At her retirement party last year, Christine Galloway recounted a letter penned from her then six-year-old son Robbie while she was still working in private banking in Chicago over two decades ago. 'Mom, where are you? I have not seen you in a long time. I miss you. How many meetings did you have today? One or two?' Galloway had been perfectly content working for a large commercial bank, but when the opportunity came to work for a family based in Minneapolis she was intrigued. In 1993, Galloway became president of financial services for the Dayton family office, Okabena Company.
The family's most well-known and lucrative wealth creator was Target, the discount US retailer that today is second only to Walmart in terms of revenues ($72.6 billion in 2014). Five third-generation brothers were behind the chain of superstores. They had inherited Dayton's, a successful Minneapolis department store, in 1950, but saw a gap in the market for a mass-market discount retailer and launched Target in 1962. (The original department store is such a landmark in Minneapolis that, despite being sold and rebranded as Macy's, many locals still insist on calling it Dayton's). Five years later an IPO allowed the brothers – Donald, Bruce, Wallace, Kenneth, and Douglas – to form their family office, named after Lake Okabena in Minnesota's southwest, where their grandfather, company founder George Draper Dayton, had lived.
For the Daytons, the transition from business-owning family to financial family took just over 15 years from that first liquidity event. Bruce Dayton, today the only surviving third-generation family member, and his brother Ken stepped down from the board of directors of Dayton-Hudson, the company that had been formed from a 1969 merger, in 1983. The oft-cited statistic for family businesses is that only 12% make it to the third generation, but uniting family around wealth, rather than an enterprise, could arguably be more trying. Remarkably, Okabena's investment subsidiary, which manages approximately $1.3 billion, currently serves down to the sixth generation. A recent taskforce dedicated to understanding the family's commitment to the family office found that everyone hoped it would stay for the next 50 years and beyond. “Okabena has been incredibly successful in playing an important and well-appreciated role in creating a very cohesive family,” says Toby Dayton, the fifth-generation chairman of Okabena Company (the family refers to their generation with reference to Dayton's rather than the family office).
For the last seven years, Galloway has worked in partnership with Dayton, who says his top objective as chairman is to preserve Okabena for his children and their children, and that everything else falls under that. Reflecting on their efforts to secure the family office's future, Galloway states: “In cleaning out my desk it was really obvious this has been on the minds of the family for as long as 20 years.” Galloway retired from the Dayton family office last December, having become its first non-family chief executive in 2001 (taking over from Dayton's father).
Eighty-seven per cent of family offices are concerned about their sustainability in successive generations, according to an academic paper by Kirby Rosplock and Barbara R Hauser, published in the Journal of Wealth Management late last year. “From the generational wealth transfers to the increase in the number of households as clients of the family office, family offices will increasingly be focusing on the future state of the family office,” the paper predicted in a forecast for the industry. Consider the generational mathematics at play at Okabena, where the client base has grown from five brothers and their families, to almost 100 family member clients today.
Wealth preservation strategies, employed by 29% of family offices with more than $1 billion under management, can compound sustainability issues, explains Galloway. “For families that are only preserving wealth, when some of these other factors, like complexity, cost, increasing number and, dispersion of clients occur, it becomes a really challenging business model to try and sustain.”
Each family office must find innovative ways to address sustainability concerns, argues Rosplock, who is also author of last year's The Complete Family Office Handbook, if they wish to avoid disbanding. At the Dayton family office, an SEC-registered subsidiary was created, Okabena Investment Services, and in 1996 it extended its services outside the family to small-to-medium family foundations and non-profits to increase its economies of scale. “Between the complexity of the investment environment, the complexity of the regulatory environment, the complexity associated with data security, and the cost of talent, you've got to make sure you've got a large enough asset base to distribute those costs fairly and reasonably over the clients,” Galloway says. Rosplock says the non-profit client model is an innovative one that she has not seen employed in other family offices. Today Okabena Investment Services caters to around 30 such organisations, located from Baltimore to Chicago, but largely around Minneapolis.
To address the risk profiles of family members and clients, the family office provides a menu of investments, structured as limited liability companies (LLCs). Addressing how clients tap into this manager of managers programme, Galloway explains: “Someone who has very significant outside income and is not reliant on the portfolio could have a much higher allocation to the private capital LLC than, let's say, an individual who was older, dependent on the portfolio, and they would, by nature, have a much higher allocation to fixed income.” The other LLCs include domestic equities, international equities, hedge funds, and real assets and long-term equity.
The family still has some Target stock, but Galloway explains this is largely used for sentimental reasons and gifting purposes. Memorabilia from Dayton's and Target, such as old catalogues and branded merchandise, are on display at Okabena's offices. From Galloway's perspective, the entrepreneurial and philanthropic legacy of the Daytons acts as a glue for current family members.
The Dayton family, especially the third generation, have been key drivers in the Minneapolis community, Galloway explains (Mark Dayton, a member of the fourth generation, is the Minnesota state governor). Target Corporation remains one of the largest companies in the community (last year it booked more than double the revenues of 3M, another local institution, founded the same year as Dayton's). In 1946, the family committed to donate 5% of the business's pre-tax profits back to the community, a policy that still exists at Target Corporation today.
Toby Dayton agrees that the family legacy is a source of pride. His grandfather was Donald Dayton, the first of the third generation to head the family business. However, he does caution: “It's important to find the balance between being proud of your family and celebrating that, but also not getting lost or all-consumed by that.”
Opening up the family office to outsiders has been palatable, Galloway believes, because the strategy is sustainability driven, rather than profit driven. “It's about gathering assets in a very thoughtful and deliberate way. So long as the family feels they're working with other families that share their values they've been actually very receptive and enthusiastic about that set of opportunities. I think a lot of that is driven by their commitment to Okabena and the realisation that in order for Okabena to continue, in order to run a first-class professional operation, it's going to be a matter of necessity that you increase scale to a certain extent.”
Family offices run the spectrum when it comes to how connected they are to the beneficiary family, Rosplock argues, with some creating a Chinese wall, while others are central to the family's activities. “The ones that connect more to a common story line, a heritage, a legacy business, something that is an identifier for the family, they are the ones that tend to take great pride even if the family business isn't around.” In The Global Family Office Report 2014, produced by Campden Wealth on behalf of UBS, family unity was ranked the third most important family office objective, with 70% ranking it important or very important (intergenerational wealth management and consolidated accounting, tax and estate services ranked as the most important objectives).
At Okabena, the family's entrepreneurial legacy has been a basis for the in-house educational programme that was introduced for generation six. Established early in Galloway's leadership, the programme begins around age six, and develops financial literacy in young family members, covering topics such as budgeting, entrepreneurship, as well as investing. “The kids will have assignments that they'll do as part of modules. They'll send them back so there is communication back and forth, and then in the context of this annual family meeting every summer that's the concluding exercise, if you will.”
The education programme also helps next gens establish a relationship with the family office. Galloway recalls one diligent young family member who completed his first assignment very quickly, but was reluctant to call the family office to explain his answers for the project, which is part of the requirement. “Finally he got up the courage to call Jayne [Kuhnly, the vice president of education], and at the end of the conversation, he said, 'Oh gosh, you're not so scary after all',” Galloway remembers. “That sums up what we're trying to accomplish, that these kids are as comfortable with Okabena as their parents are.”
Dayton, who has three children, says he has seen firsthand how his eldest son, who is just about to start college, has benefited from the programme. “When I was growing up, at age 15 you started attending annual meetings and that was kind of it. You got thrown into the deep end of the pool and you either enjoyed it and listened and learned, or you were bored to death and hated it and resisted it.” His son considered last year's programme, which covered moving out of the family home, going to college, and starting a career, as one of the best yet.
Camp Okabena is the yearly get-together where family members meet to discuss family office matters. In the past its location has varied, but in the future meetings are scheduled to always take place in Minneapolis, where more than half of family members live. “Most years it's a great blend of family activities and business. We try to make those meetings really enjoyable for everyone,” Dayton explains. Events that ritualise staying together are typical in family offices that connect closely with the client family, Rosplock explains. Retreats and charitable projects are common examples.
Knowing that finding a replacement for Galloway was one of the main objectives for Okabena Company in 2014 was an intimidating way to start the year, explains Dayton. He was only in his twenties when Galloway joined the family office, and he had just been appointed to the board. “She has been a mentor in a lot of ways for all the years we've worked together,” Dayton says. “In the last five years or so it was definitely more of a partnership, working together collaboratively and very much as equals. Clearly I have always looked up to her, she has been an incredible role model as a CEO and business leader.”
It isn't just the Dayton family that recognises Galloway's success. In November, Family Office Exchange, the same organisation that had headhunted Galloway for Okabena Company in 1993, honoured her with the Founders Award, recognising her as one of the individuals that helped establish an industry around family offices. “As an industry, we have gone from trying to figure out how to track the number of sheep in our flock to framing macro cosmic issues for the business in the next century,” Galloway said in her acceptance speech at the Chicago event. She says the growth of the industry can be seen by how family office services became a marketing buzzword in major banks.
Galloway has not been directly replaced since her retirement in December. Jim Field has taken over as president of Okabena Company and will work alongside the president of Okabena Investment Services Douglas Neimann. Field says the transition couldn't have been more seamless, and there were about four to five months of crossover before Galloway retired. “We worked really closely together and made sure I got my arms around a lot of the history, the institutional knowledge that she carried with her being here for 20 years.” Getting in front of all the family members was also important. “We covered a lot of ground and travelled to both coasts to do that.”
Joining from Northern Trust, Field, a Twin Cities native, is tasked with extending family office services to non-family member clients, and Okabena's investment subsidiary is currently on-boarding discretionary and non-discretionary services for four families, representing $200 million. “We are having some very good conversations with a good handful of families,” Field says, adding that the families will plug into Okabena's resources under a client model, rather than a partner model. “There are a lot of families out there who maybe don't want to be served by a commercial operation. But [they] want to be served with something a bit more boutique, with the long-term view, the talent pool, and experience that we have here.”
Reflecting on his predecessor's legacy, Field says Galloway has helped “professionalise and organise the business for success”. He says this is in regards to employees, services to clients, and infrastructure. “She had a big impact on culture, not only with a completely dedicated and professional group of people, but a culture that embraces 'let's have fun while we're working'.”
That warmth has been reciprocated by the Dayton family, Galloway says. “We're doing investment management, we're overseeing a trust company and administering trusts, we're doing tax returns, we're doing financial planning, and we're managing a business model. It's been unbelievably energising to be able to do that, but at the same time know that I work for people and in a place where if I need to go home because there's a hockey game my son is in then that's appreciated, and that's valued and that's understood.”
For lack of a better word, Galloway describes the close relationship she has shared with the Dayton family over the last two decades as one of intimacy. “Over 21 years, I have seen babies born and become adults, and watched them over that entire period of time. There are very few jobs in this world that would give you the opportunity to have that type of long-tenured and deep association with one group of people.”