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The alternative view

Savvy investments and an early commitment to alternatives have ensured one of the world’s biggest family offices has flourished. David Bain examines Harald Quandt Holdings’ strategy

When it comes to assets under management, few family offices get much bigger than Harald Quandt Holdings. The Bad Homburg-based investment house has more than $15 billion of assets under management in its various subsidiaries, which includes a sizable chunk at multifamily office HQ Trust.

“Quandt is big and prestigious,” says a family office specialist. “Few family offices carry the weight in financial markets that Quandt does.” By way of comparison, Fleming Family & Partners, the UK’s biggest multi-family office, has around $6 billion of assets under management.

That said, HQ Trust isn’t in a habit of telling the world about its size. Based in the small German spa town of Bad Homburg, discretion is very much uppermost in the ethos of the family office.

“We don’t need to be in a big financial centre to manage investments,” says Christian Stadermann, one of the two managing directors of HQ Trust. Nevertheless, just in case there is a need to make the occasional contact with a leading light in the world of German finance, Frankfurt, Germany’s largest financial centre, is just down the road. And Bad Homburg isn’t exactly some insignificant out of town suburb. In an area north of Frankfurt called Taunas, the spa town is rumoured to house more millionaires per capita than anywhere else in Germany.

Harald Quandt’s wealth is very much tied up with the huge economic revival that took place in Germany after World War II. The son of Günther Quandt, a textile tycoon who build up stakes in numerous companies in the hyperinflation years of the 1920s in Germany, including BMW and Daimler-Benz, Harald took much of this legacy and laid the foundations of the revival of BMW in the early 1960s, before he died in a plane crash in 1967.

Together with his half-brother Herbert, the Quandt brothers were leading lights in the post-war economic miracle in West Germany.

Harald Quandt Holdings also developed a canny knack to make money through a host of financial instruments and deal making. The five daughters of Harald – who inherited the bulk of his fortune – committed to alternative strategies back in the late 1980s, way before many other investment groups were considering such strategies.

Bernhard Wunderlin and Axel May, who were hired by the family to head its investment efforts, drove the alternative agenda. The other part of the Quandt family fortune – the Herbert half – is managed by a single-family office based across the road from HQ Holdings.

HQ Holdings’ alternative efforts are led by subsidiaries, including Auda, which was set up in 1989 in New York to underpin the family’s investments in the US and develop alternative investment strategies.

Much of Quandt’s hedge fund strategies were influenced by George Chacko, the ex professor of finance at Harvard Business School, who worked at Auda as chief investment officer. Quandt also launched Equita Management – a specialist investment firm targeting direct investment in midsized companies in German-speaking countries.

Equita gives investors the opportunity to co-invest with the Quandt family. Recent investments have included Schock, which invented the granite sink and led the development in the technology, and Flad & Flad, an ad agency.

HQ Trust was set up six years ago to add an additional resource to managing one part of the Quandt family fortune as well as to eventually open up the expertise and success to other wealthy families, following the model adapted by other subsidiaries at HQ Holdings.

That happened in 2009 after a prominent Germany family was a beneficiary of a substantial liquidity event. Stadermann wouldn’t say who the family was, but it must have been substantial, because HQ Trust now managers more money from third parties than the family.

The fact that an extremely wealthy family decided to place a large sum of money with HQ Trust in 2009, when the credit crisis was still bubbling away, suggests investor confidence in the Quandt investment vehicles is high.

Many wealthy families grew wary of their relations with their wealth manager during the financial crisis, which saw a wave of money moving away from some of the bigger providers.

Top end investment offices like Harald Quandt Holdings, particularly where there was an obvious link to the founding family, were beneficiaries of the exodus of money from many bigger providers.

During the financial meltdown of 2008/09 HQ Trust managed to avoid many of the pitfalls a host of other investment companies didn’t, says Stadermann. There was no exposure to any Madoff-linked funds, or any of the other toxic and discredited investment vehicles making headlines at the time.

“That’s because we did our due diligence,” says Stadermann, who adds that risk management is crucial to the day-to-day operations of HQ Trust. Although returns took a hit across pretty much all investment classes during the financial crisis, HQ Trust has made these up since and is back on track achieving strong investment returns for its various strategies.

“Based on our experience we see that over a period of 10-15 years an annual performance after cost and before tax of between 7.5% and 8.5% can be achieved at HQ,” says Stadermann.

Current investment thinking includes a neutral to positive weighting towards equities after being heavily overweight last year. “We like equities in developed markets, but see a new shift into emerging market equities before the end of the year,” says Stadermann.

He adds that HQ Trust rarely holds much cash and is neutral to underweight bonds, preferring fixed income instruments with short durations, especially in emerging market debt, adding some long duration in developed markets.

HQ Trust went underweight hedge fund during the financial crisis, but has since moved to a more bullish view and likes single strategies like convertible arbitrage. Stadermann says most portfolios have between 10% to 20% hedge fund weightings.

Efforts to capture the investment potential of Asia were initiated with the launching of Penjing Asset Management, which was set up by a number of Asian families along with the Quandt family in 2005. Much of the investment activity is centred on hedge funds and Penjing currently has around $500 million assets under management.

Nevertheless, it hasn’t been all plain sailing for the various investment groups owned by the Harald Quandt family. Earlier this year, Markus Stadlmann, one of the triumvirate running HQ Trust and chief investment officer, left to join Barclays Wealth.

Stadermann says the investment function would now be taken care of by managing director Fritz Becker as head of investments, based on an investment committee made up of six investment experts. “My colleague is also managing director of HQ Holdings, this will ensure continuity and continued success of the funds,” he says.

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