Sandaire, the London and Singapore based international investment office for wealthy families and foundations, celebrated its 20th anniversary in 2016—a rare feat of longevity and success in a highly competitive sector.
CampdenFBsat down with Alex Scott, founder, chairman and non-executive director of his family’s investment holding company, to discuss the principles which set Sandaire apart, the investment trends seen over two decades, the virtues of a family office, the impact of Brexit, and where-to next for the family business and office community.
How has Sandaire evolved over the past 20 years?
Sandaire as a business has evolved from initially being created purely to respond to the demands of my own family, plus the approximately 2,000 shareholders in our company who are non-family, who were participants at the time of the sale, to now working on behalf of over 40 families and foundations.
In terms of assets there has been significant growth and, in terms of what we do, it’s still pretty much the same thing so in terms of size we’ve evolved. The approach is, and always has been, that what we wanted was an independent organisation. We wanted an organisation that was not under sales pressure, by which I mean have no products, and therefore, there is a very clean approach to asset allocation.
If we’re responsible for asset allocation because it’s the prime driver for returns for families, then if you have different compensation depending on where the assets go, you’ve got friction in that. So what I wanted was an organisation that would just deploy according to what was right.
The investment landscape on which we operate has really changed. Twenty years ago, there were equities, there were bonds, there was private equity, and some other asset classes. In terms of the opportunity set for the investor, it’s become much more sophisticated, much more complex, and obviously we’ve had to evolve accordingly.
When we set up 20 years ago, it was quite a big decision to buy an extra computer. It was an expensive thing to add to the infrastructure. Our investment into systems is never ending and it’s certainly evolved very significantly since then.
In terms of people, we’ve gone from six to 46. In terms of locations we’ve gone from just London to London and Singapore, which we opened four years ago. In terms of my role, I was the founder, and the chairman, and the chief executive, and I’m no longer chief executive. Alexandra Altinger (right) joined us nearly three years ago so my role has evolved as well but the principle is the same. The proposition is if we can be independent and transparent and focus on risk management and asset allocation, those are the critical elements that families need to be good stewards of their wealth over the long term.
What is the wealth range of your clients?
Our minimum is about £25 million and upwards. There is a level of wealth at which I would expect a family to establish their own family office and it’s probably $500 million or £500 million, something like that. And I would expect if we were working for a family with wealth in excess of that, then we’d be operating for a part of it, not the whole, and they’ve probably got some kind of administrative call.
I think there is an opportunity for us to be the net jets of the family office world. The billionaires fly their own planes, and they can paint it in their own colours and they can have their own flight attendants and be precise about what they get for lunch, and the seat configurations and the coverings on the door handles, or whatever. Then there are others who said, well, I really like the expertise and convenience of that form of travel but actually if I share the infrastructure, I can get all that expertise and maybe I’m not as rich as a billionaire but I can get all that expertise, I can somewhere very close to it but it’s different from flying commercial.
I’m a fourth generation family member, there are a lot of people in my family. But our proposition is, if we can do this together and there are economies of scale, there is a real efficiency in doing what we do, simply in terms of our own time,
I think there are 15 in my generation, there’s about 36, excluding spouses, in the next generation. So if we all decide to have one or two private banking relationships, think of the meetings, think of the paperwork, think of the time we are engaging in that. Whereas if we delegate to a business that we’ve created, its just much more efficient, let alone the buying power, and let alone the capacity to be able to invest in really interesting situations as wealthy individuals. Without the collective buying power of the family office, we just couldn’t do.
There is also an element of getting your family hat on. And having a focus for the family. When the business goes, or if the business goes, it’s definitely an advantage to have something about which you can coalesce because it brings you together, it gives you something in common and there’s something just good and nice about knowing who you are and what your roots are. The family office can form part of that fulcrum.
How is Sandaire marking its 20th anniversary?
For our 10th anniversary we decided not to have a party. We issued a book, looking forward, over the horizon, and working out what the next decade was going to be like. This time we had a really nice party, we hired an expensive house and we invited our community there, people who had been part of the business, people who had been clients, who had worked for us, advisers of clients - friends of the business. We also launched an initiative with the School of Life.
I don’t want it to be too heroic - 20 years is 20 years and it’s a date. But it does sort of play into the original family business, which was formed in 1903 so I could say this is just another chapter.
Sandaire has been going 20 years and what I believe is that its family ownership with another hat on. It is not only a distinctive characteristic but it also gives us the capacity for longevity and endurance which I think is in excess of those businesses that are owned, that are held in partnership because I think it’s more difficult to maintain and retain a partnership structure over multiple generations than it is a family business structure. So 20 years a mark along the way. It’s noteworthy, but we’ve got a very long-term horizon.
Family being an anchor for longevity seems to be a common theme in the family business community.
I think it is. You can argue that there are two enduring characteristics of any business. One is culture, and any business, doesn’t have to be family owned to have a culture. But a culture in a business can be the most powerful element that facilitates its success or failure over time.
I would say family businesses have another characteristic other businesses don’t have which is their capacity to endure through multiple generations. And that gives them a really significant advantage, as long as they play that well. Family businesses fall into the trap of appointing the wrong people at the wrong time to do the wrong jobs, then that’s not smart. But if they recognize that their strength is their capacity to endure and to act effectively as a result of that, then that’s a really powerful element. My own family business launched 1903 - two world wars, recessions, there’s all sorts of crises you can endure.
I think an example of our capacity to plan for long term would be our decision to open in Singapore. It’s going to take time there but we know where the wealth of the future is being built. We might be early there but I think that’s what being a family owned business gives you the license to do, to plan very strategically. You’ve got to say we’ve got this advantage, how do we use it well.
What prompted the opening of the Sandaire office in Singapore?
It is intelligence and access for our investment process so one of our teams is out there giving us access on the ground. I’ve always felt that there should be opportunities for us to work for families wherever they live. If you go back to the premise, what we want is great asset allocation, risk control, access to good opportunities at an appropriate price that are transparent. That’s what every family wants really, pretty much. Particularly those who are inheritors, particularly those who want to be stewards of wealth. So if we execute wealth, there is no reason why that shouldn’t be relevant anywhere in the world.
And it is just inevitable, Singapore is one of the most important investment management centers in the world. And the pendulum is swinging that way.
How does your personal experience in family business inform your dealings at Sandaire?
I’m the business founder and I am not the investor, I’ve never managed money on behalf of our clients and never will. So my position is that I’m a client too, I’ve founded the business because I couldn’t find that service in London so my interests are aligned with our clients, provided they know that we are also earners of the business, that’s not hidden. But the business wouldn’t exist had we not put the capital in to create it.
I’ve got absolute alignment with our clients, we have as a family.We pay the same fees and we receive the same service. But equally, my experience as an inheritor of wealth and a beneficiary of trust, and a senior generation to a next generation growing up in the context of wealth, all means that I obviously have empathy and connection with people who are our clients so I feel that I’m working for and with a peer group.
Notwithstanding the fact that we have people who have done the amazing thing, which is to create extraordinary wealth themselves. I’m just inheritor. I think the extraordinary quality of those who create significant wealth is something that we do celebrate in our economy and in our society but they are special individuals, they change the world. Some of whom I’m fortunate to count as my clients, and some of us are inheritors, and some of us are trying to be good stewards and capitalise on our good fortune and being those descendants. In some respects I’m an entrepreneur as well. I don’t think I’ve made the money that our clients have but I kind of get it. So it’s about alignment, it’s about empathy, it’s about affinity I think.
What trends among family offices in general have you seen develop over the two decades? Do you think single-family offices will eventually die out?
When I launched the business, there wasn’t a multi family office in London. We call ourselves an investment office and one of the reasons is that there are so many versions of multi family offices that it just gets confusing.
What we do is the investment piece of what families need, we work with other professionals to deliver other services, so that's our expertise, the investment piece of that picture.
How has it evolved? Well clearly, more multi family offices have emerged. Some have emerged and disappears. Some have merged. We merged with one of our competitors. So they are there, but if you’d asked me 20 years ago, I’d have said well by now probably 10 multi family offices, because I think it’s a good idea, I suspect this market will be a good place to be running one. But actually, I can number them on one hand the number of multi family offices here in London now.
So what does that say? It’s really difficult. There is a great side to being in London, which is there are fabulous skills, great people, it’s a great environment to run a business like this but it is ferociously competitive. It’s pretty efficient, quite transparent, we can compete with each other very effectively. So that’s good, it makes the business fit. But it also means that it’s a tough place to grow your business.
I would say that the market hasn’t evolved to the extent that I thought it would have done over 20 years. But I think that those who have endured, or indeed those who have merged or whatever, have demonstrated what I didn’t know, is whether there was a place in wealth management for the multi family office. I think we have shown that there is a segment for us to occupy that didn’t exist.
Single family offices won’t eventually die out because I think that they make absolute sense for the wealth creating generation, if they have first of all, sufficient assets to create the infrastructure that they require to help them deploy their assets sensibly, and secondly, that the family, either the wealth creator, or importantly, his or her descendants, have the interests of being responsible for the management and performance of that family office.
Now the challenge comes at precisely that point, when the founding generation, who are extraordinary individuals, they’re likely to be the entrepreneurs, they’re just different from us, and they’re very capable, very energetic, and all those other things. But it may not be what their children want to do. It may be their children want to use their time, either creatively or destructively, it’s up to them how they use their time, in a different way. And I think that’s where the raison d'être for a single-family office comes. We have clients who could have their own single-family office, but actually want to spend their time in a different way. So you’ve got to have the money and you’ve got to have the interest.
It must become more difficult as the generations grow, because someone in the family needs to dedicate a lot of their time to do it. In my family, that's me, but there isn’t always a me in every family. And at some stage, if there isn’t equal wealth ownership, there will start being a problem of free riders in the family. And the final point is, that at some stage, there will be a regulatory issue as the family gets larger.
I don’t understand enough about that because we’ve been regulated from day one, but at some stage, there must be regulatory pressure if you’re working for multiple generations and multiple cousins. And at that stage, you know life becomes a lot more complicated and expensive.
Which asset classes are now attracting the most investment interest, and why?
I think that in order to generate returns that are better than the market will deliver then families exposure to entrepreneurial behaviour is increasingly of interest.
Because we are living in an era where such extraordinary technological, scientific and other developments are so clear, I think this is a really challenging time for both families and family offices. It seems to me that there is an increased propensity to access these directly or rather than indirectly, which is attractive and interesting and stimulating as an investment but fraught with challenges.
Technology has enabled the fundraiser to find the sources of capital. And the sources of capital are maybe families, maybe their family office. There are always opportunities for the capital to be deployed and I think there is an increasing interest in deploying it directly.
The real challenge is to do that well given that it is not what you do full time. So if you’re a family office, and let’s say 10% or 20% of your assets go into direct investing or private equity, then you’re probably going to have 10% or 20% of your resources dedicated to that. If you’re a private equity house, that’s what you do. So everyone is dedicated to it. So the issue is that multiple family offices have just found that they want to step around the fees that those private equity houses have charged. The institutions are not doing it directly, but I think families are increasingly investing directly.
So I think there is, and as we know, businesses aren’t going through IPOs like they used to. So its not like you can buy them, or you can, there are fewer IPOs, as we know with the cases of the unicorn investments, that are few in this country and plenty in the US, that are staying private. I think families are very interested in getting access to those. But it is not without significant risk and challenge. So I would say there is an increasing interest there. I think that it’s an area that will evolve and is probably taking a lot more attention than it did, certainly 20 years ago.
Is Sandaire gauging interest from clients in impact investing?
Philanthropy to me is you’re making a gift. If you’re impact investing, you’re expecting some kind of return, however you measure it. So yes there is an increasing level of interest, usually from the inheriting generation. I think it’s a generational thing.
If I look at my family, then my children’s generation are going to invest the family assets I suspect differently than my generation do.
The capacity to access, analyse and understand impact investing, sustainable investing, the whole world is moving in that direction anyway but also businesses are reporting in a way that helps you understand to a far greater extent where they fit in those categories.
There is definitely a movement in that direction. And I think it’s an important one, hence our decision to bring in someone like Bonny Landers (head of sustainable responsible and impact investing at Sandaire).
Millennial expectations of philanthropy: They want to see results come out of it, it’s not a gift. Perhaps families to the older generations, they want to see definite change, measurable change from their investments and maybe even control it, they maybe don’t want to give a lump sum, they want to direct how it’s spent.
Provided that’s done sensibly that can work really well. I always think the challenge is, if the owner of the wealth is sort of insensitive to the dynamics of the charity, then that can be disruptive.
What’s been the verdict in the Sandaire community about Brexit?
If you asked me strategically as a business, do we know what we should do as a result of Brexit? Well, we know we’re going to have to be agile in our response to the outcomes of negotiations. So we are preparing for that agility. But it’s not obvious to us as yet, as to what that might entail.
Do I think that there will be short term and probably medium term collateral damage, yes. Do I think London is challenged as a centre for financial services, no. I would say this place will remain a great place to do what we do. We may have to respond organisationally, but it’s not obvious to me yet what that might be.
How do you see family offices evolving over the next 20 years?
I would hope that the reputation and results of the businesses within our sector and their profile is such that we become, we and I mean every business, not just us, we become a must-see option for someone who has realised significant liquid wealth.
At the moment I think we’re a might-see option and I believe that this is partly because it takes decades to build brands and reputation in this sector.
I’m optimistic. I think that there will be significant survivors in the sector and there will obviously be casualties, because we live in a capitalist world where businesses will fail and businesses will change. I hope and believe that provided we and others remain true to what we espouse, which are those elements, all that’s said, no products, transparent, focus on asset allocation, portfolio construction, and specialising in the needs of the small niche of wealth families, then I would expect businesses like ours to be of a more significant scale and size than they are now.
I would also say that our business in Singapore will be more significant and I think that our clientele will become even more global. The challenge will be, and our aspiration is that London is still in 20 years, a place where people wish to have their assets managed and I think it will be.