The Family Office Club
Richard C. Wilson - University of Portland
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President and Founder, The Family Office Club
An interview with Richard Wilson, Founder & CEO, The Family Office Club
Our exclusive interview on Family Office Wealth with RICHARD WILSON, bestselling author, Founder and CEO of the Family Office Club, explores critical elements intrinsic to the formation of generational wealth as Executive Global look at the pertinent investment strategies deployed to manage the investments of Single Family Offices. We gain a fundamental insight into the realm of Family Office investing as we discuss the fine details and advantages of wealth preservation and estate planning for centimillionaires, billionaire families and ultra high net worth individuals.
Richard Wilson CV
University of Portland
2019 Started Centimillionaire Advisors, LLC to service ultra-wealthy on starting family offices and sourcing direct investments
2018 Hosted 100th Live Event in 2018
2013 Wrote ”Capital Raising” book and acquired
2011 Launched Family Office Podcast
2010 Published bestselling book on family offices with Wiley
2008 Purchased and started consulting with family offices
2007 Launched the Family Office Club
Family Office Wealth
EG: Could you shed some light on what are some of the most important differences, pros and cons between single family offices and multi-family offices?
Richard Wilson: Sure, the main difference is that a single family office is built out for a single individual or family and not 5 or 10 or 50+ families like a multi-family office. One way to think about a multi-family office is that it is essentially a more holistic wealth management firm that only serves the ultra-wealthy at the $10M+ level of wealth. Single family offices focus all of their resources on the specific unique needs of a single family or individual so there is a dedicated team to run, specialised solutions, typically a focus on a few types of investments, and no need to do marketing to attract new clients. Multi-family offices on the other hand need to serve a wide variety of families from various industries and locations so there is a platform being leveraged by the clients so they don’t need to setup their own single family office.
EG: What would you say is the most distinctive value The Family Office Club offers, compared to other family office organisations?
RW: We offer free membership for family offices and private investors, we have produced more thought leadership resources, videos, books, etc. then all of our competitors combined, and we offer performance fee only solutions to wealth families who want direct investment program development or help starting a family office. Our whole business model is to be generous with insights, share what we are learning ourselves by working with our ultra-wealthy clients, and by hosting our 30 live events a year.
EG: What are some of the biggest challenges particular to the family office industry that you have to face in order to run a successful operation?
RW: The biggest challenges my clients face are the recruitment of excellent staff they can trust and employ for the long-term, and identifying family office quality solution providers they can really leverage and get a strategic advantage out of. Many family offices fumble their work on direct investments, and it often takes them 4-7 years to develop a clear strike zone for direct investments, deal origination processes, good access to high quality screened deals, etc. This process can be speed up but between enjoying the wealth, managing family expectations, putting together a basic family office infrastructure, and deciding what new reality they want to live in, just getting great clarity on the family office goals and strike zone is at best a 9-18 month process with most families we work with. It takes dedicated energy, capital, and a team to get great direct investment deal access and many families don’t realise how bad their deal flow is within their first few years of liquidity we have found.
EG: What is the reason behind the recent increase of interest in real estate investment among family offices? How does that shift affect the investment strategies?
RW: I haven’t seen a huge increase in real estate investment interest, it has always been there with my clients. I think I have seen an increase an interest in debt/income investments into real estate where there is collateral behind the investment though vs. straight equity investments. Also, I think that anything hard asset, income-producing, or collateral related is going to attract more families late in the cycle. One way to look at an increase in real estate investments though is the general macro trend of family offices and independent sponsor organisations, they are both the result of investors wanting more transparency, control, and active participation in their direct investment portfolio. For some, it was the very reason why they wanted to have a family office setup. The more family offices that get created the more direct investments into real estate will be conducted vs. through funds and nice ”point and click” platforms built for wealth advisors who have never once gotten off their chair to walk a property or vet a piece of real estate in real life with a client. Many multifamily offices are starting to do a better job on direct investment advisory help for ultra-wealthy clients but most still strongly prefer their clients simply put their capital into REITS and funds because it is more scalable and simple to offer that solution..that is a friction point if our space.
Millionaires, Centimillionaires, Billionaires
EG: In terms of net worth brackets, what primarily differentiates wealth management strategies between millionaires, centimillionaires and billionaires?
RW: Typically HNW individuals just want diversification from their wealth advisor, nobody expects to go from being worth $100K to $5M because their private wealth advisor put them into a nice diversified basket of stocks. Some penny stock or commodity arbitrage traders may promise such things to HNW individuals but the average investor knows that is not realistic. The average HNW individual may own their own house and 1-2 rental properties, they may have bought a few bitcoins, or have done 1-2 angel investments, or picked a couple of stocks like Amazon or Costco, but that is the extent of their investments.
This contrasts with those who are ultra-wealthy at $15M-$30M as a starting point up to $100M+ (centimillionaires). These are the clients we work with directly through Centimillionaire Advisors, LLC, and have speaking on stage at our Family Office Club investor summits. They typically are breaking up their portfolio into three components. The first is diversified public market exposure, similar to what a private banker or multifamily office would put someone into to diversify their holdings and track the market or slightly beat it.
EG: Can we expect to see the decamillionaire and centimillionaire class to become increasingly populous in the foreseeable future? If so, what industries may be positively affected and become even more profitable as a consequence?
RW: Right now there are only 3,000 billionaires that we know of but 55,000+ centimillionaires and both are massively under-reported for privacy, bribery, corruption, and pre-liquidity event reasons. The number of ultra-wealthy is growing quickly, and when account for inflation as well, we are going to see a whole industry emerge around serving centimillionaires just as we have with family offices over the last 10 years.
EG: In the event of an economic downturn (and leading up to it), what are some techniques that family offices can rely upon in order to preserve their wealth?
RW: Investing in collateral backed lending investments, using gross revenue royalty structures on their operating business investments, and finding collateral within companies so when they do invest with an equity investment they have some claim to a hard asset such as real estate or equipment to recover part of their capital in a worse case scenario. Other strategies include increasing their cash position from 3-7% to 10-20% to wait for a downtown, or only investing in distressed, already dis-counted investments. Some who do real estate lending may do only 55-60% LTV (Loan to Value) deals now when they were doing 65-70% in the past.
EG: Considering family office investment trends, which industries offer the most optimal safety and, in contrast, which ones are more risky but potentially yield higher returns?
RW: There are high and low risk structures and investments in every industry, that is most critical to note with this question I think. You could do a low risk block-chain or cannabis investment and a high risk apartment building investment if you have the wrong team, structures, not right collateral, etc. The right team and unique/excellent strategy is the most obvious form of risk after being in the business for a long time now I know that, more so then a market risk. One you can control and one you cannot, and you want to focus energy on things you can both control but also that will protect your downside and expand your upside. If someone doesn’t have a truly compelling very high conviction committed team and strategy you should instantly move on to someone who does. Smart families invest only in anomalies, deals which are 1 out of 500 or out 1 out of 1,000. If you are around long enough you can spot these, we see 6,500 professionals come through our 32 live events a year and we find just 3-4 dozen exciting deals out of the 6,500 connections and $4M+ in overhead on hosting those events. That is how hard it is to find a truly excellent deal in my opinion.
EG: Could you give a word of advice for families trying to raise their first million, and those who already have and are aiming for their first $100 million?
RW: If you are raising capital I would focus on
1) Unique compelling offer
2) Aligned Structure
3) Focused Geographically & by Asset Class
4) Focused Co-Investor or Investor Target Sets. Too many people raising capital have generic statements about their firm, regular structures with high management fees, try to raise capital from many types of investors, and just have no focus on any level.
EG: What are three qualities that make a great billion dollar investor?
RW: 1) Focus
2) Playing a unique game from everyone else in their industry
3) Integrity/Alignment/Integration to bring their strength to the table to win the game they are playing.
EG: With the growing wealth of former Soviet countries yet an absence of the family office industry in these places, could it be worth the risk of introducing this concept abroad?
RW: I spoke recently in the country of Georgia, in Tbilisi and found very few formalised family offices there. Most hadn’t heard of the term and much of the wealth that left still don’t completely trust the situation. Russia occupies 15% of the country of Georgia, yet they are their own sovereign country? That brings into question the definition of sovereign, and after what happened in Ukraine I think many would rather keep their capital mainly in London, Dubai, U.S., Singapore, etc. and they may have some real estate holdings in Georgia, and under-the-radar allocations of 5-20% of their wealth in such areas, but there is a lack of trust. Some other countries aren’t under occupation, but the whole area is under the sphere of Russian influence. If the Russians could influence a U.S. election imagine what they could do in Uzbekistan?
EG: What are some of the best ways for a family office to increase its profitability?
RW: The ways we help clients create more profitability in their family office are:
>Acquiring strategic choke points and assets to give them leverage, distribution, deal flow, etc.
>Upgrade to family office quality solution providers and partners who can provide great leverage
>Think about how you can completely dominate a niche, roll up small $500K-$2M EBITDA competitors, and then aggregate assets to sell to private equity on a multiple of revenue or high EBITDA multiple vs. what you invested at
>Negotiation on fees, performance only fees, Co-GP structures, adjusted waterfalls for help sourcing a deal, etc. Many clients give away fees that they could keep as they have lots of leverage at the table, and many times are paying 25%-50% more than they need to for their investments. EG
Invest in your health to focus and produce more in less time.
Focus on acquiring choke points that once seized propel your business or investments forward.
Only spend time and capital on white space areas with little or no competition but high future demand and/or value.
>>#1 website & podcast
on the family office industry
>>Hosted 130 live events
and published 5 books
on the industry
>>Built a 20 person team
at the Family Office Club
over 12 years
>>Hosting 30 live events
a year + 6,500 attendees in 9 cities
>>Only author to write a book
on how to start a family office
or centimillionaires, and the
first to write a book on
single family offices
Richard is the CEO & Founder of the Family Office Club, the #1 largest association of over 2,000 registered ultra-wealthy families family offices. Richard also represents 77 investors with an average net worth of $22M through his RIA Centimillionaire Advisors, LLC and the PrivateEquity.com investor portal – where he helps clients access top screened direct investments coming through his investor club. For further information, please visit: www.familyoffices.com