services.
Launched in 1923 by John Pitcairn’s three sons—each of whom had nine children—the MFO has been growing its non-family business ever since 1987. It currently serves 41 multigenerational families and 110 families, outside of the Pitcairn family. Less than 30% of its revenue now comes from Pitcairn family assets.
It offers estate planning, trust and asset management, tax counsel, accounting, insurance and financial planning specially crafted for its wealthy family clients. The minimum investment is $10 million, though for the firm to provide a full array of family office services, it looks for families with at least $50 million in net worth. The average client falls somewhere in between, with about $36 million in assets. Currently, the firm has $4.1 billion of assets under advisement.
Open Architecture Investing
Almost a decade ago, the firm initiated another major change, jettisoning its in-house investment management unit, Pitcairn Investment Management, after using both proprietary and outside investment solutions for decades. “We decided as a family office, in order to offer fair advice, to have a proprietary investment product wasn’t very objective,” Jungé says.
The move to open architecture aligned the firm more closely with the families it serves, says Rick Pitcairn, chief investment officer. “I felt then, and I feel now, that it’s really hard to be an advisor to these large firms where you’re trying to sell a product at the same time,” says Pitcairn, who joined the firm in 2003 after spending his career as a long-only, large-cap equity partner at another firm. “I think once you get to those larger families that we specialize in serving, the ability to be a dispassionate advisor rather than selling them a product is an important thing.”
Many firms in the MFO arena want to transition away from the AUM model and become conflict-free. But they can’t because the revenue loss associated with eliminating proprietary asset management would be too big, he says. Families working with Pitcairn typically pay annual fees of between $125,000 and $150,000, though precise amounts vary.