Back17 Jul 2009
Family office profile: Lord North Street
Lord North Street recently won the 2009 Citywealth Family office of the year award which was voted for by the industry then the choice refined by judges, which is a great testimony to their reputation as a whole and in more detail. Karen Jones, dropped in on them at their London office in Park Place to tinker with their engine and take a good look under their bonnet.
William Drake and Adam Wethered are the founder owners of Lord North Street and though both are Cambridge men, William says “we are very different people.”
They started Lord North Street in 2000 at the time of the troubling tech boom bust. With that in mind, I ask if the launch was a brave or natural move? “Brave and natural.” Laughs Adam. Then like all entrepreneurs suggests that it was part leap of faith and the right timing for them. Adam adds that they didn’t take any clients from any of their former houses which I’m sure must have delighted JP Morgan and Kleinwort Benson no end.
Lord North Street, unlike most family offices (although they say technically they are a family investment office), don’t have a big family or family brand name behind the operation which they say works in their favour some times and others not. “Some families want the bragging rights of belonging to a dynasty family office then others don’t want to feel second best to someone like the Rockefellers. It’s a difficult one to guess before meeting a client.” says Adam.
The reason for their start up was based on their knowledge of how the USA family office market had shaped up. “The family office model became considered a solution of choice with freedom from product selling and expanded to 130 family offices compared to the UK which only really has six of note. We could see and still do see, this area growing enormously and see organisations like Bessemer Trust with $55 billion under management.”
As we are talking about products and selling, I take the opportunity to ask about their fees and the grey world of commissions. “We take no commissions.” confirms Adam, “and also we don’t take performance fees. It stops us being motivated by anything other picking what is right for the client. We charge a basis point on the amount of wealth the client has and that is it.” They reiterate this sentiment many times during the interview.
“We are both lawyers by background and I think we take a professionalservices advisory view to investment management.” says Adam. As well as not having a dominating family, another unusual characteristic is that they often get the majority or complete share of their clients wealth to invest and manage – 100% of wallet as one of the accountants termed it. Generally wealthy clients have been known to spread their money over a few managers making it difficult to get a real picture of their estate. Not so with Lord North Street. They have twenty five customers and have an entry level of £25 million which is double that of other family office brands. William explains why. “We put enormous efforts into client care.” A good year will see four new families or individuals join them but William says clients can take years to decide, sometimes up to three years.“It’s not a business where you can say with certainty that clients will sign up.” Their clients are a mix of UK, continental, old money, new money and endowments. “Clients are a total mix.” says William.
RDR – the proposed changes from the government to make financial organisations declare their position whether advising or selling - was at the top of the Lord North Street agenda. The consultation project is underway. “It is hard to know if it will just be a flash in a pan,” says William, “but if it is implemented it will shake down the industry completely. Similar to the IFA changes in the UK in the 80’s. We think it is good, people should know how their “advisers” are being paid. They need someone on their side of the table and this move will allow them to decide.” Of the credit crunch, both Adam and William say their clients are broadly happy with them. “We have always been ruthless at looking at counter party funds and understanding their risk positions so haven’t had any unpleasant surprises. We’ve avoided all scams so clients still trust us.
The dilemma now is if cash isn’t creating income then how do clients who need income invest? Also protecting against inflation and deflation swings.” says Adam. I ask what their advice would be. “We take a long term view: some property, some equities and buy stocks cheaply and carefully and certainly steer away from investments that are leveraged.
But things are still not simple. We wonder if property can ever return to its former glory without a debt market.
Investing is complicated and when you look at scary figures like Quarter 1, 2009 which saw a bigger drop in the markets than all of 2008, people need to be careful. It was only the bounce back at the end of the quarter that saved it from being recorded as much worse than it was.” On funds they say that the downward trend has highlighted many problems in investing which means they are even more careful in asking who co investors are in funds. “Clients don’t want to be in a fund that gets a run on redemptions, to be left on their own with nothing left worth having. We ask each client and fund managers – who are the co-investors and is their style similar to our clients investment style.”
At Lord North Street themselves, they say the culture is focused on analysis and their staff all come in with educational backgrounds in maths, physics or engineering. “In our view investing is 80% analysis then 20% judgement based on that. “We all sit in the same room and everyone can attend a meeting and contribute. Senior
staff also get options. We are very open with the staff so clients know they can ring and speak to anyone about their affairs.”
Client spotting is something that William says he is getting better at – we generally take discretionary clients, it just works better for us. They do a lot of education of the younger generation also. Lord North Street have just partnered with a Spanish family office, set up by an ex JP Morgan colleague to provide investment capability to their three families.
Their three key ingredients for investment success at Lord North Street are:
Independent and unbiased
Professional
Personal
William adds some final thoughts. “There are great opportunities to invest at reasonable prices but its not as easy as it looks at first glance because debt is not available so market may not move how they have previously. Property is fantastically cheap but without debt, can it be what it once was? Caution is required and clients need managers who can think forward and be more realistic.” Adam also adds some thoughts. “In a world of certainties, there is one certainty – an enormous amount of debt. Central banks still don’t know what is going to happen. It is a time to be very careful.”
I ask them for a final word to encapsulate their business which leads to some head scratching. “Leave it with us to have a think but “unbiased” is pretty close.”
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