Funds and asset managers
Funds and asset managers, although they often manage some of their clients’ large assets, usually have nothing to do with them on a day-to-day basis. Especially in the case of very large assets, there are several hierarchical levels between them and the beneficial owner. The fund and asset managers manage the assets but have no right to make directional decisions on behalf of the asset owners. They are, so to speak, the driving force behind the assets, with the purpose of safely increasing money. No more and no less.
Bank and Private Bank
Banks have been the classic asset managers for centuries. However, they have lost a great deal of their importance in recent decades. In private wealth, they usually only take over punctual solution options for their clients, such as liquidity management for larger sums (so-called cash events), payment transactions, and parking liquidity temporarily in funds or in special accounts.
What the banks are doing less and less of today is classic asset management, e.g., of shares; investment management, e.g., in companies; the selection of real estate; or even succession structuring. For wealth holders with large assets above 50 or 100 million euros, asset managers, multi-family offices, and, from 150 million euros, single family offices usually come into play. In addition, banks are so hobbled by their bureaucracy that individuals can hardly make decisions. At the corporate level, however, when it comes to groups of asset owners, banks are still a central component of day-to-day business.
But when it comes to doing business with holders of large assets, they are not the right contacts. Maybe with the exception if the bank is owner-managed or has a billionaire behind it. The same applies to the big and powerful investment banks, where the board members are themselves high-net-worth individuals and have their own family offices.
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Asset manager
The term asset manager can mean many things. One has to distinguish whether they are allowed to invest their clients’ capital or have chosen niches and looked after them with their expertise and are not allowed to accept outside money. It can also be an exotic area, such as managing a car collection or cryptocurrencies.
In general, asset managers are often ex-bankers who have set up their own businesses. They mainly look after liquid assets, especially shares and bonds. For this, they receive annual fees.
Asset managers are closer to the beneficial owners than a normal bank employee. However, they usually look after special areas and rarely make overall asset or directional decisions.
Asset managers in other asset classes, such as real estate, may have other names such as asset manager, property manager, portfolio manager, etc. Another important aspect is the number of assets under management. This usually starts at 500,000 to 1 million euros and goes up to 10–20 million euros. If more assets are to be managed, it is worthwhile from the asset owner’s point of view to deal with multi-family offices.
Multi-Family Office (MFO)
The classic MFO comes into play when the assets and background of the owner family become more complex. There are real estate holdings, equity holdings, business holdings, often still an active main business and source of income, and issues that need to be resolved on an ongoing basis. These can involve the allocation of freed-up capital, reallocations, succession issues, setting up club deals with other families, joint investments, etc. MFOs usually start their services with 15 million to 100–150 million. After that, a separate Single Family Office (SFO) is worthwhile, depending on the complexity of the assets.
One reason why many wealthy people also come to an MFO is the high cost of an SFO, the reduction of complexity, and the creation of synergy effects. Classic MFOs look after 3 to perhaps 30 families, and the really big ones even more. If, for example, several hundred families are looked after, we are talking more about a bank and not an MFO.
MFOs have a direct and constant exchange with wealth holders but still have a larger staff structure with distributed tasks. The individual’s contact with the wealth owner is not as relevant, valuable, and powerful as in an SFO.
Single Family Office (SFO)
The pinnacle among advisors and managers of large estates is the single family officer. He has great power and closeness to the headmaster and their family, as they are his sparring partners in protecting and growing the wealth. The SFO ideally has an overall view of the assets, knows about weaknesses and potential for expansion, and is the link between the family and the assets. Often, the SFO has a smaller team behind him—on average, no more than four people. Large SFOs of billionaire families can also have 200–300 staff.
An SFO produces high staff and ancillary costs. That is why they say that for under 150 million euros in assets, employing an SFO makes no sense. One should rather have a minimum of 200–300 million euros in assets because expenses also have to be earned.
Special features of SFOs are so-called “embedded SFOs”. These are present, so to speak, in the group’s everyday life. It is often an active entrepreneurial family that the CFO or the owner’s right-hand man takes over in the group and, at the same time, the task of the family office and the private assets.
Principal
The principal, or wealth holder, is the main person on whom power and wealth are concentrated. Often, this is not one person but a family with complex dependencies, family and company networks, and rules. This is how it works, especially with inherited money and industrial families. The contact with the owner family and their head is the most valuable and powerful network contact and access to large fortunes. These are almost always the decision-makers and final authorities who ultimately sign the contracts and are liable. The family officers and asset managers are almost never liable; it is not their assets. They advise and act at different levels of power and competence. Again, there are rarer exceptions, for example, when the family officers are made co-partners or even partnerships exist. This happens, for example, when capital meets special expertise and entrepreneurial skill.
