Lombard Odier is one of the largest private banks in Europe with €222 billion (US$253 billion/£195 billion) assets under management. Earlier this year, its asset management business established the Lombard Odier Investment Managers Family Offices team, to provide customised services to family offices in Europe.
Ahmed Husain (pictured), London-based head of family offices in Europe, helps ultra-high net worth investors and family offices source, curate, analyse, and monitor investment opportunities across asset classes. Husain describes where family office clients are pivoting their investments interests, the common governance structures he works with, and where non-family executives are fitting in.
Which trends are you seeing among your family office clients these days?
There are probably two big issues keeping them awake at night. One is fixed income exposure. Everyone has been talking about rates going up for a while. Most family offices we speak to have pretty much sold their entire fixed income portfolios. They don’t own any treasury, don’t own any bonds, don’t own any investment rate bonds, hardly own any high yield. So if they’re doing fixed income they’re doing it through other more esoteric things like structured credit or collateralised debt obligations or non-performing loans.
The other issue is their US exposure. The United States has had a big run, it was a large exposure for them and they didn’t reduce it when Trump came into power, which was a good thing. That is something they have been actively reducing, the US exposure across the board, whether public equities or private equity. They also feel that the dollar is top-ish.
The trends that marry with those issues are, as the money comes out of US it’s going into Europe, and people are looking at and trying to figure out what to do around emerging markets. The first thing they are doing with the money they are taking out of the US is that they are buying European assets, mostly European equities. Some are buying UK equities, but mostly they are buying European mainland equities. They are buying it in the long only format right now, which is quite rare for these European families, because historically they made their money by owning some European business, whether a car business or some kind of real estate business.
Initially some of the money is going into European real estate, some of it is going into private equity, some of it is even starting to go into venture capital, so there has been a big transition.
Family offices in countries like China are going more and more into the Europe and trying to figure out how to invest, that is something they definitely don’t want to do themselves and are hiring managers.
There is a big generational transition going on from the 65 to 70-year-olds to the 35 to 40-year-olds and that is leading to tech being a big thing. The next generation wants more on tech and venture capital. There is a big trend around getting out of fixed income, and getting into riskier assets. Then the other big trend is social investing impact—how do we do it better, do we do it more through private equity and illiquid assets, or do we do it more through liquid assets? Most people have done it through private equity channels or illiquid channels. Our view is that you can do good without giving up liquidity. And so we focus more on public markets, because we think that is cheaper, and we think you can see results quicker. We don’t want our clients to be illiquid for five to seven years thinking they are doing good and then find out it wasn’t a good investment. What our view of the world is, you can do good and make money at the same time. They are not mutually exclusive.
What kind of governance structures are proving to be most popular within the family offices you work with?
They are all pretty similar in the sense of there is an owner, a beneficial owner, a member of the family who is somewhat the final voice on things. Around that there might be an advisory board of two to three external people, three to four lawyers or trustees. So there is the top layer with the owner, then there is the trustee/advisory board layer, then the third layer is the investment committee, which is people inside the family office. Those people in the family office work on the investments, they have a benchmark that they get judged against, and they put all the investment ideas together, and then they present it amongst themselves, and also to the layers above them, the advisory board and the owner. And usually the decision is made by those three layers.
Are you seeing more non-family directors come on board family offices?
More and more. Just in the last three days I’ve met four different people who have joined the family board, the advisory board, or the executive board, who have just come from finance. They were all bankers. There is definitely an increase in finance people getting into the advisory board; the investment committee is obviously finance people, with the advisory board becoming more and more finance-orientated. That is what we hear anecdotally from German family offices to an Italian family office, or a Swiss family office. You see that transition. So it's a good point.