There are around 3,000 billionaires and well over 60,000 centimillionaires globally, according to sources such as the Financial Times and Bloomberg.
However, these numbers are under-reported due to lack of access to data as well as under-reporting by the families that have wealth spread across several family members or hold wealth in secret, due to fear of media invasion of their personal lives, kidnapping/ransom, or being the target of potential government corruption or regulatory actions. In other words, we do not know how many billionaire or centimillionaire families there are out there—we never will—but we do know that there are roughly 20 times as many centimillionaires as there are billionaires.
Mainstream media often talk about and sometimes vilify billionaires, but most have never heard of centimillionaires as a term. In fact, this last month, “billionaire” was searched for 49,500 times on Google, while “centimillionaire” was searched for just 320 times. It is important to shine a light on this area so ideas can be cross-pollinated, evolved, and customised to this specific segment and their needs. To show just how little this niche is talked about, there has never been a book written with the word “centimillionaire” in the title, most likely because it is thought of as too niche of a market to bother with. As the number of centimillionaires grows, it is inevitable that more resources and statistics will emerge on this area and that more tools will be developed to help those with challenges and opportunities specific to this level. My hope is to start that process, to provide dozens of tools that will genuinely be valuable and used by thousands of ultra-wealthy families globally.
I get asked several times a week how I got started working with ultra-wealthy families. I grew up around my father raising over $1B+ for hospitals, universities, and non-profits via capital campaigns. I was around when he met with donors regarding gifts, endowments, and managing their foundations. Through that, I was exposed to this world early, and after starting and running five businesses before I had graduated from college, I was hired at a capital markets firm in Boston. There I stumbled on the term “family office” and found that it meant a holistic wealth solution for the ultra-wealthy. I decided I would only meet with and talk to those types of firms going forward but had a very challenging time doing so. I found that the only way to learn about them was to meet with them as otherwise I was relying upon articles from Bloomberg and the Financial Times, and there was not much even from them back in 2006. From that point, to capture what I was learning and share it with others and to make sure I was remembering the insights I was picking up, I started writing about the industry online.
WEALTH BUILDING STRATEGIES
Now, after 12 years, we have advised dozens of families varying in net worth from $30M–$5B+ in net worth who want less chaos, more aligned advisors, and additional strategic investment opportunities. Among the families we serve, 80% of our clients are centimillionaires with a net worth of $150M–$700M, with over two dozen families under contract currently. Many times these families seek help because they are creating a new organisational system to manage their wealth called a “family office,” and all share common challenges.
With the exception of inheritance, most of those who are ultra-wealthy that I work with have been in control of the appreciation of their wealth. They have run the operating business or part of it. They selected the real estate assets or developed their portfolio of holdings through careful decision making and iterating on lessons learned over time to accomplish their goals.
Every investment you make typically is made up of the following types of energy and resources:
1. Strategic Planning: Investment Focus + Designing the Portfolio
2. Sourcing of Investment Opportunities + Originating Deal Flow
3. Screening of Potential Investments
4. Due Diligence + Research of Opportunities
5. Negotiation + Structuring of Investments
6. Management of Holdings + Exits/Sale of Assets
Many families come to me asking what other families are investing in and how they think about their portfolio. While the size and industry focus differ, the most consistent approach I have seen is taking three levels of outsourcing and control and diversifying across assets and control levels. It is challenging as no generic investment advice is ever possible or appropriate to give, but as a general framework for breaking it down, I typically see families dividing things into three simple buckets:
DIVERSIFYING THE PORTFOLIO
A. Diversified Market Exposure Segment: Many families will hire an outsourced chief investment officer (CIO), private bank, or multifamily office for this allocation. They will help design the strategy with you and you may help originate some investment opportunities through your own connections, but most of the six layers mentioned above will be carried out for you by this wealth advisory solution. This segment is typically seen as a way to generate some income in the portfolio while also serving as a defensive buffer or a way to track beta market exposure, in case you need liquid or semi-liquid assets somewhere to at least beat inflation while you allocate to direct investments further. It is important to note that the best multi-family offices can help with holistic trust and estate planning in-house and with direct investments, but a firm capable of helping greatly in both areas is hard to find.
B. Conservative & Cash Flowing Commercial Real Estate: Most families of significant wealth separate this from the wealth advisor above and like to own assets more directly than is possible when only allocating to the public vehicles often offered by wealth advisors or outsourced CIOs. In this area, many families buy some properties that are small or local directly using a property manager to oversee those assets. They then get to know and allocate through 5–10 investment firm boutiques, which allows them to select deals on a deal-by-deal basis so they have transparency on exactly what deals their capital is going into. This segment is also served by real estate investment funds, but many families do like to invest deal by deal first while they are building trust with an investment manager. The result is typically a focus on just one to three cash-flowing real estate asset types diversified across regions and sponsors. This results in having various levels of control, transparency, fees, and flexibility on what levels of debt you apply to properties in your portfolio. This segment is typically seen as a vehicle through which to grow net worth steadily over time while producing income and is viewed as a conservative portion of the portfolio and very long-term minded.
FOCUSED DEAL FLOW
C. One to Two Niche Industry-Focused Investments: This segment is where most families retain the most control in house as they typically created their wealth in this space they are reinvesting in. It is their reputation, knowledge advantage, distribution advantage, or assets still in place that allow them to move more swiftly through valuation, due diligence, and opportunity sourcing stages of investing. Families invest in this area as they have high conviction that they are superior managers of these asset types against competitors and they have proven that to date. This is typically the most aggressive portion of a family’s portfolio. We have found families can use help in originating deal flow in these areas and working with other like-minded families as well as some help with structuring deals, but otherwise it is an area where they enjoy maintaining a lot of control. You can see from the descriptions above that A typically leverages others in almost everything, B has some outsourced investments and some managed in house or selected directly at least, and then bucket C is where families typically outsource the least. This is different for each family, and areas of focus will be different per family, but this approach helps provide a framework of discussion on where to focus the most energy internally.
One truth I have found is that not all deal flow is created equal, and nobody wants just lots of investment pitches of any quality or location. Everyone wants more highly focused and qualified deal flow. All else being equal, if your family is seeing 50 deals per year, then you may only be focusing on the top 10% of those deals— the top five for any sort of due diligence or serious consideration. Imagine, however, if you were seeing 300 deals per year. You could focus just on the top 2% and be conducting due diligence on six deals a year perhaps. As long as the quality of those investment opportunities stays high and as focused if not more focused, then your chances of finding an anomaly among the deals available is greater. EG