Family offices: Character actors

Family offices arguably have the firmest cultural roots in the private equity universe. As a result, they tend to maintain their uniqueness across generations and represent a more nuanced set of opportunities and challenges for partnering investors. 

Willett Advisors and Lewis Trust Group help illustrate the point. The former was set up in 2010 with a view to investing Michael Bloomberg's entire fortune during his lifetime. About 70% of its portfolio is in public and private equity, with more than 70% of PE allocations in fund commitments. Willett keeps a strong focus on venture, having backed Y Combinator, but hesitates on seed and co-investment plays.

Lewis Trust oversees a fashion empire that traces back to 1963, when Bloomberg was still an undergrad at Johns Hopkins University. The relative longevity has translated into greater confidence around deal making (Lewis Trust co-invests with about 20% of its GPs) and direct involvement in company building. 

Subtler divergences in environmental, social and governance (ESG) policy appear tied to more ingrained cultural factors. Willett tries to align with separate entity Bloomberg Philanthropies while imposing hard restrictions on tobacco, coal, and firearms. Lewis Trust follows a seemingly less exclusionary approach that emphasizes loyalty to decades-long charity efforts and the ESG-related agendas of the firm's partners.  

"The way partnerships work is that there is full transparency and full discussion on pipelines," Daina Spedding, an investment manager at Lewis Trust, told the AVCJ Forum last week. "If we look on the direct side at something where the GP has expertise, we would almost always pick up the phone and ask them what they think about the deal. When they look at something consumer-related, which is our core expertise, they'll call us."

Varied priorities

Family offices with comparable backgrounds or structures to these two firms will not necessarily reflect similar philosophies about co-investment or ESG. For example, North-East Private Equity Asia, a family office started in 2012 on behalf of the Pandora jewelry brand, echoes the cautiously exploratory style of Willett, keen to enter frontier markets but standoffish on co-investment. 

North-East, however, represents six Europe and Thailand-based family members versus Willett's one American, diversifying philanthropic imperatives across a spectrum of personalities and geographies. To some extent, this positions the firm's ESG ideology closer to the Lewis Trust model, although there will doubtlessly be other cultural disparities in the details.     

This question of style is not diffused as a family office professionalizes with age. Jamie Cayzer-Colvin, head of funds at Caledonia Investments and a descendent of 19th century shipping magnate Charles Cayzer, says that no matter the size or geography of a family office, GPs will always face systems and processes ranging from the sophisticated to the amateurish. 

Caledonia was set up in 1987 after more than a century of Cayzer family success in shipping and financial services. Private equity represents about half of investments, two-thirds of which are direct deployments. UK buyouts dominate the mix overall, but North America and Asia also feature. In Asia, the focus is fund commitments and China growth strategies.   

"I'm dead against co-investment for most people," says Cayzer-Colvin. "Why would I want to take a minority stake in a business, have no relationship, and when it all goes wrong, everyone's going to drop it and I'm going to get fleeced? I'll happily buy those things up when they're all on the floor, but we've been on a big bull market, and the majority of the people doing co-investment are absolutely insane." 

Catherine Shiang, a managing director at Asia Capital Advisor (ACA) offers counterpoint on this issue, hinting that family office longevity (ACA traces back to the 1870s) is not connected to viewpoints at the deal level. "We are direct investors, but we are co-investors in those direct investments," Shiang explains. "So, we do take minority stakes as part of our asset diversification."

For ACA, this approach means keeping an investment focus on the underlying portfolio, not the fund. The firm contemplates the strategy as a process of working in parallel with GPs on specific projects such as a plan floated earlier this year by 3G Capital to roll out 19 Burger King locations in Africa. 

"We saw that as an impact opportunity for early job training, logistics, cold storage, food transportation, and agriculture. Impact and how we can improve the community is a big mandate for our family office," Shiang says. "So, working with funds, if they have a story and opportunity, we'd like to participate. We're not looking at it from a co-investment angle, we're looking at it as investors, developers in that project, and we bring to the fore our own expertise."

Impact agendas

The idea that a family office can plausibly frame a fast-food expansion as an impact investment goes some way in demonstrating how cultural differences can color ESG policies. Depending on the firm in question, the vocabulary around impact, charity, ESG, and SRI (socially responsible investing) can encompass diligence concerns ranging from pro forma recordkeeping to accountability on quantifiable social factors – possibly including purposeful yet environmentally non-compliant deals. 

Toll roads are one example of such a deal. Although not often considered ESG-oriented plays, these investments result in protected corridors that can be interpreted as safe havens for at-risk communities to grow. As GPs seek to deepen their engagements with family offices that subscribe to offbeat perspectives in this vein, a closer look at what's behind the culture and how it's changing over time will be in order.   

"There is a lot of rhetoric around this area, and the principles behind ESG and impact are absolutely right. However, I don't think there's much substance there, and I think it's a marketing term used by people to sell funds," says Caledonia's Cayzer-Colvin. "There's a lot of talk about it, and I encourage the talk, but I think it will be the next generation that really pushes it through."   

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• LPs
• Europe
• North America
• Buyout
• Venture
• Family office
• Co-investment
• Impact investment