Bedrock, a multi family office, has managed to attract a lot of money from very rich families quickly. Much of its success lies in the background of its senior managers. David Bain reports
There are few better legacies to run a family office with than managing the money of one of the last century’s greatest bankers. But that’s exactly what three of the four founding partners of investment house Bedrock did when they oversaw the money of Edmond Safra, the legendary financier behind the Republic Bank of New York – one of the most successful banks of the second half of the 20th century before it was acquired by HSBC at the end of 1999.
“Safra’s pedigree as a banker is not in doubt,” says Ariel Arazi, one of the managing partners and founders of the Geneva-based Bedrock. “He certainly has been influential in Bedrock’s thinking.” Safra died in a fire in his luxury apartment in Monaco shortly after selling his bank, but Arazi along with another co-founder of Bedrock – David Joory – managed the money of the banker’s widow Lily, which included a sizable chunk of the $10 billion HSBC paid for Republic.
But after four years of running Lily Safra’s family office, Arazi and Joory decided to launch their own business and set up Bedrock along with two other co-founders, Alexander Koifman, with whom they had worked with as investment bankers at Republic, and Maurice Ephrati. “The running of Lily Safra’s family office was obviously an extreme privilege and a rewarding experience,” say Arazi. “But we wanted a new challenge and that meant running our own business.”
Bedrock was launched in 2004 in Geneva, with an office opening in London shortly afterwards. Growth has been rapid ever since. The investment house now has more than SF5 billion (€4 billion) under supervision, with a split of around 35% in discretionary mandates and the rest in an advisory capacity.
Arazi reckons that one of the appeals of Bedrock has been the investment banking experience of the managing partners. He says this is unusual in the world of family offices. Arazi worked on capital markets and foreign exchange while at Republic; the three other managing partners come from similar backgrounds. He says this helps in the investment process. “Our background means that we have a pretty good understanding of most of the products offered by banks and managers.” Bedrock managers work directly with clients and also manage the investment process, which they say had underpinned the firm’s success.
The background of the founding partners certainly appears to have attracted clients, given the assets under supervision figure, and Arazi says that Bedrock doesn’t chase clients. “All our assets come through referrals,” he says. Clients also like the fact that Bedrock is independent, says Arazi. “We aren’t selling products, but rather advising clients on asset allocation and manager selection.”
Bedrock allocates money across all the big asset classes including hedge funds, private equity and real estate. Although having exposure to some less than stellar performing hedge funds during the financial crisis, Bedrock managed to avoid the blood bath many Geneva-based wealth managers became embroiled in.
“Very few managers weren’t hit by the hedge fund problems that unraveled during the financial crisis. We had our difficulties, but we managed to avoid any Madoff exposure,” says Arazi. One of the worst affected banks was Geneva-based Union Bancaire Privée, which admitted to $700 million in Madoff exposure back in 2008.
Bedrock says that its clients come from around the world, but the majority of them are based in Europe. The Republic legacy has helped with wealthy Jewish families and Arazi says around 30-40% of clients come from the Jewish community. But he adds, just as Republic had many Jewish clients, it also had many Arab clients – and indeed investors from all backgrounds. “So it is for Bedrock,” he says.
Three of the greatest names in post war Swiss banking – Safra, Edgar de Picciotto, who set up UBP and built it up to become one of the most successful Geneva wealth managers, and Gilbert de Botton, the founder of the Global Asset Management (better known by its acronym GAM) and the inventor of open architecture in asset management, were Sephardic Jews.
All three had excellent connections among Arabs throughout the Middle East – and they used these, along with many other connections, to build highly successful banks and investment management businesses. Arazi wouldn’t be drawn on whether Bedrock has similar ambitions, but the parallels are there to be seen, particularly with all four managing partners working with at least one of these famous investors in their past careers.
Arazi says that very little client money left during the financial crisis, although performance was down. “Obviously clients were concerned, but most had a long-term outlook when it came to their investment horizons.” Bedrock was also fast to get out of equities and hedge funds in 2008, meaning that even after the collapse of Lehman’s, the return on assets at the manager was respectable and has rebounded rapidly in the second half of 2009 and in 2010.
Nevertheless, Arazi wouldn’t be drawn on actual percentages when it came to performance because of what he says is the difficulty of breaking performance down to an average because of the different risk profiles of clients. He is also wary of disclosing too much about performance due to compliance issues.
When it comes to fees, Bedrock says it is very transparent and charges a very reasonable rate. As Arazi says, “They start at 1% and then go down.”
Demand for a more rounded offering from clients, coupled with the growth of non-investment advisory services of wealth managers led Bedrock to augment its investment offering recently with the introduction of a dedicated family office platform. Arazi says the new platform will offer non-investment related personal affairs services, including legal and accounting services.
Managing partner Maurice Ephrati, who will be overseeing the new service with Koifman, says the service is a natural progression to Bedrock’s existing offering. “This next phase in our considered strategy for growth will help us cement our position as ‘trusted advisers of choice’ for families around the globe,” he says.
Asked whether the move to offer advisory services was designed to extract another level of fees from clients as pressure on investment management fees are being squeezed across the investment manager world, Arazi was adamant that this wasn’t the case. “We are offering the services because of demand from our clients, not the other way round” he says.