There's much talk these days in wealth management about the importance of "alignment" of interests. This news service talks to a US family office, built from an investment business that provides investments for clients including other family offices.
Today, family offices are important investors in alternative assets, such as private equity and hedge funds. And, as the saying goes, getting someone to eat a tasty meal is easier when the cook eats it.
US-based Sandalwood Securities boasts a business model that puts alignment of interests front and center. Evolving from a fund of hedge fund business created in 1990 by investment and legal industry figure Martin J Gross, his family office has built an alternatives platform made available to other family offices. It has an institutional alternatives portfolio consisting of hedge funds, private equity, venture capital, real estate, and lending funds.
“We have a totally open architecture [approach] and will go anywhere to get ideas. In the last three years we have done two dozen investments where clients came along with us…such as individual real estate investments or in a real estate fund, as well as private equity, VC and lending funds,” Gross told this news service.
“We have an institutional allocation which we share with our clients,” Gross continued. “Over the past five years, as the family has broadened its allocation into alternatives…our structure is to create a fund into each investment so that other family offices can come in as co-investors.”
In 2024, the firm (which has more than $800 million of assets under management, including all family office investments) plans to look more deeply at the market for distressed real estate funds, lending funds, and private market secondaries, Gross said. There has been significant activity in the private equity secondaries market: “Everybody wants to buy at a discount…but what is the right discount?” Gross said.
Besides Gross, other senior figures at Sandalwood are Eric Taubenheim (head of manager research); Kenneth Chapple (chief financial officer, operational due diligence director); and Joan Larson (senior advisor). They bring experience from firms including Goldman Sachs, PricewaterhouseCoopers, Merrill Lynch, Lehman Brothers and LF Rothschild.
The appeal of the Sandalwood model also coincides with a change in family offices themselves, Gross said.
“Ten, 15 or 20 years ago, most family offices were started when a family sold a business and those businesses often had nothing to do with Wall Street,” Gross said. “In the last five to 10 years, however, there has been a big increase in family offices run by people whose wealth was generated in the financial services industry. There are materially increased levels of sophistication in those offices.”
Family offices today are sensitive to matters such as conflicts of interest, Rick Stockton, managing director, investor relations and marketing, told this publication in the same call. “Our value-add is having a network of idea flow from other family offices, RIAs, outsourced CIOs and endowments and foundations,” he said. Sandalwood works with many different family offices, some with $1 billion or more in AuM," Stockton said.
“We are doing a lot of private credit right now. We can make 10 to 13 per cent net on what we believe is modest credit risk,” Gross said, adding that the issue for family offices is getting into these opportunities in the first place. Within areas such as real estate, Sandalwood is more focused on the private credit than public credit side of the story.
Since the long-term return of public equities is around 10 per cent, given the volatility of public equities, private credit returns of 10 per cent-plus look pretty attractive, Gross said.
Before he began his career in investment management, Gross practiced tax and corporate law in New York City, working in the corporate finance division of LF Rothschild, Unterberg, Towbin. A member of the New Jersey and New York Bars, he has written for The Wall Street Journal, Barron’s, Foreign Affairs and other financial publications. He frequently lectures on fund of fund investment strategies at industry conferences. Gross is involved outside his main business in a number of prominent US institutions. For example, he is a member of the board of trustees of Brandeis University and the board of overseers for the Brandeis International Business School, and has served as chairman of the University’s Investment Committee.