Seventy percent of Western family offices serve inherited wealth, but in Asia that is reversed.

[10:02]

"So that's one difference because um in the United States and Western Europe probably 70% of family offices have clientele which are second, third, fourth generation wealth and I think that is kind of reversed here. I think it's probably uh 40 to 60% first generation wealth"

[22:05]

"At that point, you know, I was charging my clients $10,000 a month retainers for capital raising and I went 13 months without raising any capital. You know, the pressure starts to build"

[26:50]

"They won't invest in a manager, even if they have $5 billion, that they won't take the time to return their phone calls, answer their questions in a concise, professional manner, and pay attention to them. They don't want to be ignored by a large fund that's too good for their $10 million or their $50 million investment."

Full transcript

Well, I'm here with Benjamin. He's uh been nice enough, actually I had to bribe him a little bit, but I'm taking his at 4:30 downtown to go to the private equity summit where they talk about family office investment preferences and also how to raise a lot of capital by working with family offices in a real value added way. So, uh let's head down to the conference. Let's do a little split.

All the way right side. That was pretty sweet. All right. All right. Thank you. Um the first part of the title of that book is actually the hedge fund book and then it's a training manual for capital raising professionals.

But um it is a book I wrote in 2010 and it's uh basically where I interviewed a bunch of hedge fund executives and put my thoughts along with those into a book for a while. Um so my goal in speaking here today is to basically show you some really practical but maybe not common talked about methods of raising capital from family offices. And specifically this is geared towards private equity funds of course since it's a private equity summit but it is relevant to a few other types of uh fund management firms as well. Most of these strategies can be ported over to raising capital for other types of things from family offices.

And um what our firm does is basically try to provide educational resources for the industry that kind of removes some of the secret secrecy and kind of greyness around family offices, capital raising, hedge funds, and private equity funds. And we do that in a number of ways. Um we've written over 8,000 uh blog posts on the internet. We've uh produced over 1,000 training videos.

Uh written uh close to 10 books now. Um spoken at over 50 conferences in 15 countries and we're just really dedicated to giving away as much as possible uh on these topics because we find that the more we give away on categories and in family offices and hedge funds, the more we share our knowledge, the more relationships and the more opportunities are coming to us and it just helps the whole industry. Uh we get two to 400 emails every day from people who have read an article that we wrote and then they have a question or they say just thanks for the article etc. So that's the way we do business.

So we just try to give away a lot and it kind of comes around eventually in many unexpected ways. Um just like everything here at the conference, many of us are from different jurisdictions. So you know check with compliance before doing anything that I say. Um just so you don't get in trouble. And this is just a quick summary again of our firm.

Um not going to spend much time on my background just get right to the meat of what I'm going to talk about. But in my past, I've raised over $250 million from high-end wealth management firms and family offices. Um, I also have the 35,000 member family office association called the family offices group. We also have 77,000 members in our private equity association called the private equity investment group.

And they're both free to join. I'm not trying to sell something here. They're 100% free. You can discuss things with other people in the industry, connect with others in the industry, you can look for your next job, you can hire someone uh through there and it's just something that um we've been creating over the past four years and working on.

When I say we, our team is based in Salo, Brazil and Portland, Morgan in the west coast of the United States. We have eight full-time professionals and then some part-time professionals that help us out and uh six of those are in the United States and two are in Brazil. All right. So, before I get into the actual, you know, top five strategies for raising capital, I just wanted to go over a little bit more in my perspective and a little bit more in the perspective of what family offices are looking for.

To start with, you know, I've been working with family offices and capital raising for almost 10 years now and with family offices more specifically for around seven years. And recently because of the hedge fund book that was mentioned earlier, I got a book contract with WA to write a book on family offices because there's not very many books written on the topic and lots of them that are out are just have a lot of statistics in them and not a lot of direct insider direct information straight from family offices. So what I did was um interviewed uh from last June until December of 2011, I interviewed 36 top family offices including multi-billion dollar single family offices. Uh midsize multif family offices as well as top 30 and top 10 family offices around the world.

And I recorded all those interviews and used a lot of the transcripts within this new book that's about to come out on family offices. The reason I say that is that even if you don't believe that any of my experience is worth anything, uh a lot of what I'm going to share with you today is directly from the mouths of top family offices around the globe. So, even if my experience was worth zero, I think their advice is worth a lot and they're usually so secretive um that it's hard to get information directly from them. You're usually lucky to get a quote in a newspaper and then you have to kind of hope it wasn't taken out of context in some way, I guess.

So, um that's where a lot of what I'm going to talk about is coming from today. In my firm, you know, what we do every day is think about family office industry and capital raising. Um, on top of running the association, as you might have heard on the panel, Richard Wilson Capital Partners tries to connect fund managers to family offices. Uh, we're a capital raising firm.

We're engaged by fund managers and most capital raisers try to raise capital from 20 different sources. We don't really look at what pension funds want or what endowments want or individuals want. We only care about what family offices want. So, we're just really laser focused on the needs of family offices. And really these strategies I share with you today, these are five strategies that I know work for sure because my firm uses them every single day.

Um, and so these aren't just theory based ideas. They're really things that I know work in the industry. Um, there's really five, I guess six things I have up there, but there's five unique ones uh that are important to family offices. These are really like priorities that they look at. And this is something that got further refined by my work on the book.

I knew a lot about family offices, but having them openly talk for a full hour each and be able to ask them whatever questions I wanted to, I really get to dig into how they build their portfolios, what they're most afraid of, what they're trying to do at their family office. And really, the number one thing uh that they want is capital preservation. They want to protect the capital that was built and not lose it. And that's more important than anything else.

They're not looking for 35% returns for the most part. They're not looking for something that is tax-free but then could lose could lose principle. They might lose some of their uh principle on the investment. They don't want to see that. So number one look for capital preservation. Two, I think they're looking for growth.

Again, I think a misconception is that family offices have so much wealth. They want something that's very tax efficient and that's more important than growth. Um, but many times, uh, during the interviews and in my conversations with family offices, even this week, people talk about how they don't want, uh, the tail wagging the dog. They don't want to optimize their portfolio for tax and then have no growth and then some of their investments lose principle.

And again, they're in a bad position. So, it's a little bit counterintuitive. That's why I wanted to share it here today. Uh, tax efficiency is something that's on their top five list of importance in my experience. Um the next thing on the list up there is income and income components of a portfolio. It's interesting recently it's been more challenging to get income.

Uh some traditional sources have kind of dried up. And the reason I put that $100 million, there's kind of a a change in their need for income is that I've found that those family offices, uh, specifically those that are single family offices and have far over a hundred million in assets have typically less of a short-term need for income. Whereas very large single um, very large single family offices, you know, they have enough capital that they can meet their capital call requirements. They can meet their family needs with just a very small percentage of their total net worth.

Smaller um family offices are much different. They might really need a strong component of income in their portfolio as a total percentage of their investments. It's more important. Uh next I put up here capital preservation again because I think it you know I always put as number two because they care about that in my experience more than just about anything else.

And then uh fraud, risk, and just, you know, with the different scandals that are always going on. I think that's something that came up again and again in my conversations with family offices and their top priorities. They want to avoid, you know, getting their full principle taken out through fraud. So again, it goes back to capital preservation.

So it might sound like I'm repeating myself. I just want to make the point that they want to protect the capital above everything else. And um one thing that's interesting that is unique about Asia is the amount of first generational wealth here versus second and third generation. And it's important to note because that does change a little bit of this.

Um those who are the head of their family office or patriarch of their family office and it's first generational wealth. Typically those people are willing to take on more risk, willing to do more direct investments, willing to specialize their family office within the industry where they made their money and they try to leverage that information advantage or network advantage they might have within the industry where they created their wealth. Uh whereas second and third and fourth generation families typically are even more focused on the capital preservation factor. They typically want to diversify strategically uh the more traditional type investment approach in terms of uh spreading out their investments and they're much less likely to be what I call kind of a sandbox strategy where you're just playing in that little square where you have all of your expertise and your insights.

So that's one difference because um in the United States and Western Europe probably 70% of family offices have clientele which are second, third, fourth generation wealth and I think that is kind of reversed here. I think it's probably uh 40 to 60% first generation wealth if not much higher depending on what part of Asia you're talking about. Um and so that that'll affect the priorities of the family office uh for sure. And another thing that affects the priorities of a family office is not only the first generation versus second generation, but also where it's based in Australia and even here in Singapore, the family office industry is relatively immature compared to Western Europe or United States.

And it's growing quickly and there's a lot of huge opportunity here for family offices and those in the industry. But um where you're based can change um what type of team the family office has in place, what capabilities they have. Like on one of the panels earlier, we were talking about managing currency risk. Um I don't know of many family offices in Singapore that have someone on their team that do that, but I know that some in Europe and United States do.

And I don't know every family office here, of course, so I'm sure that a few of them might. But I think that that's something that comes with having a larger family office structure. You can afford to have more of those seven figure experts on your team naturally as the family office gets larger. So, I wanted to start with this before I get into the actual capital raising suggestions just so you see kind of where I'm coming from and what uh family offices are looking for in my experience.

All right, so these are the uh five areas I'm going to cover. The first is having a uh laser focus. And I was happy to see that in one of the panels it was suggested that managers um don't have a clear enough focus. That's that's actually my first point here. And um the second thing is having an expert status in your niche or your industry.

The third thing is having a long-term cognitive bias and a long-term approach to everything you do in your fund. The fourth is building a referral network. And the fifth which tries to tie it all together uh with something a bit more robust but easy to understand is creating your capital raising funnel. All right. So I'm going to start with laser focus and um this one's pretty self-explanatory.

It's something that that I'm trying to do uh in my own business and my own capital raising efforts. For example, we only represent fund managers that are have deep talent on their teams that have a lot of assets under management, typically over 300 million, sometimes over 100 million. And we only raise capital from family offices. So, we're very focused.

Um this is something that immediately after doing it we started to become more effective and I know that fund managers in the past who have tried to raise capital from 20 sources and then narrow it down to just high net worth individuals and wealth management firms or just institutional consultants and pension funds. They very quickly find out that that was a bad decision and they don't make any progress for 18 months or 12 months. Um or they find huge success. I find that the people that flounder the longest is the ones who go after five types of investors all at the same time with a small team.

I think that's kind of a death sentence because it can take a couple years to get feedback that way and uh meanwhile your competition has raised a lot of capital. Um, when you're super focused on one uh investor niche, for example, you might focus on uh family offices just in uh Australia, New Zealand, or you might focus on wealth management firms that have a connection to some uh geography that your investments are connected to. Uh focusing on that specifically uh can allow you to listen to those people's needs and just adjust everything you do very quickly to them. Um, family offices as a whole is a massive uh, group of investors.

Um, when you look at the number of investors you could go after for a private equity fund, uh, it's literally, you know, over a 100,000 people you could be trying to meet with. Um, so when you narrow it down just to pension funds, there's still a lot of people you could potentially meet with. So you really have to even though eventually you'll want to go to those different sources of investors uh if you go to towards them all at once you'll be very ineffective and slow moving. Um one approach that I found works um whether you take this advice or not is I call it kind of the doctor's approach to raising capital.

And if you go to the doctor, um hopefully when you get there and you're going there for a reason, perhaps you're uh say your knee hurts and you sit down with the doctor. As soon as you sit down, he doesn't say, you know, you should take this pharmaceutical drug. This this will cure you. It's not the person that's out of his mouth.

He typically asks how you're doing. Uh have you had any irregular one something or other lately? Does your knee hurt when you sit down? Does it hurt when you climb the stairs? Does it hurt when I poke here? And he asks a whole bunch of questions to figure out your exact pain and your exact situation.

And by doing that, what he's doing is listening to your needs, listening to your situation, whatever he says after that, you're probably going to trust. If he says based on everything you told me, it's probably this or this, why don't we start with this pharmaceutical drug? You're going to trust what he says a lot more than if you come in there and he tries to sell you on consuming this drug. You know, doctors aren't seen as salesman, and that's a good thing.

And us raising capital, we don't want to be seen as people that are just trying to sell everybody we meet with, no matter what their situation. So, I would suggest taking the same approach. 60 or 80% of your meetings, you should be asking questions to the investor, whether it's an individual or a pension fund or a family office, and be asking questions most of the time so you know exactly what their situation is, what their past investment experience has been in this area, if they've gotten burned before, what they're afraid of, how they want something structured. And then after that, you present to them the opportunity of maybe working together.

That allows you to customize everything you do. You actually listen to them instead of just pitching at them. And they're much more likely to trust what you'll what you're saying after you've actually listened to their needs and their situation. One example of this um just yesterday afternoon I was meeting with a family office uh here downtown and was using this very same approach and we got through about half the meeting and it became very obvious there was no direct way of working together.

Um but the meeting he didn't see it as a waste of time at all. Also was able to suggest a few people I could connect him with a couple resources we have at the family offices group and I left on a good note and I'll send him a copy of my family office book when it comes out but just left as a good strong relationship which goes to kind of the referral network I talk about later and it was still a positive meeting even though there's no potential that specific family office for the type of capital raising I do. So that's just an example uh just from this week about how it can help. Hopefully through everything I suggested ends in raising capital, but it's good not to, you know, waste your time by going to a meeting if the answer is no.

It can still be a beneficial relationship uh long term. All right. So the second uh suggestion I have for raising a lot of capital is developing uh your expert status in the industry. So if you're working on Mongolian infrastructure investments, um you know, you should try to become an expert on that region and be known as the expert to go to on Mongolian investments in general maybe since it's so niche or Mongolian infrastructure investments.

If somebody looks for that or somebody asked 20 people in a room who's an expert on that, hopefully your name would come up. If someone searches on a book website, hopefully written a book on that topic and you're probably the only person ever to have written a book on that topic. What does that mean? It means people see you as the expert that they should be working with.

Um, what no matter what niche you're in, there's always room for more experts and ways to add value. And they say knowledge doubles every uh 18 months. Um, and that it moves so quickly. Yet most of us move relatively slowly on taking advantage of kind of expertise building opportunities. There's a statistic saying that 85% of business people would like to write a book someday, but only.5% ever have.

And if you look around our industry, um, for example, in the family office industry, there's not very many books on it. When you look at capital raising, there's not very many books written on it. When you look at private equity investing in Southeast Asia, there's not many books written on it. So again, writing a book know the capital's not going to flood in because somebody read your book, but this is one thing you know that can help you out of 20 different strategies you need to be using because the environment is so competitive.

You need to use all of the strategies you can. It's not choosing one strategy and saying why don't they do this or we already have our system in place and uh just sticking with that because your competition is constantly innovating, constantly trying to grow their brand awareness and their expertise. And when people talk about uh a team having high pedigree or respecting a team or the team is most important, you hear that all the time. Part of that is when someone reads their bio, does it sound like an authoritative person that they can trust and who's committed to their industry and has experience in their industry?

And it's not somebody who ran chicken franchise restaurants and they started a private equity firm the next day. It's someone who's really dedicated to their niche and have taken a long-term approach to um kind of dominating that area of investments. And that can be part of your unique edge in the marketplace. So, this is something that I think is kind of written off by some people because everybody's busy and nobody has time to write, nobody has time to do some of these extra things, but I think it's really important if you're dedicated longterm to raising a lot of capital to build yourself into the expert for your niche or the niche within a niche.

Um, there's a lot of benefits that are mostly unseen. One example, and I have no connection to this person or his funds in any way. I don't make money by putting his face up here is uh Andrew Low from MIT. He's a professor and he's written a lot of research papers, given a lot of speeches, hired as a consultant, adviser by many people.

And he became somewhat of a celebrity in the industry probably four to seven years ago. And everybody knew him, knows him, and trusts him. And since then, he's kind of parlayed that into I believe he's associated with a line of funds. And I have no idea how those are performing or if they did well or if they're good or bad or not.

But the point is he's leveraged that and that's somebody who um you know came from an academic background. He's leveraged that expertise into I'm sure the fund management company loves having them on the board because that opens doors that gets meetings and it adds some star power and some pedigree to your team that people kind of respect. So that's how the power of this kind of work and that's someone else in the industry that's using it pretty effectively I think. Um, I want to share an example of how this works.

And I think a good one would be that two weeks ago, uh, we finished writing a white paper on the growth of family offices in Singapore. And you guys probably were emailed that, um, through IQPC. And we emailed that out, they emailed out to their list. We emailed it out to about 250,000 people on our list as well, mentioning that I was coming here to speak.

And we got over 1,000 phone calls and 1,000 uh emails total response to that one white paper that we wrote. I met with one $3 billion hedge fund for lunch a couple days ago and they said that not only did they get it directly, but they had their colleague in London and one of their team members forward it to him. So he heard about it from three different sources. So that's why he had sent me the email to meet and said I guess we have to meet because this is something we're interested in doing.

Um, that's an extreme example because most people don't, you know, have the ability to send it out to 250,000 people. But that is a really recent example of how I'm using this. Not just telling you that you should use something to grow your business. It's something that I'm actually using and it helps me with meeting with family offices being a scene and someone who's dedicated to their industry and being able to generate relationships more quickly.

Uh, another example um that's different than that one and isn't as extreme is when I was in Boston raising capital. I had a really hard time doing it at first. At that point, you know, I was charging my clients $10,000 a month retainers for capital raising and I went 13 months without raising any capital. You know, the pressure starts to build and every week the fund manager is putting more pressure to get some capital in or you're you're done basically.

And um so at that point I basically had to try different strategies and I tried you know going broad. I tried going narrow. I tried focusing on different types of investors. And one thing that really helped was just gathering information and white papers on the type of investment that I was promoting and providing that to them in a folder.

At that point I didn't write anything. All I did was take the work of other people and print it off, put it in a folder and say here's some research on how this fits into a portfolio. And they liked the value of just that. I didn't have the credibility factor that I had written and stuff, but I had provided them a source of value because I was a conduit of knowledge at that point and I was educating them on how they could fit my proposals into their overall investment portfolio.

And so that was really relatively early on in my career and it was something that made a big difference and we started raising capital every week and then more capital every week and I started adding on more of these strategies like I'm talking about today to what I was doing to raise more capital and you know with everything that I say today or at any conference you go to there's basically two reactions to anything you hear. You can basically um say you have a quick question. Five minutes. Five minutes.

Okay. Um so I'll have to go a little bit faster through the rest of these suggestions. But basically there's two reactions. You can say I already know that or how good am I at that? And so with everything I talk about here in the next 5 minutes. Maybe I'll try to squeeze seven or eight in here.

Uh that that could be the two reactions. Just blow it off of something you already do and you already know. Or you could actually figure out how to apply this to raise more capital. All right. So, next I want to talk about long-term bias. And basically, this is something where family offices like I was speaking about earlier today are really long-term view.

And over the long term, they want to protect their capital and protect the wealth of their family or that of the clients in the family office. So, anything you can do to overinvest in your team, build out your team, build out your systems, have excellent reporting, take the time to really sit down face to face with your investors, and look at every detail of how you run your fund and make it long-term biased. Uh, the incentives you put for your team, multi-year, you know, equity sharing or profits that invest over a number of years so people don't make a lot of money one year and then leave your fund the next year. Family offices like to see that in the managers they invest in.

And we actively look for that in managers. I try to raise capital for it. Referral networks. Um you know there's a saying that you know the rich get richer and this is part of the reason why uh because they are relatively well connected to other uh well-off individuals with other opportunities or ways to partner together. Um lots of people might see this slide and think this is easy once you have the network but if you don't have the network what do you do?

This doesn't apply. There's a way to there's ways to create the network and I challenge you to think of creative ways where you could get started by being helpful to a high net worth accountant or accounting firm or a high net worth um advisor or consultant. There was an investment banker on the panel earlier today. You could be helpful to them in two or three different ways.

Build a real strong relationship and they might refer you to a family office eventually. There's many ways you can get plugged in on a very small granular level to begin with and then grow it from there instead of uh I think sometimes it's easy to discount this as a real strategy. There's a saying by Jeffrey Gimer that says, you know, um all things being equal, you know, business is never equal. Like basically at the end of the day, um people want to do business with their friends.

They don't want to do business with strangers. So things aren't equal. It's not fair. And that's good news because if you make friends with the people and you have great relationships now you have an unfair advantage in the marketplace. So um you know I think that's something to remember is that it's not an even playing field. It's very uneven.

It's very unfair. So you need to be on the right side of that unfair advantage if you want to raise a lot of capital. There was also a study done in 1998 that's not specific to capital raising, but it showed that the relationship between the person being sold and selling was a more important factor than the thing being sold. So the characteristics of the thing being sold can be changed and downgraded, but the relationship was more important.

And I think that uh is true in our industry as well. There's a certain qualifying factors you have to have in place. But the relationship can be just as important as all the hard work you put into forming the fund and forming the team and putting the investments in place. And family offices tell me all the time that they won't invest in a manager, even if they have $5 billion, that they won't take the time to return their phone calls, answer their questions in a concise, professional manner, and pay attention to them.

They don't want to be ignored by a large fund that's too good for their $10 million or their $50 million investment. All right. So, this is um pretty much the last slide or two here. I think just have two minutes, but basically this funnel, I'm not sure how clear it is, but my presentation will be on the website and I'm recording it, so you'll be able to watch again later if you'd like to.

And basically, this funnel represents how you can get investors into your fund using the things I'm talking about today. The top of the funnel you can see uh articles, interviews you might do, white papers like the uh family office white paper I was just speaking about, books you might have written, giving speeches like the one I'm giving right now, uh having meetings with people, so one-on-one meetings, which I'm sure you already do with potential investors, and then getting capital in the door. And the point of showing it as a funnel is that we sent our recent article or it was a white paper in that case to 250,000 people. You know, only so many people are going to read it.

Some of those people are going to buy a book. Some of those people are going to come here and speak with me in person. And then some of those people will run a one-on-one meeting on Friday, you know, which I've had three or four meetings set up for this Friday already from being here today. And then some of those people, it might end up being an opportunity where it might be a fund manager we represent or it might be capital raised and capital brought in through the door.

So the point here is just put as many people as possible in the top of the funnel. Make it very very broad and then you end up raising capital for more people uh because of multiple factors. You're seen as more credible. Some people will slowly move through this funnel and get to know you over a period of seven years and slowly read articles you've written or seen you speak and then eventually want to work with you.

Or it could happen very quickly and they might just see you speak and not have read anything you've written and they want to work with you immediately or they've just read your book and they want to work with you. So it can skip steps, but if you build it like this, then people can kind of trickle down through it and it creates a consistent flow of sources of capital that are approaching you, people who are calling you because they're interested in figuring out how to get access to that Mongolian investment to figuring out how to get access to best of breed fund managers that make sense for family offices. And this really does work. Um, this is what I focus basically all my capital raising efforts on.

And um, it's been working very well. I think that this is something where most people won't take the time to do it. And that's the great thing is that most your competitors are don't have the time for this and don't take the methodical approach of building a capital raising funnel. So if you do, you'll have that much more of an advantage in the marketplace.

All right. So here are the five uh suggestions I had for raising capital. Um being laser focused, uh building your expert status, having a long-term cognitive bias and long-term approach to the marketplace, building your referral networks, and then building your capital raising funnel. Here are three places you can go if you want to join our associations or networking groups for free or take advantage of our resources.

It's a family officesgroup.com, private equityinvestmentgroup.com, and familyofficereport.com. All right. Well, thank you.