The business of running family offices money is becoming more professionalised, a recently-hired CIO of a UK-based organisation says.
The independent and family office segment of the wealth sector is becoming increasingly professionalised. Clients demand a more sophisticated and transparent offering, a recently-appointed chief investment officer argues.
Capricorn Private Investments, the private investment office of the Capricorn Group, a family-owned investment business, recently recruited Manoj Soni as its chief investment officer. He was previously managing director and head of Credit and Absolute Return at Partners Capital in London.
“More and more sophisticated families are moving capital away from the banks. Many feel big organisations are just too bureaucratic to offer personal, tailored services. The banks can also have conflicts of interest when it comes to the investment solutions they suggest. Consequently, the trend is for families to move capital towards independents or their own operations. One good recent example is Talisman (the Pears Family Office) hiring the senior team from Cambridge University Endowment Fund,” Soni told WealthBriefing in an interview.
“We feel the investment landscape has shifted dramatically in recent years, driven by a number of factors such as technology change and the sheer increase in the level of assets under management in areas such as hedge funds and private equity,” Soni continued. “The growth of the internet and cloud computing leading to improved data dissemination and analysis, combined with other drivers such as large increases globally in the number of finance professionals, has led to a much tougher environment to generate excess returns not only in more traditional asset classes such as listed equities, but also areas that were once considered alternative such as mainstream private equity and hedge funds,” he said.
“Therefore, it makes sense to take certain exposures via a cheaper passive approach – for example large-cap US equities or government bonds are better held via low-cost passives. We don’t see this trend reversing, and so ETFs or passive funds will be a critical tool for us” he said.
“We believe in combining that core of low cost passive beta in equity and fixed income markets with idiosyncratic alpha-generating opportunities, such as Capricorn and third-party led co-investment deals. We have, for example, recently partnered with a well-known technology entrepreneur to seed a venture capital fund targeting disruptive technology businesses in the UK, Europe and Israel. We have also made direct private equity investments alongside our cornerstone partners in both early stage deals and more mature co-investments with larger financial sponsors like Apollo and Blackstone where we have preferential access,” Soni said.
“The team also spends a lot of time meeting specialist third-party managers in less trafficked areas of private credit, venture capital and private equity. For example, we have invested in a life settlements fund in the US, and are considering options in others areas where liquidity constraints drive up potential returns (e.g. litigation finance and lending to LPs who have committed capital to illiquid private equity programmes),” he said.
Given Capricorn’s business model, an issue that arises is how do managers sift through the array of funds and investment opportunities seeking to catch their eye?
“When we do meet managers we look for things such as a strong demonstration of alignment from the manager. We also look to cross-reference managers with investors who are similar to us (indeed many opportunities come via our network), and managers who charge clear and fair fees. It is a challenge finding appropriate managers or opportunities given where we are in the cycle. The talent does still exist, but many asset classes are fully valued which limits future returns right now,” he said.
CPI advises on about $350 million of capital from its cornerstone clients. Soni said that the majority of their families have total assets of between $25 million and $250 million. These are “big enough to be meaningful, but not necessarily big enough to hire their own investment team. For example, we are talking to a number of entrepreneurs who have recently sold businesses where we are essentially playing the role of their `Outsourced Family Office’ allowing them to concentrate on their core business which is what they do best,” he said.
A question such firms face is how scalable they are without losing that personal touch. Soni said Capricorn aims to maintain 20 to 25 deep relationships of “meaningful size”. “Scale for its own sake is not an objective,” he said.
With Soni’s arrival, CPI is now extending its offering to a larger group of private investors and families with whom they are aligned in goals and values.
Those values are critical to the team, Soni said, adding that CPI’s “very strong family office culture of partnership, trust, transparency and patience” were the main reasons he joined the firm and he thinks that they will stand it in good stead in the future.