The family office sector has vast potential for growth in developed and emerging economies if the scale of the industry in the US provides any guide, the founder of a young firm told this publication recently.

The US family office market, made up of 3,000 single family offices and 150 multi-family offices, with a total of $1.65 trillion of assets (source: Family Wealth Alliance), has a big edge over Europe and Asia.

But where the US leads, other regions tend to follow, suggesting considerable room for development in this market, Mike Betesh, a former banker who founded Generation Three Family Partners, argues.

“It will be exciting times for the family office industry. It will be great to see more people setting up businesses like this where they are totally removed from commissions and retrocessions, and where it is all about the client,” Betesh says from his firm’s administrative office in London’s Mayfair district. The firm is headquartered in Zug, Switzerland and serves families with a net worth of $200 million and above.

An important business area for family offices is technology - particularly the technology that is designed to amalgamate financial statements from multiple entities into a single, easy-to-read statement.

“In the US this is an essential part of the work done by family offices, and this is what we do for our clients,” Betesh said.

Generation Three is a relative new kid on the block. In January, the firm was launched and later opened its main office in Zug. The year has seen the firm hire, for example, Princess Alia Al-Senussi, the daughter of the exiled royal family of Libya, to head business development and art advisory services.

While the firm does not specify its fees in terms of exact amounts; Betesh argues that it operates a simple fee structure: “Our pricing for investment advice, for example, is institutional; and we are competitive in art transactions and managing private charitable foundations.”

So where did Betesh get the firm’s name from? “At any given time you could see three generations in a family and each of them may have a different view of making, spending and saving money. Our job is to be the consiglieri of these families and each generation, to help bridge the gap. You hear too many stories of families that are engaged in conflict, sometimes where there is no respect for the previous generation or an understanding of what the next generation is about.”

The economics of running family offices, in the case of both single and multi-family offices, are opaque. A survey, published three years ago by Merrill Lynch and Campden Research showed that the cost of running a family office in Europe is an average of 62 basis points of assets under management but the figure masks a big gap between the price of running large and small operations. The report showed the annual management fee – which does not include set-up costs or investment performance fees – rose to 89bps for the smaller offices with assets of up to €250 million (around $341.6 million) and as low as 48bps for offices over €1 billion. Larger offices are cheaper, on average, to run as they enjoy economies of scale.

Among the multi-family offices and private investment offices doing businesses in London, meanwhile, are Fleming Family & Partners; Sand Aire; Stanhope Capital; Lord North Street; MaxCap; Bedrock and Stonehage. (A private investment office is typically defined as focusing more on investments than MFOs.)

Hard climate

The firm is operating at a time when protecting, never mind preserving, the wealth of ultra high net worth individuals is being tested by a period of negative real interest rates, relentless government pressure against offshore financial centres, and volatile stock markets.

Betesh says that Generation Three’s investment services including yield enhancement, inflation protection and currency risk mitigation. “There is a huge need for people to preserve their purchasing power,” he says.

“Betesh’s vision is a commitment to aligning interests with families and total transparency. It focuses on strategic advising  (including yield enhancement, currency risk mitigation and inflation/deflation protection) rather than asset management, preferring to source good asset managers for clients,” he continues.

“There are incredible asset managers out there for specialist investment needs and opportunities, and we find them. There are no retrocession fees, or commissions paid to us for this,” he says.

Generation Three’s other services are fiduciary advice, philanthropy, art and lifestyle.  One of Generation Three’s principals is the contemporary art luminary Kenny Schachter. Betesh and executive director Alia Al-Senussi advise families on buying, donating and selling art collections.

This firm is still in its relative infancy. But as the task of protecting wealth against various threats becomes more challenging, it is likely to have plenty of work on its hands for some time to come.