The founder and CEO of a digital platform built by family office and asset management figures talks to this publication about some of the challenges, problems and solutions that he thinks the industry needs.
The alternative route
This publication asked Tanqueray about the trend of family offices being encouraged from different sides to go into areas such as alternative investments (hedge funds, private equity, venture, infrastructure, real estate). This can raise challenges in terms of performance reporting, as well as objectively comparing results. What is his approach?
“This is typically what we are solving from a limited partner perspective by leveraging on the community aspects with our portfolio lab. By enabling users to anonymously share underlying investment data in return for such metrics. We are also working with traditional accounting aggregators to feed us with data. And by scraping the web, to retrieve such data and clean it by crossing it with multiple sources,” he said.
This news service also asked Tanqueray if family offices should outsource more of their investment functions.
“As the Dutch proverb says, `measuring is to know’. This the first thing you need to secure and be able to do before any such decision. Otherwise, it is driving blind and intoxicated: you have given yourself up to uncontrollable fate,” he said.
“This being said, most family offices do not have the budget, the size or the leadership skills to manage, scale and recoup the cost of big teams. So outsourcing is something most of them need to do. So, they need to have strict selection and monitoring plans that are robust and responsive to avoid being caught in fire when it is too late, as many were in 2007 (money markets), 2008 (Lehman) and 2009 (Madoff). By the same token, they need to use their network and help negotiate better terms with punitive compensation plan when their providers fail to adhere to agreed key performance indicators set forth in sound service level agreements. For as long as family offices work on their own, they undermine their bargaining power,” Tanqueray continued.
“By the same token, asset owners should have such service level agreements in places too as I have come across too many players who are too complacent with the lack of robustness their monitoring processes exhibit (such as manual, low quantifications…),” he said.
The family office world shares with many mid-sized pension funds the habit of relying on third parties to fulfil their fiduciary duties on their behalf, he added.
Tanqueray agrees with the suggestion that the term “family office” is used too loosely these days, which hampers effective benchmarking of performance and costs.
“Many so-called family offices are in fact family-sponsored fund distribution businesses. Like initially though for pension fund consultants, family offices are here to protect and take care of what family members are unwilling or not skilled enough to perform by themselves. It is a business per se. As soon as it has something else to sell, there is a vested interest of the same nature as the one the UK’s CMA pointed out when reviewing pension fund consultants,” he said.
As the year gets under way, Tanqueray set out a few points he thinks wealth industry practitioners and clients should take on board:
-- Chasing returns is costly. One will end up competing with the flow makers aka the big banks who spend hundreds of millions to know anything ahead of everyone else by now millisecond standards. Anyone else will lose. The best approach is instead to think strategically;
-- Being wealthy is a business per se. Only those who handle their wealth as rigorously, productively and impactfully as they handled their business, have the highest chances to avert the Buddenbrooks curse (referring to the Thomas Mann story of a German family that lost its fortune over generations);
-- Socially adverse things happen because we all collectively let them happen, regardless of where we stand on the ladder. Our indifference is our worst enemy;
-- It is time for all asset allocators to realise that investing is an information business. It is not a matter of being awash with plenty of information but rather how we process it. And be prepared to share it; and
-- As we never know what we actually do know or do not know. Anything else is heuristics and cognitive-biases prone. Quite an issue when we are in charge of growing or preserving capital for the next generations.