A report a few weeks ago pointed to how multi-family offices were not nearly as keen on direct investing as single FOs. A prominent - and relatively new - wealth management firm weighs in on the conversation.
Cresset, the US-based RIA that recently chalked up its third birthday, reckons that multi-family offices have plenty of appetite for direct investing, based on its own experience. This pushes back somewhat against a recent report showing that single FOs rather than the “multis” are far more likely to favor direct investing.
More than a month ago a study, produced by FINTRX, a family office data, research, and intelligence platform, and sponsored by Charles Schwab, showed that the lion’s share of single family offices around the world consider direct investing, a noticeable trend fueled by the desire for superior yields and to reduce intermediaries’ fees. (A separate report by UBS in 2019 estimated that within the average private equity portfolio, 54 per cent of investments were direct.) With MFOs, however, the picture is almost the other way round – 70 per cent are not making direct investments and only 30 per cent are considering doing so. (For a follow-on discussion about this report, see here.)
MFOs are, however, interested in direct investing for the kind of reasons given, Eric Becker, a founder of Cresset, told FWR in a recent call after mulling the FINTRX/Schwab study.
“Most multi-family offices are quite cautious on the direct investment side,” Becker said. “For us, it is an important part of our value proposition.”
Cresset has deployed about $700 million via direct and co-investment routes over the past 24 months, he said, adding that the firm has a “robust” direct investment program.
Family Wealth Report is regularly regaled by wealth management practitioners about how direct investing is a hot trend and, in turn, part of the flow of money into private capital markets (equity, debt, real estate and infrastructure). Single family offices' enthusiasm for direct investing may also explain why these organizations are less shy about courting media and industry attention than they used to be.
(SFOs in Europe, by contrast, tend to be coy in this publication’s experience.) A reason is that an SFO which no-one knows about or is publicity-shy may miss out on the hottest deals.
The move towards direct investing is also driven by a desire to shed fees and squeeze more returns in a low-yield environment. A period very low, or even negative, official interest rates, has forced asset allocators to be more adventurous. Another factor behind direct/private capital market enthusiasm is on the supply side: The number of public, listed companies has contracted, for a variety of reasons. (This phenomenon is sometimes known by the ugly term “de-equitization”).
Change and acquisition
Cresset ensured that the M&A wheels kept spinning this year, regardless of the pandemic, by acquiring the wealth management business, PagnatoKarp, in June. That transaction gave Cresset a business with $2.3 billion in AuM, taking combined assets to $9.5 billion and among the 25 largest US RIAs. (One result is that the organization will certainly be in a position to take concierge services to another level.)
“Everyone at PagnatoKarp is now an owner at Cresset,” Becker said.
Overall, Cresset has added more than 100 new clients in 2020, most of them being taken on board since March, he said.
There have been a few arrivals and departures at Cresset. Michael Cole – who remains a shareholder of the business – has left as chief executive. Jill Shipley, former Cresset Capital senior managing director, has joined Tiedemann Advisors as head of family governance and education. On the other side, the firm appointed Barbara Young, senior managing director, as co-head of family office services, serving alongside Bill Rudnick, senior partner, general counsel and head of Family Office Services.
Becker said of the changes and addition of personnel: “These things came as part and parcel of taking on PagnatoKarp.”
Asked about the recent changes to the SEC Accredited Investor definition, widening access, Becker welcomed the step.