Surveys

MFO Industry Diverges Into Growth "Haves" And "Have-nots"

Harriet Davies, Editor - Family Wealth Report, 18 October 2011

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The multi-family office world is dividing into a world of “haves” and “have-nots” when it comes to growth, according to the 2011 Multifamily Office Study from the Family Wealth Alliance, unveiled at a conference in Chicago.

The multi-family office world is dividing into a world of “haves” and “have-nots” when it comes to growth, according to the 2011 Multifamily Office Study from the Family Wealth Alliance, unveiled at a conference last week in Chicago.

The survey, carried out in the summer 2011, covered 72 firms with total assets under advisement of $320.1 billion as of year-end 2010. The average client relationship size was $48.4 million. The organization estimates this accounts for around half the population of the North American multi-family office industry and 80 per cent of industry assets. 

The results revealed an industry undergoing a transformation, with around seven in ten respondents expecting their organizations to “change substantially” over the next decade. However, there was a sense of optimism among participants about capitalizing on this change, according to the survey, and many firms saw themselves making "strong gains" in the marketplace, according to the report summary.

Two-tier growth

There is a “burgeoning rift,” though, between the high-growth and low-growth firms, said Thomas Livergood, chief executive of the Alliance.

There was a divergence between MFOs of different asset tiers, with top-tier firms (assets above $5 billion) recording an average growth rate of 6.8 per cent. Excluding these offices, the average growth rate was 20.1 per cent. Of course, growth rates are affected by how large the initial firm and asset base is, which would explain some of that differential.

However, there were high ranges of growth rates within tiers, indicating some firms were benefiting more from the changing industry than others. For example, among top-tier firms growth rates varied from -5.4 per cent to 31.5 per cent. The range for $1 billion-$5 billion firms was between -7 per cent and 81.3 per cent. Such wide ranges are a record in the history of the survey, said Robert Casey, senior managing director of the Family Wealth Alliance, speaking at the conference.

Varying growth rates may also result from different attitudes towards growth, the survey found. Some firms see it as an “economic imperative” while others made statements about wanting to "remain boutique," according to the executive summary.

New strategies

The study also revealed that MFOs were developing “innovative growth strategies” to further their business development, said Livergood. These including serving the outsourced needs of single-family offices, he added. More multi-family offices are also forming dedicated business development teams, said Casey.

Challenges, changes

The top challenge remained human capital among MFOs, but this receded in importance slightly compared to the number two challenge, which this year came out as managing growth, according to the Alliance. Hiring picked up, with the number of relationship managers rising 5.9 per cent over 2010.

Meanwhile, merger activity rose slightly, with 25.7 per cent of firms saying they had been involved in a merger over the past three years. This is “a pretty high number,” said Casey, and compares to 22.9 per cent for last year’s survey. Some three in ten firms said it is “likely or somewhat likely” that they will acquire a smaller firm in the coming 12 months.

Multi-family offices also demonstrated they were gradually moving away from asset-based fees, with top-tier firms currently more reliant on asset-based fees than smaller firms. Casey said that, based on the research, it is expected the mean percentage of asset-based fees (out of total) will trend downwards. “The trend is not up,” he added. 

In tomorrow’s Family Wealth Report, the results of the annual Single-Family Office Study by the Alliance will be reported.

 

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