Empathy, alignment and continuity

Date: 08 Jun 2007

Citywealth

Alexander Scott and Marcus Gregson who are both in Chair positions at Sand Aire, a top five family office, are a formidable pair. Alex has an esteemed family background which combines with Marcus, who was formerly Chief Executive at HSBC’s private bank. Celebrating their ten year anniversary this year, they decided to buck the party trend and opted for a published book. It offers advice for ultra high net worths on the future unfolding over the next decade or two.

Marcus talks us through the tradition of family offices. “A hundred years ago the family office revolved around inherited land and was called an estate office. The huge growth in wealth along with a marked increase in investment offerings and international exposure has pushed the wealthy toward more sophisticated family offices. The whole environment has changed and is now very complex.” Alex elaborates. “Ten years ago when I established Sand Aire, there were simple options like equities, bonds, property and hedge funds but the variety of asset classes now on offer is too great a task for any single individual to access. It’s all very well to be informed about investments, but it’s a challenge to participate. It’s one of the reasons we expanded from a single family office to multi. The resources we needed were broader and deeper than we could have justified ourselves. Sand Aire now sees three hundred and fifty managers a year in it’s quest for investment success.”

Sand Aire has twenty five people in London with a research centre in Yorkshire. They oversee assets of ¬£1bn sterling which comprises twelve families and “a couple of charities.” Alex makes a point. “Although we use the term family, we also work for successful individuals who tend to be self made.” The rest of their clients are a “complete cross selection from multi generation families to res’ non dom’ and first generation.” Alex adds a comment. “Our origins were with UK onshore family but the business has evolved from there. The majority of our focus is on clients not procedures which is much more fun. They can talk about their personal experiences and might ask about a shopping mall one day or about their ambitions the next: self made people are also very open to new ideas. The nice side of running a family office is the close relationships with the families. Clients are varied and it’s different from managing institutional cash or pension money. We have real people and only a few close relationships.”

Of the charities they work for one is associated with a family and one is an independent. “Charities have trustees and a long time investment horizon which is similar to a modern generational family. Most of the people we deal with are interested in a perpetual investment style.” Says Marcus. Entry level for families is ideally ¬£20mn sterling for Sand Aire “to deliver an appropriately tailored response.” Alex says that new clients coming to Sand Aire are almost ‘self selecting’. “They will have thought about moving to a family office and are taking a decision to use an organisation that is unfamiliar to them.

Relationships and chemistry are often cited as important characteristics for matching professional advisers, wealth managers and private clients together and this is more heightened in the family office environment. Marcus comments. “At the initial stage there will be a process of getting to know each other. Although we can introduce around three new families into Sand Aire a year, the traits we look for are integrity, knowledge, loyalty and trust. It’s important we get a cultural fit and get to know a lot about them. It makes for happy clients and that’s what we want.” Interestingly Marcus also says that although they don’t mix the families they work for, the very rich are often fascinated about their peers which is why they turn up for parties. “They are curious and perhaps a bit nosey.” Initial interviews will include questions like: ‘how much do you want to spend managing your money? Do you have significant spends, in asset purchase, long term vision and what is the money for? If it is to be given away Sand Aire can set up charitable trusts or distribute it.

In working for the families and selecting managers to work with, Sand Aire take the view that a similar philosophy with manager and family is of utmost importance. “We can show we can develop portfolios that are robust by blending specialist managers but we also like to intertwine the softer elements for instance the environment the family is in and how they co exist with their wealth. We have to work with people who are empathetic. If you are a stockbroker with ¬£300,000 the money won’t rule your life: if you have ¬£300 million it dominates everything. First of all you are in the eye of the tax man; there are personal security issues; you may need to be alert about friendships your children have; people are jealous of money and there is always some assumption that those with money should help others out financially rather than being equal. Keeping wealth is not easy.”

A criticism levelled at family offices is that talented staff don’t find the set up dynamic, which means attracting high flying employees can be a challenge. Marcus puts this stereotype to rest. “If we hired people who just wanted money, then that would be wrong. I think there is an evolution happening in the family office sector because competition is intensifying. For instance we want to be the leading family office in the sector so we need people to be self starting. They can exercise their ambition but first of all we are intent on building a really good business. That means we have to be known as having the best clients, skills and people.” Marcus says the skill set required would be solid experience in money management, a good IQ to understand client issues but interestingly not a ‘public school’ background. “It doesn’t matter where you come from or your social background. It’s more important to have knowledge.” Says Alex.

And are clients changing? Alex says. “In some ways, but the wrapping has changed less than we think. The older generations were pretty smart too. Risk management is at the forefront of many of our clients minds. We think it’s important to actively illustrate the financial downsides of investment, showing what hard cash they can lose.” Marcus adds. “We are obsessive about showing the downside.”

I ask if there are any common traits between the rich families Sand Aire work with. Alex reveals some insights. “Careful people expect us to be careful; entrepreneurial clients want us to be entrepreneurial. It’s not always an easy environment. You are dealing with big sums and complicated people against the odds. Throughout history we can see that money rarely lasts past three generations. Common mistakes are spending too much; taking too much risk, ‘putting everything on black or red.’ Inflation can also eat rapidly into fortunes of wealthy families. Poor tax planning and even revolutions wipe out wealth again and again. On the whole clients are relatively unpredictable and have good intellectual capacity. They know a lot, have multiple interests and are here, there and everywhere. You might say they are a handful but it’s an enriching experience to deal with them. Their circumstances are extraordinary. Which means we have to be nimble to cater for their needs. They aren’t over demanding they are interested and inquisitive people.”

Although many banks splash cash on fancy parties, entertaining is a modest affair at Sand Aire. “We sit down over a meal. We don’t provide what I might call lavish entertainment” says Alex “because our clients can afford to do what they want and don’t really need us to entertain them.”

Fees are calculated according to three variables: assets under supervision; the work they expect to undertake in relation to these assets and the level of associated services that the family or individual requires. If the client wishes, Sand Aire can also incorporate a performance element. Each is negotiated with the client and Sand Aire believe their fees are competitive with banks in relation to the quality of service that they offer. “Fees are completely transparent and Sand Aire don’t accept commissions nor fees from any of the outsourced managers.” Says Marcus.

And a final pitch from Alex. “If a client is weighing up whether to go it alone with their own family office and want to have at their disposal the same level and depth of expertise, the option of using a multi-family office is likely to be keenly competitive. Of course, it won’t be quite the same as having their own dedicated office, but our objective is to deliver a service that makes it hard to distinguish between the two.”

At the end of the interview I ask for two words to sum up Sand Aire and after some thought they feed back “trust and delivery.” I suspect these are right but I would also add careful and quietly contemplative too.

PROFILE

Alexander Scott, 47, is a fourth generation descendent of Sir James Scott, founder of the Provincial Insurance Company in Bolton, Lancashire, in 1903. Provincial Insurance was a highly successful investor (the company created and subsequently sold Prolific Asset Management in 1989), as well as being an innovative and successful underwriter. In 1994, Alex led the sale of the family business to AXA and formed a new investment company, Sand Aire, now one of the leading multi-family offices in London.

Alex was educated at the Lakes Comprehensive School, Windemere and Oxford University where he read PPE, subsequently completing an MBA at IMD, Lausanne. Other jobs have included working in corporate communications for Thames Water and in Hong Kong with Jardine Fleming.

The formation of Sand Aire was instigated by the Scott family’s requirement for a multi-asset open architecture investment resource following the sale of their company. Alex explains. “My ambition was to emulate what I saw as the exemplary service provided by the best US family offices. There was nothing of this nature in the UK and we took that model and adapted it to our own requirements. The next step was to broaden our service to allow other families to join us and thereby share the resource we have built. Through this combination, my own and other families can share in a level and depth of service we would struggle to afford or justify on a stand alone basis.

The Sand Aire incorporates what he describes as a full family office service, not offering tax or legal advice, but seeking to work closely with client advisers to deliver optimal, co-ordinated results. From an investment perspective, this means asset allocation using sophisticated risk modelling and subsequent deployment of assets to multiple external managers. With the emphasis on absolute return objectives. Sand Aire uses some hundred such managers on behalf of its clients, interviewing in excess of three hundred and fifty prospective managers each year, a programme that clients would not have the time or inclination to execute. Reporting to clients is undertaken on a consolidation basis and can incorporate assets not under Sand Aire’s investment mandate.

If that represents the ‘science’ of investment management for UHNWs, Alex stresses that there is a very important counterpart – the softer issues. “We also value greatly and take care to explore with our clients the less measurable qualities, structures and knowledge that enable families to be successful in the stewardship of wealth over generations. The two strands are intertwined and it is important to understand the aspirations of owners of the assets which we are entrusted. Because of our deep background in serving wealthy families, Sand Aire is highly sensitized to the personal nature of our clients’ involvement with their assets. This is what makes our professional lives so interesting and why every client requires a tailor made service.” Alex stresses that everyone has different objectives and aspirations, from spending and giving in one generation to preserving and growing wealth for generations to come. “Our clients have sufficient wealth to enable them to plan strategically and that’s a rare opportunity. We work alongside them to deliver their vision in this context.”

Another aspect of the personal nature of our service is that the cultural ‘fit’ between family office and client is crucial. If there isn’t a mutual ‘click’ then the relationship is unlikely to work over the long term. For this reason, prospective clients should spend time reflecting on our professional culture: it’s and intuitive process, but very important.

Turning to his longer term aspirations, Alex comments “we are seeking to combine the best of a skill based consultancy with the longevity and stability of a family business, investing generations ahead. We blend our deep knowledge of family dynamics and understanding of the issues they face with a formidable investment resource. As we seek to build Sand Aire for the long term, by attracting and retaining employees of exceptional calibre, we have introduced a scheme allowing senior colleagues to be owners alongside my own family.”