Family Offices know where to find value as markets tighten…

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Family Office meet ups…

This article explores how macro events, emerging technology and new trends are shaping how wealthy families deploy capital and look for value…

What things are they looking for? What are the things they are already investing in? How can you get their attention? How can you reach them?

Signals of impending doom…

It can come as no surprise Family Offices and UHNW’s are in search of opportunities that can deliver assuring of value as global markets prepare for an impending global recession. The signals are indeed everywhere. As large Investment banks already shedding staff, post 2008 an early indicator of impending doom.

Last week the FED starting to pump more liquidity into a struggling USD economy, apparently required to bail out the NY FED. Another historic event as negative bonds yield arrive for only the fourth time this century (always a sign of recession). Then we saw headline news there is some $68trillion of capital waiting on the wings.

There has never been a better time for entrepreneurs and management teams looking to raise capital, who have recognised now is the time to get access to Family Offices. At the best of times a difficult task to accomplish and finesse. There is no shortage of deal flow, but there is a shortage of quality and families know this, and why we are continually asked to be the filter.

The scene is certainly set like the plot of a new armageddon movie…

Uncertainty versus Capital Deployment

There is also no doubt global uncertainty remains. The escalating trade war between China and US as they prepare for the long game. The continued BREXIT fiasco that may trigger the end of the EU block. Italy suggesting it may default on ECB loans. Germany confirming it is slipping into recession as output slows. With China’s growth being suspected of artificially reported, in reality falling below 3%.

One thing is certain. Global markets are in for a tough time, finding value will be everywhere and getting the attention of the purse strings gets harder.

As many reading this will know we advise and work closely with several Family Offices and frequently talk to and meet hundreds more. This access gives us a view of what families are looking for as we hunt for deals, search for opportunities and fulfil distribution requirements in different regions, introducing new products and global brands.

As our mandate changes we are increasingly being asked to find specific products and services to meet the geographic needs. During 2019 we saw a big shift in investment strategies and approach, with many families leaning towards a more technology driven portfolio approach and specifically a growing interest in Deep Tech (the technologies that can help solves humankind biggest challenges).

Capital Waiting

There are two kinds of capital waiting to deploy.

Safe Capital:

It is inevitable that in uncertain times capital starts to look for discounted value as they wait for asset classes to fall in value. A seasonal cycle offered by recession where traditionally many families have looked for baked in value buying discounted or distressed asset classes in land, property and collectables (art, vintage cars) etc.

But not this time.

The challenge for families is these asset classes are becoming more illiquid, despite efforts to to ‘tokenise’ these in efforts to improve liquidity. As markets tighten the naked reality is the majority of families do not want to own more. Already sitting on trillions worth of assets they cannot shift, where yields under pressure, forecast to get worse as global supply will increase through defaults and repossessions.

Smart Capital:

Other families have already looked to diversify early, not only moving into more liquid asset classes they are holding more cash. Which is odd given the declining intrinsic value of fiat, another indicator they would rather hold a higher risk position cash. Families prefer technology driven investment opportunities as direct Family Capital replaces Venture Capital as the preferred source of funding for entrepreneurs.

Smart capital also knows where the pain points are, they have insight into the bigger issues we are all facing, as nation states, as geographic region plays, and as civilisation struggles.

But how to approach them…

We frequent commentate and write about how to approach Family Offices, as it remains more of an art form, rather than a heavily trodden path dealing with VCs. Who have their process, love their spreadsheets and you know you are going to get equity raped in the process.

The primary issue for most families is they prefer to remain active behind the scenes. Many do not like to reveal themselves and work through trusted advisors and increasingly younger family members. Sometimes seen as not holding sway or having decision making authority. This assumption is often wrong.

Getting access can be tricky, earning their trust is even harder. We often coach entrepreneurs how to approach and talk to Family Offices, but too often when they are face to face rapidly proceed into a sales pitch, which looks and feels desperate, as we watch another door close. When we make introductions to families and lay the ground work, setting the scene and softly making the approach, we often find as soon as the CEO and Founder gets in front of family, they forget everything and go into pitch mode..!

As the family member looks at us we know what they are thinking, why did I accept this meeting, another person that has little interest in what we are looking for, and thinks we need to be sold to… The End…

It is worth remembering Family Offices spend most of their time looking after the assets they already hold, managing portfolios of investments for capital preservation, tax efficiency and succession planning. Unlike banks and governments, families often have a 25, 50 and 100 years plan.

Warning:

I hear many financial intermediaries and advisors bang on that families love Impact Investing and love to invest in Socially Responsible projects. In some respects this is true. What then happens is every renewable energy, social zero impact housing, electric car projects pile in… The challenge you have is families are focused on the real issues and these are not on their list of important things.

To begin with most renewable energy projects such as solar are based on 30 years old tech, the liquid that holds the charge isn’t that green and the returns are light. They also are well aware the current generation of electric vehicles use fossil fuel power to charge them, that contain contaminates and the materials used in the batteries are not bio-degradable.

So be careful when mentioning Impact Investing and Socially responsible projects. Families are better informed than most advisors and entrepreneurs. They are fed better macro economic data, and they are planning many years ahead. Whilst they look for value today, most do not have to deploy their capital today, on your project. Despite the need to constantly deploy.

What gets their attention…

It is also worth remembering families invest based on timing and the balance of their portfolio. They travel a lot often between countries, they are global citizens. They don’t look at social media every day, they don’t sit there waiting for your email, and on average it may take 8 to 10 approaches to break through.

It maybe they actually like your project but either don’t have space for it already engaged with similar projects, don’t have the time or have other higher priorities. It is a fickle business and chasing families is tough. We have spent the past three years on the road meeting families at our events and in person. Spending time to get to know them. Finding out what interests them and making friends.

There are many big issues on the table that attract attention from Family Offices, which we can break down into three areas:

Passion Projects:

For many Family members they will have their passion projects. Whether driven by an internally driven need to do something right, correct a wrong or in some cases from a sense of responsibility and guilt.

These can cover wellness projects, human health, preventing or animal welfare (stopping animal cruelty), counterfeit and dangerous products, stopping human trafficking, immunisation, a poverty proposition, education for all and closing the gap on inequality.

Equally it could be a personal interest in cars, racing, films and movies, art and other collectables, in food, drink and rare asset classes, in services that serve the wealthy, in sports teams and gaming, gambling and things that they consider fun.

Real Impact Investing:

These are centred on the issues and challenges for humankind at a geographic level that capture the attention of Families. Especially those already vested in a region. Whether it is Water shortage in parts of Asia and Africa, and shortage of food in China, or the consumer shifts to foods and activities that reduce climate impact.

There are several technologies that contribute to solving these bigger issues often associated with processes massive amounts of data (machine learning) using AI that can offer insights into the next breakthrough, or use of other Deep Tech initiatives such as NanoTech, BioTech, AR, VR, Grid and Quantum Computing…

An example is the processing of massive amounts of data involving the ‘flat protein’ thought to be the main cause of Alzheimers, the cleaning up of chemical waste hazards using NanoBots, the use of Vibrating Medicines that can extend life 30 years.

Next Big Thing:

Families like to be associated with fast moving industries, faster growing companies and the latest thing, always on the look out for a unicorn and trend wave. Tech, device, product and things that are about to or just asserted to globally trend.

There are several trends we are seeing.

The consumer shift to man made plant protein feeding the rapidly growing Vegan movement.

The use of Cannabis and other plants based alternate medicines and treatments, specifically the gnome validation of over 300 strains of Cannabis identifying what is safe.

Smart City plays as the entire Asian continent embarks on these projects.

With the rebirth of nationalism requiring large scale BioMetric identity.

The need to be Quantum Safe as AI supremacy was claimed by Google and IBM recently threatens to break all types of encryption..

This list is growing every day.

Meeting Family Offices:

Three times a year we get together with 400+ families at our global Family Office Summits where we select and invite a handful of projects to meet and greet the families and UHNW people we know.

Every day we are talking to families that retain us to find projects, products and solutions for them. Sometimes very specific, other times they challenge us to find them something interesting.

The other interesting facet of working with families is they often hunt in packs, often introducing investment opportunities to their friends and looking to co-invest with other families.

Whilst we may not be traditional capital markets specialists, we have found our niche. The bridge between understand the impact of technology, receiving deal flow and having visibility of what other families are doing. Often introducing them to one another and cross fertilising deals flows and ideas.

Most recently introducing one of France’s biggest and older families into a UAE royal family, where already we are seeing good traction. Or it maybe introducing a major global brand who wants to enter a region to establish a presence, get their products on the ground or want to be able to navigate through the requirements of culture, regulation and capital deployment.

Families hold answers and opportunities. To open a dialogue it is best not to see them as an easy source of capital.

Author: Nick Ayton

Chainstarter Ventures Ltd

© NickAyton 2019

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