Buyside Breakdown Part 3: Family Offices

Part 2: Family Offices

Family offices are an important buyside segment, owning a significant portion of global assets¹. It is estimated that family offices control over six trillion dollars in capital worldwide². With the cash and ability to choose investments, family office targeting should be considered in any investor relations program. They are known to target companies for investment³ and tend to look for long-term investments⁴. Family offices may have certain investment theories, favour certain equity sectors, or like specific geographies, so uncovering these preferences can aid in targeting this buyside segment. They are also less encumbered by rules that institutional investors might be bound by⁵. However, to paint family offices with a broad brush would be flawed; as there is a saying, “when you know one family office, you know one family office”, indicating the need to research and nurture these relationships⁶.

Why Family Offices Matter

Buying Power

With $6 trillion in capital, family offices have more buying power than all hedge funds globally². Although family office assets tend to invest in funds, there is a growing trend of investing directly in target companies¹. Generally, they also lean towards long-term investment periods, which can make them great capital partners. Family offices also tend to stick with their investment through a cycle rather than being opportunistic. This is because they are not under pressure from shareholders or clients with regards to yields⁵.

Influence

Each family office has different investment styles but the key thing is they make their own rules. While they may be very price-conscious, family offices have fewer restrictions on how they invest. For example, as reported in the UBS Global Family Office Report 2023, family offices prefer active management, with 35% of offices relying more on investment manager selection and active management to enhance diversification. In the same report, those surveyed said that over the next five years, they foresee greater allocation to risk assets, with 34% planning increases in emerging market equities¹¹.

In a recent EY paper, their research indicates that family offices have interest in technology start-ups, noting fintech, biotech and e-commerce as areas of interest³.

The next generation of family office members also exert influence by looking at long-term investment strategies³. EY notes a preference for ESG-related investments, including those that can illustrate social impact³.

How to Identify Family Offices Shareholders

Identifying family office ownership in a company is not easy. It can rely on the direct relationships that are built with family offices. Building long-term, trusted relationships with family offices can provide insight into possible holdings. However, if an individual family office has significant holdings in an equity’s shares, they may come under Canada’s National Instrument 55-104 definition of a significant shareholder, and would be required to report their holdings¹². In brief, the entity would need to own, directly or indirectly, 10 percent of the voting rights attached to the issuer’s outstanding voting shares¹². Similar rules for reporting significant holdings exist in the US as mandated by the SEC.

How to Engage and Target Family Offices

Having an In

Family offices rarely accept meetings from unknown entities¹³, begging the question, how do issuers get introduced to family offices? One way is through family office conferences or investor days. From TSX/TSXV own experiences and feedback from these events, it is where decision-makers typically gather to identify deal flow, learn about recent market and industry trends, attend educational sessions and network with other family offices to exchange experiences and learnings. Organizations, like International Deal Gateway (IDG), that can help companies get introduced to family offices because they have built trust with family offices. TSX has worked with both IDG and Global Partnership Family Offices (GPFO) to offer issuers the opportunity to present to family office members.

Outside of the organized investment-driven events, attempting to network at philanthropic galas, Alma Mater events, and sports or social clubs, are ways to get introduced to family office members or their consiglieres, like wealth management professionals, private bankers, accountants, or estate attorneys¹³. Recently in an article by Spears, “intro-fluencers” have emerged on social media platforms². They claim to be able to make connections to family offices. Their services can range from pitch coaching, to information on family offices, to some claiming access to contact details². However family office advisors are entrusted to guard against unsolicited proposals, therefore companies should thoroughly vet intro-influencer individuals or firms².

Who’s Who and do you Fit?

Family offices are known for being opaque. The essence of family office shareholder engagement is understanding who in the family office you are speaking with, are they executives or principals. Also it is important to understand their process; for example, does the office have an investment committee?⁵ Evidence suggests that women who lead family offices are more likely to make investment decisions that align with their values on sustainability, community support and gender diversity¹⁴. It is therefore important to know who makes decisions because it might underline a family offices’ investment philosophy.

Companies who have a better understanding of the family offices investment interest can then assess whether or not they fit the investment thesis. As mentioned, trends across family offices can be summarized as “performance with a purpose”, based on the trend towards active, growth-oriented and sustainable investing⁹. Multiplied across significant investment positions that family offices hold, this could continue the upward trend of ESG investment considerations¹⁴.

In a recent Broadridge Advisory study¹⁵, participating family offices noted their top concern for 2024 to be geopolitics. Keeping this in mind, companies should consider before engaging with this buyside group whether their operations and value chain are negatively affected by current geopolitical situations.

Corporate Access and Building Trust

Family offices want access to senior management. And senior management should lead the relationship building efforts⁵. Partnered with corporate access is the need to build trust. One way to build trust is through transparency¹⁶. Since family offices look for long term investments, it is worthwhile being earnest in your delivery since they are often not looking for a quick exit.

Patience is a virtue

Family offices are relationship driven so it is important to be patient with the engagement. It may take time to understand a family’s investment philosophy and generally there is a distaste for frequent and persistent targeting, but quarterly updates are welcome⁵. Family offices often have very small teams dealing with many investments. Decision timelines and due diligence processes can vary greatly⁵. Their wealth can be described as patient capital, reinforcing their tendency towards long, sustainable growth for their investments; but it can equally describe what issuers need to be when dealing with this buyside segment¹⁷.

Footnotes

1. The Influence of Family-Owned Businesses by Share of GDP, Visual Capitalist, Dorothy Neufeld, December 20, 2023,
   https://www.visualcapitalist.com/family-owned-businesses-by-share-of-gdp/?utm_source=substack&utm_medium=email.

2. How ‘intro-fluencers' are looking to profit from family offices, Spear Publishing Ltd, Robert Jackman, October 12, 2023,
   https://spearswms.com/wealth/how-intro-fluencers-are-looking-to-profit-from-family-offices/?utm_source=substack&utm_medium=email.

3. Are you harnessing the growth and resilience of private capital?, Ernst & Young Global Limited, Ryan Burke, April 4, 2024,
   https://www.ey.com/en_gl/insights/private-business/are-you-harnessing-the-growth-and-resilience-of-private-capital.

4. How single family offices are balancing tradition and transformation, Ernst & Young Global Limited, EY Global, May 11, 2022,
   https://www.ey.com/en_gl/insights/tax/how-single-family-offices-are-balancing-tradition-and-transformation.

5. Khafagy, Omar, "Get to know the Family." The Exchange Feed, Season 4, Episode 6, TMX Group Limited, December 7, 2022,
   https://www.tsx.com/company-services/learning-academy?id=637&lang=en.

6. All in the Family - A Guide to Family Offices, Toptal LLC, Greg Barasia,
   https://www.toptal.com/finance/private-equity-consultants/family-office.

7. The Future of Family Offices: A Look Ahead to 2024, Ernst & Young Global Limited, Laurent Capolaghi, Lars Goldhammer, December 21, 2023,
   https://www.ey.com/en_lu/wealth-asset-management/the-future-of-family-offices--a-look-ahead-to-2024.

8. What Is A Family Office?, WallStreetMojo, Aaron Crowe, April 9, 2024,
   https://www.wallstreetmojo.com/family-office/.

9. An introduction to family office investments, Simple, Francois Botha, May 2, 2023,
   https://andsimple.co/guides/family-office-investments/.

10. Indigenous Institutional Investors and Market Engagement: Walking Forward, CIBC Mellon, Jaimie Lickers, Trish Roberts, Gord Kosokowsky, May, 2023,
    https://www.cibcmellon.com/en/our-thinking/2023/ot202304-indigenous-institutional-investors.jsp.

11. UBS Global Family Office Report 2023: Family offices planning the biggest shift in strategic asset allocation for several years, UBS, May 31, 2023,
    https://www.ubs.com/global/en/media/display-page-ndp/en-20230531-ubs-global-family-office-report-2023.html.

12. National Instrument 55-104 Insider Reporting Requirements and Exemptions, Ontario Securities Commission, May 9, 2016,
    https://www.osc.ca/sites/default/files/pdfs/irps/rule_20160509_55-104_reporting-requirements-exemptions.pdf.

13. Finding the invisible, how to meet Family Offices?, Obediah Ayton, September 17, 2019,
    https://www.linkedin.com/pulse/finding-invisible-how-meet-family-offices-obediah-ayton/.

14. Growing impact of women in Family Offices, Mishcon de Reya LLP, Stephanie Lim Pierce, Emma Armitage, July 17, 2023,
    https://www.mishcon.com/news/growing-impact-of-women-in-family-offices.

15. Global Family Office Report 2023, UBS, May, 2023,
    https://www.ubs.com/global/en/family-office-uhnw/reports/gfo-client-report-2023.html.

16. Key steps to attracting a Family Office, Family Office Lists LLC, Danielle Patterson, May 2022,
    https://familyofficelist.org/key-steps-to-attracting-a-family-office/.

17. Family offices emerge as real estate investment power players, RSM Canada LLP, Gene Garcia, Matt Riccio, August 14, 2023,
    https://rsmcanada.com/insights/industries/real-estate/family-offices-emerge-as-real-estate-investment-power-players.html.

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