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FUND BOUTIQUES & PRIVATE LABEL FUNDS: Family offices and fund boutiques have many similarities (Interview – Thomas Caduff, Markus Hill)

Caduff: Mr. Hill, in Germany you have the nickname “Mr. Family Office”. How did you earn this prominence and what is behind it?

Hill: As is well known, external and internal perceptions can often diverge. First of all, it should be said that I actually come from the product management area “Capital Markets & Asset Management” and later also worked in fund sales and PR. I have been living in Frankfurt for almost 25 years and work in the financial industry. For the last 16 years I have been intensively involved in fund selection and fund boutiques, 15 years of which as an independent consultant. Fund boutiques are bank-independent asset managers, owner-managed, specialized, and love what they do: Managing funds according to their ideas without any corporate guidelines. As with “normal” entrepreneurs, you will find many top talents here, often with closeness to artists. This is where one finds the middle class, so to speak, the hidden champions of the financial industry. Many family offices like this category of fund managers, and interesting minds are often developed in family offices – as a “boutique in the family office” so to speak. These addresses, who also like to engage in professional dialogue with other family offices, appreciate the fact that they get to know the minds from this segment in-depth, that they also see many interesting managers as a result of fund search projects, and that they are happy to share this information, which is generally not a one-way street. If you are technically deep in a topic, see a lot on the market and receive a lot of information, you will also recognize that there is a real interest in the topic and that the focus is not on a commercial agenda. To cut a long story short: If both sides have a technical topic on which they like to discuss in-depth, then sooner or later they will find more together. My connection to the topic of family offices and fund boutiques has therefore been organic and has developed. I wrote my diploma thesis on “Competition as a discovery process”. I simply did for many years what many fund boutiques and classic medium-sized companies do: Dealing with the topics that interest me personally, of which I like to publish and like to exchange ideas with experts as a moderator or panelist.

Markus Hill, independent asset management consultant
Markus Hill, independent asset management consultant

Caduff: As is well known, the term “family office” is not protected. Does everyone work for families, or is it – as we often hear – good for marketing and you run a normal asset management business?

Hill: You will find mountains of literature on the standard forms and the variety of tasks performed by single-family offices and multi-family offices, so I don’t want to lecture presumptuously here. To use your words, there is a real “Mrs. Family Office” in Germany, Prof. Dr. Nadine Kammerlander from WHU Otto Beisheim School of Management. She has a lot of interesting information on the subject, and of course, there are other exceptional, interesting people in the segment with professional depth. To come back to your question: You’re right, of course, the term is often “misused”, although one shouldn’t be more papal than the Pope. Of course, there are classic Single Family Offices (SFOs) that are never perceived as SFOs from the outside, often with good reason. Discretion, trust, understatement are certainly part of the drivers for this deliberately chosen “invisibility”. My explanation for this phenomenon includes another aspect: visibility can be of great benefit to professional work. Especially if you want to discover interesting fund managers or be made aware of interesting investment projects. The communication concept “Aggressive Non-Visibility” (ANV approach) protects the work process in the SFO on the one hand, and of course also for product decision-makers in Multi-Family Offices. Why is it so? No product decision-maker can afford to be in constant dialogue with the salespeople of product providers or to hold discussions with people looking for investors. The view (quote from an SFO representative) that a conversation with Sales is often associated with the term “whole-body herpes” is often expressed at face value. Many salespeople I have spoken to are aware of this fact. Their job in Sales is to turn the square into the triangle for the potential buyer. The most radical strategy here is, of course, foreclosure. This situation – “competition as a discovery process” – often leads to the fact that one only perceives a small section of the market for investment opportunities and is cut off from know-how. I often receive invitations from the family office sector, where people talk about specialist topics in a protected area. There is a need for exchange, for “looking beyond one’s nose”. And this is where the magic happens: over the years, this need has led to an increase in the number of providers of family office events. As a rule, these events have to be financed by sponsoring, a completely normal situation, economically comprehensible. Sometimes, of course, there is the danger of getting into formats where one hairdresser wants to sell a haircut to another hairdresser. If this is known to the participants at the beginning, this is no problem for me, some sponsors might think differently. Especially here you often find the “pseudo-family offices” you described. But here one does wrong to the organizers. They provide a platform for the exchange of ideas. The increasing number of product suppliers for certain formats can lead to decision-makers withdrawing from the “right” family office side and increasingly resorting to small network meetings again. I have often networked people from these segments with each other when I had the feeling that one side could talk to the other side in a technically stimulating way, so to speak, without a commercial agenda – because I look at products myself, I am often introduced to interesting experts who I certainly cannot “hold a candle to”. I have no problem with family offices transparently offering their products, but I think it is of secondary importance to how these addresses are called. And as far as conferences and specialized events are concerned, whether they are commercial or non-commercial, you should at least have tested each format yourself.

Caduff: Many smaller and smaller fund boutiques hope to be allowed to audition at family offices. In most cases, the doors of banks are closed to them because of their size. Does it make sense for smaller addresses to audition at a family office?

Hill: Absolutely – with the restriction, of course, that not every boutique is eligible! Volume is a factor, but not always a knockout criterion. Core elements for success are person, process, and performance. Consistent, outstanding performance. And that’s often where the problem begins. Many smaller ones are unknown. So Sales there often has to explain who you are for a long time – and then who the manager is. And that is communication-intensive, because the pull effect does not take effect here, but push marketing has to be carried out, so to speak. This in turn does not meet with the approval of many fund selectors. In case of doubt, they then rely on their network when selecting addresses that are not very well known or they fall back on digital formats. Corona in particular can also pave the way for new information policies. Why do I consider the interest of family offices to be great? Entrepreneurs like to talk to entrepreneurs, they are long-term thinkers, often “top experts” in their segment. When the SFO representative talks to the boutique manager, for example, he also appreciates the fact that the fund manager has skin-in-the-game – his own money in his fund and also his own reputation risk – if he does not deliver, his reputation is also damaged. This could also be seen as an additional component of risk management. Entrepreneurs know that investing also means risk, often taking a long breath over many market cycles. Family offices, but also often independent asset managers, simply appear to have more patience. One could even say that when “top portfolio managers” and family offices come together, there is an alignment of interests.

Caduff: If we are already at young companies, to come back to the subject of seed money – is it realistic to be successful there and be able to collect money?

Hill: That depends on it. Me too, am learning over the years. The key point is that the search for seed money is very time-consuming. My clients (potential fund initiators) often don’t realize how many conversations with established and “new” seeding-affine investors are met with disinterest for a variety of reasons. One has to tap into a yes, no, and perhaps a direct approach in a very short time. One also forgets that this is a different market than the usual one. The usual seeder, see my note on the ANV (Aggressive Non-Visibility) approach above, do not hang out flags. What is even more interesting is that in the process of searching you always come across new addresses. Especially since many potential seed money donors can be brought to the taste by a push. Here, there are similarities to the areas of start-up seeding in a classical way and venture capital. Liquid, non-liquid, direct investment – you often come across the same people at the decision making level. In the end, the matter is passed on to the experts in the organization. Entrepreneurs just like entrepreneurs, at least at the beginning you listen to a short, interesting story. If there is no danger of “penetrating” sales behaviour afterward. Many investors are looking for interesting concepts.

Caduff: What do you say when you receive such requests?

Hill: The trees don’t grow to the sky, and I can’t walk on water. The approach and subject must be interesting to me. I have to like the person and appreciate him/her professionally. It is an advantage for my client if I have the feeling that the investor side at least has an added value for an initial exchange of ideas. That’s why I often write about topics that have a concrete connection to my projects. Of course, disappointments also arise. When the track record seems to be too short when one should use advisory as an intermediate step to the fund but is too strongly focused on one’s own still “immature” fund idea. Or quite simply, it can also be the result of a project: After comparison, preparation, and discussion with potential investors, the concept was simply not perceived as sufficient. No potential fund advisor likes to hear that. Admittedly, these points make me much more ruthless with my feedback on inquiries these days. Of course, I speak to many addresses, an exchange of ideas often does no harm, and sometimes one can also give further advice.

Caduff: About your business model: Can you say in a few words what services you offer and what makes you so special?

Hill: First of all, it has to be said that I am carving out a niche for myself, with the added benefit of not being infinitely scalable. Despite corona and digitalization – people like to talk to people. Capital management companies such as Ampega and Hansainvest support me through sponsoring (“Investor Education Scholarship”), for example, in my publication activities. I am also grateful to Universal Investment, for whom I did similar things for many, many years, for supporting me for many years as a “multiplier” in the fund boutique sector. The projects always come through contact based on recommendations or from my publications as I have written many comments in the DACH region on fund boutiques, fund boutiques & family offices, and private label funds. The persisting power has helped here and the interest in the topic in terms of content – after all, I am also a boutique in my area. USP could be its site in German and English (fondsboutiquen.de). The professional background of mine (product management, fund selection) combined with the impression (quote from a customer of mine): “You are neither a PR, marketing or salesperson without deep product knowledge, nor are you a product specialist with poor communication skills – and you are also still well known in the industry, which is helpful for professional exchange of ideas! Perhaps you can put it in a nutshell like this: I like to network things (people, approaches) with expertise, with filters, qualified with each other. Connecting-the-dots.

Caduff: From what fund size does a discussion make sense for you? What else do you need to be able to show?

Hill: I look at many, many concepts “without prejudice”. Since I am exclusively dependent on this activity, this is part of my market overview and know-how. You get to know many interesting experts, regardless of the viability of many concepts. Sometimes, after pre-selection, I can take my time for 10 minutes reading, 10 minutes speaking. Otherwise, I am very clear: No time, on the reminder, like to stay in touch, there is the e-mail. Commercially seen: Interesting person, interesting background, ideally interesting, convincing track record are not a disadvantage. It simply has to be professionally fun and the acting actors should “fertilize” you professionally – then both sides are happy.

Caduff: What are you currently working on more intensively?

Hill: I accompany various search mandates (“boutiques under the radar”), for the sixth year in a row the moderation on “Value & Fund Boutiques Theme” in Frankfurt (SIA Funds AG) is scheduled for 24.09.2020, on 14.10.2020 a moderation in Munich at the “Private Wealth Forum” on the subject of alternative investments (and a. with Marcel Müller, HQ Trust) in Munich on 14.10.2020 and are currently preparing a panel fund selection in corona times with family offices – digitally, maybe physically, but depends on finding a date, with a foreign reference – will be finalized next week. I am conducting many preliminary talks for fund manager interviews (Ampega, Lansdowne Partners Austria GmbH, Grönemeyer, etc.), a seed money search project is also in stage 1. I am devoting more and more time to the topic “Financial Centre Frankfurt”, see LinkedIn – Theme Channels Frankfurt, Fondsboutiquen, FUND BOUTIQUES, private label funds. (At this point I would like to explicitly thank my colleagues for their support, alone this is not possible!)


About the person
Markus Hill has been an independent asset management consultant since mid-2005. His professional background includes companies such as SEB Bank (Marketing/Product Management, Investment Banking) and Credit Suisse Asset Management (Sales, Asset Management). His areas of activity include the management of mandates in the marketing, PR, and fund selection areas. As former Head of Sales of mutual funds at an investment boutique (equities and bonds) and in external cooperation with a fund of funds manager, small to medium-sized asset management companies are the focus of his interest. Besides, he deals journalistically with the topics of fund boutiques (fondsboutiquen.de) and the use of mutual funds at institutional investors as well as the topic of target fund selection in multi-management approaches.

Source: www.fundplat.com
Photo: www.pixabay.com

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