About Family Offices

What exactly does a Family Office do? What is the difference between a Single and a Multi-Family Office? What assets do they make sense for? HQ Trust Managing Director Christian Stadtmüller answers the most important questions and also talks about a typical Family Office client and alternative investments.

Several wealth reports have recently been published that have one thing in common: They expect strong growth in the family office sector. What exactly does a Family Office do, Mr. Stadtmüller?

Let me start with a brief definition, because there are two types of family offices: Single Family Offices, which look after the assets of one family, and Multi Family Offices, which look after many families, individuals and foundations. In both cases, however, the core task is the same: to preserve existing assets over generations. This includes factoring in markets, taxes, costs and inflation.  

How does a Family Office manage this task?

As a rule, the collaboration begins with a systematic recording of all assets. This is followed by structuring the assets and implementing a long-term idea. This also involves us providing support, advice and guidance over the course of time.

That is likely to be more of a ‘Herculean task’ than a core task for large families with presumably quite different wishes and goals?

(laughs) That can certainly happen. Our clients are often families with an entrepreneurial background in the first, second or third generation, but we also look after a large number of foundations. There are also institutional clients such as pension schemes or pension funds. This makes up for a very broad spectrum of clients. Ultimately, in all cases, it’s about risk-bearing capacity and the goals that each client wants to achieve. One of the questions we always ask in every initial meeting is therefore: What risk are you prepared to take in order to achieve your goals? As a result, the ways in which these goals can subsequently be achieved can vary.

So, the Family Office doesn’t tell the client: You have to invest in A, B or C?

Only to a limited extent. We outline the possibilities and help weigh the advantages and disadvantages of the different options.

But a Family Office doesn’t just deal with investment issues, does it?

Exactly, the spectrum is much broader. We regularly interact with our clients because we also address many other issues related to wealth. These can include tax questions or questions about annual financial statements. The client might want to reconsider their banking arrangements, or we discuss a new asset class. They could be interested in understanding how their wealth has developed over the past quarter, or we look at the future development of the capital markets. Our clientele is very diverse; the support provided is very individualized and also intensive.

What do Family Offices do differently compared to other investors?

Risk diversification is a very important point. It is the best way to achieve the desired goals in the long term. After all, it is not always enough to focus solely on equities, bonds and cash. Here’s an example: bonds are always part of our strategic allocation because they diversify and minimise risks. However, we often also focus on alternatives to bonds, such as defensive hedge fund strategies. Or private debt.

So, alternative asset classes?

That’s right. For us, this also includes infrastructure, real estate and private equity. The latter has always been an asset class in which the additional return is generated, among other things, by the fact that the management can actively intervene and generate added value – and that is different from a listed stock corporation. The really good private equity companies therefore also have specialised management teams that operate within the companies, creating economies of scale and opening up other markets.

And it’s not so easy to gain access to the ‘really good’ managers?

There are managers in the field of alternative investments who have excelled in certain areas in recent years. They are naturally in high demand. As an individual, I don’t have access to them, however a Multi-Family Office provides access by bundling client investments and building up a long-term relationship with the outstanding management teams.

In what instance should I choose a Single-Family Office versus a Multi-Family Office?

Both can have their advantages. Of course, you need a certain amount of assets to be able to afford the costs of a Single-Family Office. If you hire twelve people to do everything for you individually, they will, of course, cost a lot of money. If this is to be worthwhile for you in the end, the denominator must be relatively high.

I understand… we’re probably talking about hundreds of millions of euros?

As a Multi-Family Office, we are perhaps not quite as individualised as a Single-Family Office, where you have direct access to the entire staff virtually around the clock. But we are much more individualised than a bank, for example. And, of course, you also need a certain amount of assets with us, although the amount depends on what you approach us with. If you want to have your entire assets invested and would like to do this across the board, i.e. including alternative asset classes, then we are talking about sums of around ten million euros. There are often regulatory reasons for this. 

What other difference is there between Single and Multi-Family Offices?

One important point is expertise: a company like HQ Trust, which looks after around 130 families and foundations, can say what moves families. What their needs are and in which areas they should develop. And the topic of error prevention plays a major role. We have a wealth of experience in this area. If you start out in finance as a non-specialist, you often have a very steep learning curve. To put it in positive terms.

(laughs) Thank you very much for the interview.