Looking to raise money from wealthy families? Start by
That was the message from a packed panel regarding issues
facing the family office investor, sponsored by The Alliance of
Alternative Asset Professionals and held last night at
Bloomberg’s midtown Manhattan headquarters.
Given the uncertainty in finding consistent returns year
after year from a single fund, families are increasingly
pushing for "alpha through negotiation" by pressing for fee
discounts that were once reserved only for the largest
institutional allocators, said Stephen McCarthy, senior vice
president of KCG Capital Advisors. "That’s the
most sustainable alpha there is."
Families are also linking up, both formally and informally,
to drive a harder bargain. "They don’t have to pay
the big fees for the big funds," he added.
Performance fees, which had an
average sticker price of 19.86% for new funds last year,
have been whittled down as low as 7.5% for some recent
investments, said Jamie McLaughlin, chief executive of
consultancy J.H. McLaughlin & Co.
"Costs matter more than they ever have," agreed Bob Borden,
managing partner of Delegate Advisors, a North Carolina family
As the crowd sipped on Heineken Light and chardonnay, the
panel advised them not assume that wealthy families do not
necessarily share institutional investors’ goals
of achieving steady returns and easy liquidity. A family office
may instead be concerned about passing wealth to the next
generation, or setting up a structure with more control for a
particular family member.
"They do not have normal economics," McLaughlin said. "Their
economics are perverse. They exist to serve the family."
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