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Family offices: More than just keeping it among kin and paying it forward.

Family offices: More than just keeping it among kin and paying it forward.
Mary Oppenheimer, daughter of the late Harry Oppenheimer, has followed the lead of Johann Rupert and Nicky Oppenheimer (pictured) in donating towards the fight against Covid-19. (Photo: Supplied)

The world’s first family office set up shop in the US in the 19th century. Its sole purpose at the time was to manage the fortunes of corporate moguls such as JP Morgan and John D Rockefeller. Fast forward a century or so, the offering has evolved into something more elaborate and further reaching. But it is in the past 10 years that family offices have gained real traction and become a significant contender in the money management game.

It’s a booming business. An EY report states that there are currently more than 10,000 single-family offices around the world, and research by Campden Wealth suggests family offices hold assets in excess of $4-trillion.

It is a significant amount of money under management if one takes the Wealth-X Billionaire Census 2019 report into consideration. According to the report, there are about 2,604 billionaires in the world, boasting wealth of more than $9-trillion.

South African billionaires that crack the list include Nicky Oppenheimer, Johann Rupert, Patrice Motsepe, Koos Bekker and Michiel le Roux, according to Forbes.

These five men’s net worth ranges between $1.2-billion and $7.3-billion, according to the Forbes list of the world’s richest people.

South Africa shares the glory with the US and Canada when it comes to Elon Musk, with his trifecta in citizenship. His personal wealth is estimated to be more than $20-billion and according to Forbes the 40th-richest person in the world.

Oppenheimer only ranks at number 200, with Rupert at 317 and Motsepe at 962.

But there is much more money to go around in South Africa than that among a handful of billionaires. A report by academics Ihsaan Bassier and Ingrid Woolard suggests that based on tax data, the country has an estimated 182,000 dollar millionaires.

Furthermore, according to the AfrAsia Bank Africa Wealth Report, total individual wealth in Africa is expected to rise by 34% over the next 10 years, reaching $3.1-trillion by 2027.

It is for such reasons that Maitland opened up one of the largest full-service independent multi-family offices in South Africa in 2018. It said in a media statement at the time, that “the time is ripe” to tap into the growing wealth in South Africa.

In 2018, Maitland acquired Johannesburg-based Talaria for an undisclosed sum in order to gain scale in the country.

Cheryl Howard, MD of the Maitland Family Office, says that the wealthy are quickly becoming “global citizens” and need a service that is truly international and delivered seamlessly across borders.

This was compounded by increasingly complex regulations, a more litigious society and the risks of an unstable global economy.”

Maitland was founded in Luxembourg 42 years ago and according to the company, it counts some of the world’s wealthiest families as its clients. The group has 17 offices worldwide with private clients serviced mainly from Guernsey, Isle of Man, London, Luxembourg, Malta, Mauritius and Monaco.

The first business in SA to brand itself as a family office, however, was Stonehage Fleming. It was formed by the merger of Stonehage, which focused primarily on helping South Africans manage their overseas assets, and the family office interests of the UK’s Fleming family. The best-known member was Ian Fleming, creator of James Bond.

Stonewood, Vantage and Alpha Wealth are some of the other local operators. Citadel is planning to launch a family office operation in the second half of 2020.

Before them, the closest thing to a family office were the large trust companies such as Syfrets and BOE.

Overseas, hedge funds are also jumping on the bandwagon. Dozens have converted into family offices, including hedge fund manager David Tepper, who announced in May that he would return Appaloosa Management’s capital to investors and convert it to a family office.

A move to a family office would see Tepper join several of his prominent peers, including George Soros, who moved in 2011 to close his hedge fund to outside investors. Billionaire John Paulson also indicated earlier in 2019 that he was weighing a transition. Leon Cooperman returned all capital to investors in his hedge-fund firm, Omega Advisors, at the end of 2018.

Howard says family offices offer several advantages over banks, hedge funds and private-equity firms, including the management of longer-term capital needs and generally a more personal touch when it comes to support services. She once had to help one of her clients choose the colour of his new Bentley’s interior, she says.

We are also noting an increased need for philanthropy services with more and more South Africans wanting to give back to society,” she adds.

The Economist reports some concerns around the growing influence of family offices.

It writes:

Brooke Harrington of Copenhagen Business School worries that the growth is undermining meritocracy in capitalism.

The bigger the apparatus they have behind them, the harder it is for the market to discipline them,” she says.

Chuck Collins of the left-leaning Institute for Policy Studies in Washington, frets over opacity — “they ensure ever more wealth goes off the ledger” — and their growing lobbying clout.

He argues that billionaires’ family offices have worked tirelessly to exploit loopholes and rig rules to further their interests, most notably by helping to gut America’s estate tax.

They are in the dynasty-protection business, trying to arrest the normal, natural process of wealth dispersal,” he says.

This increased willingness to release cash from the primary family business via an initial public offering, for example, combined with the rise of the do-it-yourself approach to managing wealth, suggests that the number of family offices will go on rising. With upwards of $2-trillion expected to pass from entrepreneurs to their heirs over the next 15 years, the family office is entering a Gilded Age,” The Economist writes. BM

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