“They just want to sell us something”, is the statement of some foundation representatives when it comes to consulting, banks, and family offices. Often not without good reason: Consultants offer many services that may not be suitable for individual foundations. Many banks have positioned themselves well in this area, and admittedly certain foundations are often not fully aware of the potential opportunity costs of this solution. In the family office sector, this “sales approach criticism” was often less noticeable. What could be possible reasons for this? To what extent is caution justified here, and to what extent might one throw the baby out with the bathwater?
Classic Asset Management Consulting and Family Offices
Many foundations use established consultants in the market. Manager selection, reporting, risk management, etc. are typical fields where external consulting can be usefully employed. The large “gaps” in the market seem interesting. Larger foundations make use of external know-how for a fee and can often define quite precisely where their optimization potential can lie. Many foundations below this size move less quickly when it comes to deciding on external support.
With good reason: consulting is largely know-how- and network-driven – if it were a purely mechanized process, not only would many consultants be without contracts, but also many specialist departments at institutional investors would offer the potential for staff reductions. (A topic that would offer a lot of food for discussion). Topics such as “fiduciary management” could be discussed much more intensively if topics such as control, know-how build-up, coordination, and risk management were to become more important to decision-makers in the foundation sector.
The fact that this topic is controversially discussed, that the interpretation of the term “fiduciary management” often seems to be in flux, does not contradict the constructive idea of providing consulting on a “meta-level”, so to speak, for certain investor groups. Often the term is also used synonymously for classical investment consulting. The area of regulation presented externally: Family offices often carry out similar activities on another level for their clientele. With all the advantages and disadvantages, as the current discussion on “Family Office Prospects” seems to prove. The core problem here too: Foundations, which could often gain a great deal in efficiency and know-how, are often the ones that find it difficult to find suitable providers in the market due to a lack of know-how and due to a lack of market transparency.
Excursus: In-house products and fund boutique approach
Various family offices have already set up funds with companies such as Universal Investment, Ampega, Hansainvest, and other specialized investment companies. Various consultants have also taken similar steps in the past, in some cases, or were considering the topic of “proprietary products”. The above discussion becomes more interesting when these facts are taken into account. To what extent does a family office make itself vulnerable to customers when its products are offered? Is this a disadvantage, an advantage or is there a possibly differentiated approach?
It is a fact that transparency can also offer the potential for criticism – a family office that offers funds with mediocre to absolutely inadequate performance can, under certain circumstances, increasingly expect problems of acceptance from clients. For HNWIs as well as for institutional clients – even consultants in the institutional sector may find themselves on black ice here under certain circumstances: selection, cutting-edge management, reporting, and risk management (also to safeguard decision-making bodies, the consultant as an “insurance strategy” for committee decisions, etc.) are established services – insufficient performance can have a disruptive effect on client acquisition.
The other side of the coin could be: “We don’t just advise theory, we put it into practice! If this assertion is underlined by satisfactory to good performance, discussions with clients can also receive new impetus. The argument diversification or the “sparring portfolio” issue can also provide valuable impulses for discussion. The fund boutique approach at least provides support in positioning providers – if the portfolio management performance is right, the approach can be helpful. This is a path that naturally not many providers can take, or admittedly do not want to take.
Trends are often played out in the fund industry. The current real asset and private equity discussion among institutional investors due to the current low-interest-rate environment promise exciting times. Expertise in these areas is being expanded – many similarities to the classic asset management area can be seen, for example in terms of talent management. It seems interesting that in these segments many bridges between provider and investor could still be built. Example: What valuable input can a foundation receive from a family office or a consultant in this area? Why do certain family offices possibly have more distinctive expertise than many a consultant or provider in this segment? How could these groups engage in a more fruitful exchange of ideas?
Family Offices and Foundations – Dialog offers added value
Many family offices would be the ideal fiduciary managers for foundations of a certain size – if these foundations were to take a closer look at these family offices or if contact was sought with emphasis. Unfortunately, one often knows nothing about the other, the established banks may be pleased. Networks, know-how, interests – similar to those in the private equity industry and family offices – speak for a more intensive dialogue between these groups. As soon as the discussion deviates from the pure product provider level, a business can, so to speak, not take place because of but perhaps even despite products and services!