The term single family office has become subjective. Paul Reynolds, director at Thamesis Limited, discusses the nuances of a
single-family office and debunks misconceptions of how the wealthiest people in
the world manage their money.
By Kristen Oliveri
Single-family offices are often thought of as the outliers
of the financial services industry. Definitions of them vary, regulations
around them can be cumbersome, and, often, individuals can’t even identify what
a “true” single-family office is. Kristen Oliveri, Head of Private Wealth
Content at Markets Group, sits down with single-family office veteran Paul
Reynolds, the director of London-based single-family office Thamesis Limited, who
began his career in the private banking wealth management sector before
transitioning over to work for two different single-family offices.
Reynolds has experience in working within and creating
different structures and is a “specialist generalist” when it comes to investment
management to family office structuring and everything in between.
In his interview with Markets Group, Reynolds discusses the
nuances of a single-family office and debunks misconceptions of how the wealthiest
people in the world manage their money.
Markets Group: Let’s put some parameters around what actually
a single-family office is. People outside of the industry have no clue about
the nuances within it.
Paul Reynolds: It’s a good question. One of the most
common phrases within the family office industry – and it is an industry, a growing
industry – is once you’ve seen one family office, you’ve seen one family
office. And like all cliches, there’s a reason for it. It’s correct. If you
think of a family office as an office to serve a family, every family is
different.
And therefore, what will be required from every family
office, the structure, what they do, depends on that family. There were no
rules. Some family offices are run by family members or employ family members,
and some will not. Some will manage the money internally. Some will outsource
that. Some families still own their founding business, and some have sold it. So,
there are no generalizations. Every family office is different, but ultimately
a family office is there to serve one family.
Now, taking that a stage further, what does it do?
The way I like to start thinking about a family office is
think about your own family and the things that you have to do, maybe the
things you do in the evening, the things you do on the weekend to keep your
admin under control. You might have some investments, which need managing. And
maybe you have some assets such as a house or even some art. I hope you’ll have
some insurance and a bank account. In normal times, when we’re allowed to
travel, you book travel, and you may even book other things such as
restaurants, opera and theatre. You’ll have to do a tax return and maybe you
give some money to charity. If you have children, you think about educating
them and helping them when they start a new business. There are numerous other
things that you have to do when you have a family.
If you’re rich enough, at a certain point your life gets so
complicated that you are overloaded with all these things and you start
outsourcing. I always think that the most valuable asset that anybody has is
time.
And as you get richer, it’s more and more important to you
that you don’t spend all your time doing all these things that I’ve shown here.
At a certain point, you say you will prefer to spend your time doing business
or hobbies or whatever you want, and you want someone else to do these things
for you. And at that point you may seek to start your family office. And when
you’ve got your family office, the family office sits around you, allowing you
to use your time the way you want to, and someone else takes the role of doing
all these things.
MG: How large do you think a family must be for the
entire family office structure to make sense?
PR: I started off saying there’s no generalizations.
Some family offices are ‘so-called’ family offices. I come across some that
maybe have an assistant and maybe a senior person on a part-time basis. Some
family offices I come across have 60-plus people, so obviously the financial
implications of those are very different. The reality is you probably must have
in excess of $100 million. In reality, in excess of $500 million to make it a
really cohesive office with enough staff. It’s a luxury, but when you get into
the ultra-high-net-worth, it’s a necessity.
MG: How can anyone in the industry or otherwise
differentiate between those who are truly a single-family office or not? Maybe
one looks more like a multi-family office or a bank or an RIA. What are the nuances
there and how can you tell?
PR: Well, again, no generalization. I’ll keep saying
it, but on the whole, if you take the situation that I’m in, I work for one
family and I’m employed by a company Thamesis, owned by that family. My sole
aim is to provide a fantastic service to that family. There’s no
differentiation between the shareholders and the customers. When you move into
a multi-family office model, they’re trying to run it as a business, making a
profit, paying dividends. I’m just trying to basically provide a fantastic
service.
MG: I know you’ve had a long, storied career in the
wealth management business. Tell me a little bit about what your career path
has been and how it led you to Thamesis.
PR: I worked for two single-family offices and one
multi-family office. I also sent spent nine years at Credit Suisse and during
my time there, I worked in various areas doing relationship management,
investment management, project management and business management.
I sometimes like to say I’m an expert generalist. I work in
a small organization. I never know what’s going to land on my desk today. Very
often, it’ll be things that I’ve never done before, in a way, that’s part of
the highlight. But you need to be someone who’s happy doing anything that needs
doing.
If you just want to do investment management, that’s fine if
you’re working in the investment management team of a family office, but it’s
not fine to be running the whole office, you’ve got to be that generalist who
can help when there’s a problem. You’ve got to find a solution.
MG: Given what you just said, in my estimation,
someone in your position is a Jack-of-all-trades. Could you even describe what
you do on a day-to-day basis?
PR: The easy answer is anything that’s required. If
you go back to that definition of the family office, all the different things. So,
someone can phone me up today and say that they want to set up pensions for
their staff or they want to buy a property, or they want to sell a property or
they’re looking for a tax structuring, or they’re worried about succession or
they want to review their will.
So effectively anything that’s required, the reality is a
big part of my time is spent on investments and in reality, if I try to make it
as simple as possible, I would say that a significant part of my time is spent
on project management. When that family member comes along and says I have an
issue, I need to then solve it. I’m using external sources, I’m the one that
needs to make sure everything’s tracking forward.
MG: Does the family that you work for have a mission
statement, and if so, how does that sort of tie into their overall investment
philosophy?
PR: It’s interesting. We’ve discussed this many times
and for the family I work for, we decided not to have a mission statement. The
family is the first, second and third generation and the patriarch who made the
money really doesn’t want to restrict it. The next generations as to what they
do, we have various legal documents that are trying to put a structure around
what we do, but we don’t have that mission statement.
MG: In terms of how they view investments, what are
the opportunities they’re looking for and how does your team approach that?
PR: I would say if you looked at our investment
philosophy, it’s varied. There’s one family who says they review their
investments every quarter, and by quarter, they mean not every three months,
but every 25 years. Of course, a quarter of a century. One of the advantages
that a family office and a family can have is that they’re not going to get
sacked if they underperform an index over two successive quarters. So, we’re
long term and that allows us to do things that maybe institutional investors can
do. We’re diversified. Our biggest thing that we do is spend a lot of time
deciding what decisions we make in house and what we outsource.
If there’s a fan, someone out there listening to this and
thinking about starting their family office, I would say that’s the most
important thing is what skills can you bring in and what skills are you going
to have? Can we buy the best investment managers? No, we can’t. So, we
outsource stock positions, but we look at asset allocation ourselves.
We do very little direct investments. We leave that to other
people. We very rarely use loans, debts or leverage. On the whole, we invest in
funds or partnerships. And I would say that we prefer portfolios managed by
boutiques where we can meet and know the investment manager rather than manage
by massive entities. Institutions, we tend to like high conviction, low
turnover. Investors, we’re not interested in closet trackers but that all comes
from many, many years of discussion and lots of thinking about how we think to
do things.
MG: In terms of your due diligence process, I’d
imagine it’s all about relationships and having the ones with the managers you
work with. Is there anything else you want to elaborate on that process in
terms of due diligence or creating those relationships that help you sustain
the overall investment plan?
PR: Yeah, I think there’s only one thing. It’s about
relationships. It’s about spending a lot of time getting to know managers. It’s
about actually meeting the right people. It’s about following up. I’ve built a
great network over the last 14 years and it’s utilizing that network. But
there’s one other thing that we do is we have an investment committee, which is
made up of both family members and non-family members. I think that’s really
important. So effectively it’s not one or two people making the decisions. We
have three or four highly experienced veterans in the wealth management and
investment management area that can actually sit down with us and meet some of
our managers. So, we can get multiple views before we make a big decision.
MG: Switching gears from investments to legacy
planning, how does the concept of legacy planning come into play for the family
you work for?
PR: We’re not trying to structure things so that the
family office and family wealth runs through multiple generations. It’s there
for the first generation who made the money, their children and their
grandchildren. If there’s money around after that, that’s fantastic. I would
say legacy planning is a major issue for any family of wealth. Personally, I
believe wealth can have a massive positive effect, but also it can be a ball
and chain, so a lot of time when we’re looking at decision making, we’re
thinking: is this going to have a positive effect? Or maybe it will have a
negative effect? Fortunately, not with the family I’m working with, but with
other families, wealth has driven siblings and cousins apart, so we’re looking
maybe wider than legacy planning. We’re looking at taking decisions that ensure
that the family remains bound together.
MG: Any final thoughts on how family dynamics, legacy
planning and investments all come together? The misconception is that [family
offices] are just about investments and that’s what they do for wealthy people.
It’s so much more than that.
PR: I suppose my final thought would be this: The
wealth management industry uses this term “the trusted advisor” over and over
again. Actually, when you’re working for a family office, my whole goal and
reason is to give them good advice. But even with that, becoming a real trusted
advisor takes time. Sometimes people almost think that you can take the badge
of being a trusted advisor and you can pin it on your chest, and it happens
overnight. Building really, really solid relationships, trusted relationships where
people are happy to delegate to you and leave it to you, takes many, many
years. And if you find the right person, then that’s fantastic. And they build
the right team, that’s fantastic. But it’s a hard job.
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