Understanding Disparate SFOs Key To Doing Business With Them

Hedge funds and alternative investments in general have become increasingly popular with single-family offices, which today rely almost exclusively on external investment managers, according to a recent report. Mounting interest in the space has a lot of wealth firms marketing themselves as family office providers, with sometimes confusing results-a development that has prompted one single-family office head to call for a more consultative approach between investment manager and SFO.

Raising Capital from Single-Family Offices - Considerations for Financial Firms, published by The Rothstein Kass Family Office Group, a division of Rothstein Kass, which serves high-net-worth individuals and families as well as privately held and publicly traded companies, examines the evolving relationship between the SFO and investment management sectors. The report, co-authored by Forbes Insights and Russ Alan Prince, an authority on private wealth, features the findings of an early Q1 2011 survey of 151 executive directors at SFO operations for their perspectives on how their businesses are run and what impacts them the most.

About 85% of survey participants currently invest in hedge funds, with nearly 90% saying they are "highly likely" to place additional money into hedge funds this year. The most popular strategies are long/short equity (53%), distressed (49%), arbitrage (33%), managed futures (25%), and global macro (25%). About half of those surveyed reported "active" private equity sector investments, with nearly 70% planning to increase allocations in 2011. Private equity investment preferences include established companies (59%), mezzanine financing (39%) and second-round financing (32%)

While roughly 22% of survey participants indicated having internal investment management capacity, the majority said they rely on external investment management professionals. The report notes that mean investable assets of SFOs stand at roughly $416 million in 2011, up from approximately $236 million in 2010, and references earlier proprietary research demonstrating that SFOs are increasingly appealing sources of capital to investment managers and investment bankers.

"One of the greatest challenges in understanding the single-family office sector arises in defining its scope," said Rick Flynn, head of the Rothstein Kass Family Office Group. He explained that wealth managers who market themselves as family office providers have contributed much to the disparate notions held by clients of what SFOs can and should do on their behalf. With this in mind he recommends a "unified approach" to wealth management, and sees-as do many high-net-worth individuals and families, according to the report-the SFO as being "ideally suited" to manage various interrelated functions (which the report delineates) within a centralized structure.

The most successful ventures recognized that the SFO "executive director," serving as a quarterback for the entire wealth management team, internal and external, is critical to cohesive management, the report noted. "More frequently, this individual is exerting greater influence regarding investment decisions and due diligence processes," said Flynn. "As a result, investment managers seeking to raise capital from the single-family office community are best-served by adopting a consultative approach-one that considers investment orientation alongside long-term objectives to gain insight into the 'professional ecosystem' at work."
For further information, go to www.rkco.com.

Bank of America Merrill Lynch and the World Bank plan to offer World Bank Green Bonds to Merrill Lynch wealth management investors on a periodic basis-the first were launched in the second quarter of 2011-through the Merrill Lynch Global wealth management platform. The bonds are designed to give investors an opportunity to support environmental solutions through a fixed-income investment that supports World Bank's financing of projects in its member countries that meet specific criteria for low carbon development. According to BofA, the bonds, due to mature on May 24, 2021, pay a 3.5% coupon for the first year that switches to a floating three-month USD-Libor based coupon after one year.

 

In 2010 annual compensation across a sample of 600 CEOs increased by 18%, while realized compensation-which includes equity profits as well as annual pay-increased by 28%, according to the 2011 Preliminary CEO Pay Survey recently published by GovernanceMetrics International. At the same time annual compensation at S&P 500 companies increased by as much as 35%, in large measure attributable to equity granted to executives, noted Greg Ruel, a co-author of the report. In addition to finding that the percentage of CEOs who exercised stock options rose to 34%, the report also found that cash bonuses for the highest-paid CEOs were three times the pre-recession levels. To see the full report, go to www2.gmiratings.com.

Executive compensation at the nation's top 100 publicly traded real estate companies reached five-year highs for 2010, eclipsing pre-recession 2006 peak levels by 13%, according to FPL Associates' 9th annual review of (2011) public filings across the public real estate industry. Annual median CEO total compensation at the largest public real estate companies was $3.4 million in 2010, just over 10% higher than the 2006 peak-level median total compensation of $3.1 million; and 2010 CEO compensation was 26% higher than the 2009 level of $2.7 million, according to the report. FPL Associates, a unit of Chicago-based FPL Advisory Group, provides specialized compensation and management consulting services. Go to www.fplassociates.com for further information.

In the wake of the Wall Street scandals, wealthy investors and affluent retirees are asking some tough questions about financial planning. Is my financial advisor trustworthy, objective, competent? For answers to these questions, the National Alliance of Objective Financial Advisors, based in Pleasanton, Calif., has created what they deem the most stringent due diligence process in the financial advisory industry, and published some of their findings in "15 Questions You Must Ask to Assure Your Financial Advisor Is Protecting Your Best Interests." For information about the new organization and a free copy of their report, go to www.objectivefinancialadvisors.com.

The Financial Planning Association has released Trends in Investing Special Report, which focuses on trends in investing utilized by financial professionals along with an accompanying whitepaper detailing the findings. The research found that use of exchange-traded funds continues to soar, with three of every four advisors using/recommending ETFs with clients. Other key finding show that that nearly half of advisors outsource some portion of their investment management (those who do typically outsource less than half of their clients' assets); nearly a third use separately managed accounts; about one quarter use turnkey asset management programs; and 57% report not outsource investment management for any of their clients. To see the full report, go to www.fpanet.org/professionals/member/downloads/2011TrendsinInvestingWhitepaper.pdf.

Responsible Research, a Singapore-based provider of environmental, social, and corporate governance research for sustainable investors in Asia, has released a report examining the current state of impact investing in emerging markets. (Impact investment strategies are said to range from the simple return of investment capital to offering market rate or even competitive market financial terms to investors.) Acknowledging that "philanthropic activities cannot alone provide solutions to the challenges our world faces," the report focuses on those strategies that seek at least a market return on investment, and provides case studies of business models in six sectors. Go to www.responsibleresearch.com for further information.

To address the financial needs of lesbian, gay, bisexual, and transgender (LGBT) couples and domestic partners, Morgan Stanley Smith Barney (www.morganstanleysmithbarney.com) has created a series of wealth planning symposiums available via podcast for use by financial advisors and their clients which include an overview of legislative and economic topics affecting the LGBT community. Wealth planning information is presented by Alan Wolberg, MSSB's executive director in Wealth Advisory Services. Symposiums will be held June 22 in Menlo Park, Calif.; July 21 in Rehoboth Beach, Del.; and July 26 in Minneapolis, Minn. E-mail [email protected] for information about the investment symposiums; contact a MSSB financial advisor regarding the podcasts.

Investors have scaled back risk-taking in the past month, reducing exposure to equities and commodities while upping allocations to cash and bonds, according to the BofA Merrill Lynch Survey of Fund Managers for June, conducted with researcher TNS (www.tnsglobal.com) which culled data from 199 fund managers managing a total of US$634 billion for the global portion of the survey. The net percentage overweight equities fell to 27% from 41% in May, with Europe leading the way; a net 18% of asset allocators are now overweight cash, which represents the highest cash overweight level since June 2010, according to the survey, and the proportion of investors taking lower-than-average risk across their portfolios has risen to a net 26% from a net 15% in May. For further information, go to BofA Merrill Lynch Global Research at www.ml.com/index.asp?id=7695_8137.

Shelton Capital Management, an institutional investment management firm based in San Francisco, and Nikko Asset Management Co., Ltd., an Asian investment management company headquartered in Tokyo with more than $150 billion AUM, will act as investment advisor and sub advisor, respectively, to the Shelton Greater China Fund, according to Shelton. The U.S.-based mutual fund, known formerly as the Taiwan Greater China Fund, seeks long-term capital appreciation and normally invests its assets in equity securities of companies located in China, Hong Kong, Singapore, or Taiwan-companies that have the majority of their exposure and investments in the Greater China region. Go to www.sheltoncap.com or http://en.nikkoam.com for further information.

Events
The Italian-American non-profit organization Bridges to Italy, in conjunction with the angel investment network Tech Coast Angels, will hold a conference on June 20 in Italy at the University of Calabria (Rende) to raise awareness among international angel investors and venture capitalists of Southern Italy's high-tech potential. Go to www.bridgestoitaly.org for further information.

The Family Office Exchange Web conference "Explore the Options: SEC Compliance and Family Offices" will be held on June 29. For information contact Jennifer Muntz at 312-327-1211.

The First Financial Security Inc. National Convention will be held on July 29 in Atlanta. The featured keynote speaker is Herman Cain, former CEO of Godfather's Pizza and candidate for the GOP presidential nomination in 2012. Go to www.firstfinancialsecurity.com for further information.

MarketCounsel's 2011 Member Summit will be held on October 12 - 14 at the Biltmore Hotel in Coral Gables, Fla. Tom Bradley, president of TD Ameritrade Institutional, and Mark Tibergien, CEO of Pershing Advisor Solutions, will be keynote speakers. Go to www.mcsummit.com for further information.
The 7th Annual RoboBusiness 2011 Leadership Summit, created for investors, developers, and others interested in robotics products, will be held on November 2 - 3 at the Sheraton Boston Hotel in Boston. For sponsorship opportunities contact Rich Erb at [email protected]; for general information go to www.robobusiness.com.

On the Move
Hawthorn, a member of The PNC Financial Services Group Inc. that serves ultra-high-net worth individuals and families, has hired Jennifer Dempsey Fox as a senior vice president, senior relationship manager, and leader of the relationship management function for Hawthorn's Philadelphia office. Previously, Fox worked at J.P. Morgan's Private Wealth Management group in Philadelphia.

San Francisco-based Union Bank, N.A. has hired Dennis J. Mooradian as an executive vice president to lead the company's Wealth Markets division, which includes The Private Bank, Union's asset management subsidiary HighMark Capital Management, Inc., and the brokerage subsidiary UnionBanc Investment Services, LLC. Previously, Mooradian served as executive vice president heading wealth and institutional management for Comerica Incorporated.
Affiliated Managers Group, Inc., a global asset management company headquartered in Boston, has appointed John W. Copeland III as president of AMG Wealth Partners, a newly formed subsidiary of AMG focusing on investments in boutique wealth management firms. Copeland, a former senior partner for one of Morgan Stanley's largest private wealth management teams and a managing director at Lehman Brothers' Private Investment Management division, will be based at Wealth Partners' office in West Palm Beach, Fla.

Pimco founder Bill Gross is selling the sandy lot in exclusive Newport, California's Harbor Island upon which sat his $23 million, 11,000-square-foot house, before he tore it down after living in it for just two years, for an asking price of $26.5 million, according to the Orange Country Business Journal.

CCH Trust Services, Kennesaw, Ga., has appointed Patrick Alyward as general manager of Trust US, a tax compliance system for bank trust departments and other wealth management organizations that prepare and electronically file trust tax returns. In this position, Alyward, a former executive vice president and director of client services for PNC Bank, is responsible for the overall Trust US product strategy, sales, and development.

Jason Stephens, senior vice president investments, and The Stephens Wealth Management Group, Naples, Fla., have joined the newly opened UBS Private Wealth Management office there.

Bessemer Trust has named Kennen Hagen managing director and head of its San Francisco office, responsible for wealth management services for clients in northern California and the Pacific Northwest. Previously, Hagen was an independent advisor to private equity firms, the founder and managing partner of Lakeside Capital, and a senior telecom executive.