Family offices, asset managers and foundations: Expertise, fertilizer, and fundraising

“Money is like fertilizer, which is worthless unless you spread it. (Francis Bacon). Foundations are currently in the interesting position of looking for alternative investment opportunities in a low-interest-ratelow-interest environment. This includes looking for alternative ways to advise or manage their funds: The search for external know-how, expertise, network, and, if necessary, the search for the optimization of performance potential. Are there any alternatives or additions to the usual advisory services for foundations by house banks or banks? Which “soft factors” play a role in the decision-making process?

Consulting and performance

Many foundations are advised by so-called house banks. Due to the history, for example, account details and possibly advice during the foundation’s founding phase, these facts are understandable. From time to time, various foundations ask the question of whether neutral advice will be given in any case or whether there might be a risk that the focus might be on in-house products. Regardless of the final answer to this question, the further dimension of this issue is overlooked: Every private investor and institutional – whether affiliated or not with a group – has the problem that the portfolio management quality can only be analyzed in detail on January 1 of the following year. Perhaps this realization leads to the fact that one can mentally take something out of the hunt for the “perfect” portfolio manager and rather exploit optimization potentials when expanding risk management. A simple insight from this process is: In addition to diversification in the area of products, asset classes, investment styles, etc., diversification in the area of consulting can also be useful.

family offices

Many family offices successfully advise foundations. The advantage is that they often have an excellent network of know-how and portfolio management expertise. The disadvantage is that these addresses shy away from the public. Perhaps also because of the idea that the existing client base ensures that you don’t have to chase after every business. Various houses have a good track record, whether in the selection and management of individual investments or the management of their investment funds suitable for foundations. The advantage – assuming that the family office has an affinity for foundations – can be that the house philosophy is usually geared towards capital preservation + x anyway. Capital preservation alone is not enough, distributions must be generated – taking into account the inflation rate. The thinking is decisive: capital is available from which one would like to draw profit for a long time to come, and the purpose of the foundation should be pursued with calm.

Asset managers – independent asset managers (“fund boutiques”)

Here it is recommended to look closely. Typical questions from suitable candidates for cooperation are

*Does the independent asset manager only serve private clients?
*How wealthy are the private clients on average?
*Do the asset managers primarily sell their products?
*What are the qualifications and “affinity” to the field of foundations?

The first three questions can usually be answered quickly. It often seems more difficult to work with soft factors such as “affinity for foundations”, foundation know-how, and foundation network. Does the asset manager understand the thoughts, concerns, and needs of the decision-maker on the foundation side beyond his professional “asset management glasses”? Does he feel that he is in good hands there, in addition to “appropriate” portfolio management services?

The scanning and checking of these more soft factors often take time. If investment pressure prevails, then the time factor appears to be decisive: Quick identification of a new, independent advisor, getting to know him, “warming up” (building trust), practical testing of the cooperation, checking the results – final judgment: added value? Alternative to the house bank or supplementation of the foundation’s advice by the asset manager? Be it by supplementing the staffing of professional committees, advisory boards, or by mandating direct investment mandates and funds. The description of this process also includes the realization that at the beginning a decision is made under uncertainty. To be fair, it can be said at this point that asset managers of foundations can also be replaced or supplemented by “additional candidates” after a thorough examination.

Investment companies as a pool for the identification of specialist expertise

Many of the investment companies specializing in independent asset managers, such as Universal-Investment, Ampega, Hansainvest, and many other firms, can provide initial indications of their expertise in endowment funds – or in funds that are suitable for endowments (mixed funds, asset management approaches). Also with the Association of Independent Asset Managers Germany e. V. (VuV) also provides further information on the field of asset managers and foundations. This preliminary research often helps as one of many preliminary filters to enter into direct dialogue with potentially suitable candidates. Ideally, the manager (fund advisor) with a good inflow of funds – whether in the fund or with direct mandates – could be so well networked that he or she could even help foundations directly or indirectly with fundraising for a good cause.

Excursus: Fundraising and low-interest phase

Foundations are currently suffering from the low-interest-rate environment. In the asset management industry, the news is not so frequent: Years ago, there were complaints about the Neuer Markt, the financial crisis, or too low equity returns. All of these are environments that are difficult to influence indirectly through portfolio management – it is difficult to see into the crystal ball. In the areas of marketing, public relations, and sales (here also fundraising), there may be the subjective impression that additional funds can be raised directly by using additional intelligence in the approach, as well as by increasing the “beat rate” (activity). There is a lot of expertise from the fund industry that could be used. Whether funds are to be raised for a mutual fund or sponsors are to be convinced for a good cause – the approach is very similar. If these worlds were to come closer together, solutions (in the sense of “inflow of funds” in the case of foundations) could perhaps emerge that are not yet being considered. Synergies between the fund industry, family offices, and asset managers do exist. Perhaps, as an external party, one simply has a different view on this and has had different experiences.

Outlook: Trivial solutions – the devil is often in the detail

“Fiduciary Management”, “Asset Management Consulting” or “Trusted Advisory” – whatever you call these consulting services: In the end, it’s all about factors such as independence, know-how, network, performance, and trustworthiness. Another, often underestimated component is that the foundation decision-maker is looking for a central contact person for his concerns, often a simple “problem solver” and communicator. Why does this often require special mention? Because there is a large number of databases, Internet sites, publications, events, etc., which in combination can be very valuable for those whose main focus is on these sources, plus expert discussions with professional colleagues. Many foundation decision-makers are already doing this to a large extent. If it simply becomes too much, time is to be saved or trustworthy sparring partners are needed, the path via external sources can be useful in individual cases. Seriously, this can also go hand in hand with underperformance in certain cases – who says that the Premium Service Wealth Management and Private Banking can continuously guarantee the selection of the year’s best in Asset Management in all cases? Regarding the keyword expectation management: humility on the part of the foundation as well as the portfolio manager seems appropriate at this point!


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