Newsletter - the Family Office Association

Newsletter - the Family Office Association

NewsletterThe Search for Talent: Family OfficesGreg Coules and Adrienne DonaldHunter Advisors

The Search for Talent: Family OfficesThe economic dislocations of the past two yearshave brought closer two hitherto relatively unrelatedmarkets: family offices that own significant wealthin the form of business assets, investments, realestate, and cash; and senior level hedge fundprofessionals. An awareness of the need for greaterinvestment sophistication and a desire to obtain theadvantages enjoyed by other institutional investorsare prompting some family offices to turn to hedgefund professionals. Under what circumstances wouldhedge fund professionals be interested in moving intothe world of a family office? What, from the talentside, are the challenges of family offices? What arethe attractions? What combination of investmentactivity, culture, and compensation would make theworld of family offices attractive to a pool of talentwith the highest levels of investment skills?To answer these questions, Hunter Advisorsconducted a survey of hedge fund portfolio managersand senior analysts working within the United Statesto determine:and portfolio managers in the United States wereinvited to participate in the electronic survey andresponses were received from 119 of those invited.Of those responding, more than half were currentlyportfolio managers and over a third were seniorresearch analysts. Altogether, the group representedsenior level hedge fund investment professionals.More than 85 per cent of the survey participantshave five or more years of investing experience, and25 per cent have more than 10 years of experience.Over a third of the respondents specialized indistressed credit and over 40 per cent focusedon long/short equities. The remaining areas ofspecialization – event-driven equities, high-yieldcredit, and long-only equities – were found in 16 percent of the other respondents. In interpreting ourfindings, therefore, it is important to remember thebias toward distressed credit and long/short equitiesmight skew the survey’s findings.• What portion of senior hedge fund professionalshave already been in contact with familyoffices• What if any interest existed among hedge fundprofessionals in pursuing opportunities withfamily offices• What kind of appeal family offices hold forhedge fund professionals• What kinds of reservations hedge fundprofessionals have about working at familyoffices• What kind of compensation expectations thoseprofessionals have for roles at family officesThe Survey PoolHunter Advisors conducted its family office surveybetween April and June 2009. 845 senior analystsFinally, the majority of the respondents reportedearning over $750,000 and 30 percent annuallyearn over $1.5 million (see figure 1), with theaverage compensation for family office CIOs fallingbetween $600,000 and $800,000 by comparison.The significance of the compensation information isPh: 203-570-2898 // // www.familyofficeassociation.com2

The Search for Talent: Family Officesthat the majority of the respondents are at orabove average of $794,000 of 2008 hedge fundincome, as reported by Alpha magazine 1 . Interms of compensation, then, the respondentsrepresent industry averages. Their expectations forcompensation should also be in accordance with themajority of hedge fund investment professionals,making the sample useful to gauging the fit betweenfamily office compensation culture and that of hedgefund professionals.Making IntroductionsThere has been little apparent interaction betweenfamily offices and hedge fund professionals, accordingto our respondents. 75 per cent of them have neverspoken to a family office about employment roles.Moreover, only 10 per cent of the survey participantsare currently in touch with a family office about aninvestment role.The most significant finding is that over 90 percent of the survey participants are interested inexploring opportunities at family offices. In otherwords, there is considerable interest in exploringopportunities in this hitherto largely untappedmarket of investment talent. From our perspectiveas a search firm, this strongly suggests that there areconsiderable opportunities to introduce senior-levelhedge fund professionals to family offices that arelooking for highly experienced, mature investmentprofessionals. Additionally, though, there is a needto inform and to educate hedge fund professionalsabout the opportunities within the world of familyoffices.Allure of Family Offices: Direct Investing v. ThirdParty Fund ManagersIn gauging the appeal of a family office position,respondents showed a clear, though by no meansoverwhelming, preference for roles that incorporatedirect investing as well as the supervision of externalmanagers: roughly 35 per cent of respondentspreferred roles that included direct investingwhile just over 27 per cent found the addition ofdirect investing to evaluating external managersless attractive. Perhaps most significant is thatapproximately 38 per cent of respondents reportedthat the addition of direct investing responsibilitiesmade no difference to their level of interest in familyoffice roles.The appeal of direct investment may be linked to thecomparative lack of experience among respondentswith evaluating third-party fund managers. Over 55per cent of the group have no experience in suchwork. Of those that do, almost 52 per cent haveexperience performing such work on behalf of clients;13 per cent as board members or trustees and over35 per cent have gained experience by supervisingpersonal and family investments. Additionally, thestructure of the hedge fund market – with manyfirms holding limited-partner interests in otherhedge funds – means that even those professionalswho lack official third-party manager experience stillhave detailed familiarity with a range of other hedgefunds and their professionals. The question remains,though whether evaluating managers in a personaland an indirect rather than a professional capacityconstitutes experience sufficient for the demands ofcomplex, larger family offices.The importance of direct investment, though,emerged in greater relief when respondents wereasked to rank the attractiveness of different facets ofa family office role. Over 50 per cent of respondentsdescribed the ability to invest directly as “veryimportant” and roughly another 32 per cent rankedit as “important.” The only elements that were ofgreater importance to respondents were long-termcompensation and career opportunity, capital1See “Hedge-Fund Pay May Fall 25% in 2009 as Fees Evaporate,” Bloomberg, March 25, 2009, citing Alpha’s compensation figures.Ph: 203-570-2898 // // www.familyofficeassociation.com3

The Search for Talent: Family Officespermanence, and the culture of a given family office(see figure 2).Perceived Drawbacks: Internal and ExternalHedge fund professionals have concerns aboutthe professionalism, the comparative lack ofprofessional prestige and of career developmentopportunities that may involve moving into theworld of family offices. The role of family in familyoffices – the potential for nepotism, the involvementof unqualified family members, the role of familypolitics, a lack of autonomy and transparency – wereconcerns for the respondents. It is tempting toconnect the concern about lack of autonomy anddecision-making authority voiced by respondents totheir reiterated desire to invest directly(see figure 3).Some of the issues raised by respondents involvedperceived disadvantages of family offices whencompared to other professional investmentopportunities. For example, the issue of the limitedscale of investments implicitly contrasts the size offamily offices with other investment firms. Teamsize, limited resources, lack of infrastructure, limitedaccess to the sell-side are in contrast to the resourcesafforded by other buy-side positions.Finally, other issues concerned the relative noveltyof the move to a family office environment. Theperception that working at a family office leads tocareer plateauing – there is nowhere to move up– may be accurate; or it may be that the model ofcareer advancement that is associated with hedgefunds and other investment managers is inadequateto describe the opportunities afforded by familyoffices. However, it is clear that current conceptsof promotion, advancing compensation, and thetime-line of successful professional developmentneed meaningful adjustment within the world offamily offices to make them attractive to high-levelinvestment professionals.Opportunities and InnovationFrom the perspective of respondents, the potentialdisadvantages of family offices is more thanmatched by the opportunities associated withthem. If the time-line of family office investmentsand development are unsettling to hedge fundprofessionals, the long-term stability of capital iscompelling. Against the backdrop of the creditcrisis, recession, and the market volatility of the pastseveral years, respondents were deeply interested inthe opportunity – even the need – to think beyondmonthly or quarterly numbers toward the longtermgrowth of family assets. If being an outsiderdealing with family politics is a daunting prospect forhedge fund professionals, working with the familyleader, often admired for his or her achievements,intelligence, and financial sophistication, is anattraction. While some respondents voiced concernabout possibly limited compensation, othersPh: 203-570-2898 // // www.familyofficeassociation.com4

The Search for Talent: Family Officeswelcomed the greater stability of compensation,were interested in long-term compensation models,as well as the opportunity to co-invest with thefamily.The current crisis has hurt many family offices, asit has hurt other investors, whether institutionalor private, along with vast segments of the globaleconomy. It has also created opportunities and oneof them is the emergence of a pool of talent that isopen for the first time to exploring the opportunitiesfor investment professionals at family offices. Takingadvantage of that opportunity, however, will requirea number of interventions:• Education: the secretive world of familyoffices must be willing to educate investmentprofessionals on the opportunities involved inrunning family wealth. A degree of visibilityand a degree of transparency are necessaryif such professionals are to learn about thoseopportunities.• Professionalization: senior investmentprofessionals need to work in professionalenvironments that protect their work from theinternal vicissitudes of the family. Autonomy,protection from nepotism and unwarrantedinvolvement from unqualified family membersare necessary components of a professionalculture at a family office. Professionalizationalso requires the creation of compensationmodels and career development that allowsenior hedge fund professionals to join familyoffices without diminishing their professionalstatus or long-term mobility.• Innovation: Family offices need to innovate toovercome their comparative disadvantageswithin the world of investments. For example,some family offices have just begun to takeadvantage of their scale to gain access toinstitutional sell-side coverage and resources.Those family offices are moving toward a hybridstructural model that melds the structure andbenefits of an alternative asset managementfirm with the patience and stability of traditionalfamily office goals.Ph: 203-570-2898 // // www.familyofficeassociation.com5

The Search for Talent: Family OfficesThe question remains if family offices are willing andable to take advantage of the opportunity to evolveinstitutionally and financially with new talent. Welook forward to serving both communities – familyoffices and hedge fund professionals – and willcontinue to explore the opportunities of this newmarket.Hunter AdvisorsHunter Advisors Corporation is a retained executivesearch firm specializing in the Hedge Fund and FamilyOffice and Endowment industries. Since HunterAdvisors’ founding in 2003, we have developedstrong expertise with team transfers and businessbuild outs. For more information, please visit ourweb site, CoulesGreg Coules joined Hunter Advisors in 2009 as a SeniorRecruiter to lead the Family Office and Endowmentpractice as well as to help co-lead recruiting for theHedge Fund practice. Most recently, he was an EventDriven Portfolio Manager at Brencourt Advisors, amulti-strategy hedge fund.Previously, Greg was at Metropolitan CapitalAdvisors where he was Director of Research forthe $400 Million event driven hedge fund. Prior toMetropolitan, Greg was a VP at JP Morgan, wherehe was a senior distressed bank debt analyst. Priorto JP Morgan, he was a VP at Morgan Stanley as theBroadcasting, Printing and Publishing Analyst withinthe High Yield division. At Morgan Stanley, Greg wasnamed by Institutional Investor Magazine as the2002 Best Up and Coming Analyst across all industryspecialties and the Media team was awarded the #1ranking in 2002, for which Greg was lead coverage.Greg began his career as an M&A attorney atSkadden, Arps, Slate, Meagher and Flom.Greg received an MBA from Harvard Business School,a JD from the University of Chicago Law School, anda BA in Economics with honors from the University ofChicago. Greg is a member of the Visiting Committeeof the University of Chicago Law School, is on theBoard of Directors of The Family Office Associationand is an advisor to the Gruss-Lipper FamilyFoundation focusing on major projects throughoutthe U.S. and Israel. Greg can be contacted at (212)786-6154 or DonaldAdrienne Donald joined Hunter Advisors in 2008as Chief Knowledge Officer. Previously, she wasat Korn/Ferry as Chief Knowledge Manager andCompetitive Intelligence Analyst for the FinancialServices Practice. Prior to Korn/Ferry, she was ChiefKnowledge Officer at Whitney Group and, earlier,ran research departments at two New York areaboutiques. Adrienne received her BA, MPhil andPhD from Yale University and was a Marshall Scholarat Cambridge University. Prior to entering the searchindustry, she taught at Princeton University for eightyears.FOA Newsletter Guest ColumnistGreg Coules and Adrienne DonaldHunter AdvisorsThe Family Office Association does not sell, refer, or recommend any investments,funds, partnerships, advisors, consultants or services of any kind. We donot provide any legal, accounting, investment or tax advice and this web site isnot intended to be construed as such. The information shared herein is generalin nature and intended for educational purposes only and everyone is stronglyencouraged to seek their own counsel.We urge everyone to always perform their own due diligence.Ph: 203-570-2898 // // www.familyofficeassociation.com6

About Family Office AssociationThe Family Office Association (FOA) is a global membership organization exclusive to single familyoffices (SFO) and families of wealth. In a world of uneven information, families of wealth need to cometogether in a confidential setting to share ideas and compare notes. The Family Office Associationseeks to provide the combination of privacy and openness where relationships of trust can grow. FOAalso provides programs, roundtables, significant summits, research and a secure place online for theexchange of experience and thoughtful advice from such peers and families who may be journeying onthe same path. FOA seeks out the best experts and notables in the family office industry to educate ourmembers. FOA establishes the place where families can truly raise social capital.Family Office Association is the trusted and respected source that families of wealth can turn tofor independent resources, education and guidance. For these families, FOA is the advocate forestablishing and sustaining a single family office (SFO). With an SFO, these families create theirown private company of dedicated professionals exclusively devoted to their investment, legacy andpersonal needs. An SFO enables a family to customize their own solutions mindful of their values andgoals. FOA provides the foundation, insights and encouragement for families to engage with the longtermpreservation and conservation of their wealth and family stories.Family Office Association500 West Putnam Avenue, Suite 400Greenwich, Connecticut 06830Ph: 203-570-2898Angelo J. Robles, Founder and

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