The founder and CEO of a digital platform built by family office and asset management figures talks to this publication about some of the challenges, problems and solutions that he thinks the industry needs.
Market trends come and go but one fairly constant theme is investors' failure to capture maximum returns leaving too much ending up in advisors’ and intermediaries’ pockets. Consider, for example, the massive flow into index-tracking funds in recent years - much of this has happened because clients became fed up with fees for benchmark-hugging active managers. There are plenty of other gripes out there.
One person who has a bee in his bonnet about this is family office industry figure Jean-Bernard Tanqueray, who founded and is chief executive of the European business Finlight.com, a digital platform built by family office and institutional asset management experts.
In his outline of what Finlight.com is and does, Tanqueray talks a lot about the misalignment of interests in the investment management space.
“The key underlying point is that intermediaries’ profits are maximised out of end-investors’ money. To maximise his or her profit, intermediaries fight against capital owners’ profit, however big and growing is the cake. What an intermediary gets is mathematically written off against what the final investor ends up with. By all means, everyone’s work deserves to be paid. But where should the balance be? Virtue is the median point between two evils!” he told this publication in an interview.
“And this is quite tempting in a financial sector whose structural raison-d’etre is the notion of information asymmetry. As such, it presumes someone needs someone else who supposedly knows better than she or he does. How true is it? How motivated is one to share his or her knowledge with me? What’s the incentive to share it all with me as she or he could thus feel threatened in her or his position? How to then manage the subsequent agency risks?” Tanqueray continued.
“A typical example is the gap between the net return the investors receive in comparison to the gross returns that an investment yields. Another example is the incentives many private banks have to have one’s account to churn investments: not because it adds value but because it generates commissions,” he said.
Tanqueray wants to put a bigger dent in the family offices and investment universe. And he wants to champion transparency about how investments are managed, how well they perform and what their risks are.
He describes Finlight.com as a “portfolio management productivity tool”, reducing some of the operational hurdles that family offices and other actors face relating to such areas as consolidated multi-asset reporting, portfolio controls and risk analytics. The result, hopefully, is that users will cut costs and boost productivity.
To date, most Finlight.com clients are European – including those based in the UK – with a number also in the US and Gulf Co-operation Council (GCC) jurisdictions of the Middle East.
The wealth management industry is full of organisations providing reporting/analytics services, in some cases to the family offices area, and knowing how to differentiate them is tough. For example, Refinitiv, the data and information services firm spun out of Thomson Reuters more than a year ago, and slated to be bought by the London Stock Exchange Group, is ramping up its services to wealth managers. Big-ticket players such as SS&C Advent, FundCount, Private Client Resources, SEI and Envestnet are competing to serve sectors including the family offices space. There are also organisations such as Switzerland-based Performance Watcher, a wealthtech firm giving users the ability to compare their portfolio performance objectively and to see whether their investments track their risk tolerances or are at risk of violating them.
The stakes for grabbing a slice of this business are large. As the data firm Highworth – with which this publication has an exclusive media relationship – has pointed out, the 1,000 European single family offices on its list collectively oversee about €1.52 trillion ($1.7 trillion) of assets. Obtaining accurate metrics on what they are doing is a big prize for tech vendors. (Of course, all such statistics ought to come with a bright-light health warning, given reporting uncertainties and market shifts.)
Tanqueray brings plenty of experience to the scene. He started out in the institutional management space before moving into the family office area in 2007. At that point he worked for a Middle-East-rooted but London-based multi-family office. “I was quite taken aback not so much by the sophistication gap between these two worlds but by the lack of tools adequacy. Many were enterprise-based ones built for bigger banks and intermediaries whose operational models are more demanding than family offices,” he said.
After a few years as an independent consultant, Tanqueray moved back as a full-time employee for a single family office where, a few years later, he saw the same issues crop up: “inadequate products, dependencies on bank reporting which, despite the vast range of quality, are backward (past performance based) looking”.
“What I basically learnt is that family offices are technologically poorly served unless they spend mad amounts of money into systems geared for others. In this current context, whether they do something or not, they are faced by massive operational costs and poorly managed risks that can only frustrate their ability to fulfil their missions. Especially in this low-yield environment where everyone is piling onto alternative and illiquid assets again,” he said.