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Expert warns Stonehage and FF&P merger may not solve profitability dilemma

By Nicholas Moody

A family office expert has warned that the proposed merger between multi family offices Stonehage and Fleming Family and Partners in pursuit of greater scale may not be the answer to profitability issues faced by the industry.

Family-owned multi family office Fleming Family & Partners has agreed to the merger with Stonehage to create Stonehage Fleming Family and Partners (SF&P). The merger will see the Fleming Family Trust Company's ownership stake reduced to less than a quarter of the new entity. 

The group will be majority owned by management and staff who will hold more than 70%, with Standard Chartered's 20% stake in FF&P being reduced to less than 5% of SF&P.

Giuseppe Ciucci, current chief executive of Stonehage Group and nominated chief executive of SF&P, said the MFO environment was rapidly evolving away from commoditised banking services and products, but it requires scale to make it profitable. 

“Very few people have scale and almost no one is cross-border. So that's our ambition to have scale and be cross-border.

“Scale is very much required in this environment because of the increased regulatory burden and in this internet era, margins will keep on going down. [Businesses] will need large assets to be a sustainable, profitable model,” he said.

However Kirby Rosplock, a family office consultant and author of The Complete Family Office Handbook, warned that not all scaled family offices are necessarily profitable.

“The devil is often in the details. MFOs will get larger because they may see an opportunity for greater efficiencies, greater buying power, and enhanced ability to defray costs; however, the elephant remains that many MFOs are very inefficient.”

The merger, which has reportedly been under discussion for five years, will pair FF&P's significantly larger investment assets, capability in fixed income, private equity and corporate advisory, and UK tax planning with Stonehage's international client base and multi-disciplinary approach.

When asked whether the union would be a good deal for family clients, Rosplock said only time will tell.

“Right now, it is premature to comment, howeverthe merger suggests that both organisations believe that the economy of scale coupled with geographical reach will enhance the value proposition for the families they currently work with and anticipate attracting in the future in the EMEA region.”

The combined business, will serve a client base of over 250 families of wealth, and will manage, advise, and/or administer over $43 billion (€34.6 billion) of assets. This will include an investment business with more than $11 billion under management for families and charities. 

The merged entity would rank as the second highest independent family office in Bloomberg's annual family office ranking, behind Bessemer Trust. The ranking includes both independent and bank-owned family offices.

SF&P will have combined revenues of approximately $160 million and employ over 500 staff in 14 offices, across seven countries.

FF&P chairman Adam Fleming and FF&P chief executive Mark Davies will join the SF&P board together with Lord Renwick, presently the FF&P deputy chairman.

The transaction has been approved by both boards and is subject to shareholder and regulatory approval.