As the single family office industry consolidates, surviving single family offices are hanging on by slashing pricey overhead. One way is to hire outside investment teams and many single family offices are availing themselves of this outsourcing option. One of the winners of this trend is wealth manager Pittsburgh-based Greycourt & Co in Pittsburgh.
Prior to 2010, Greycourt was primarily a consultant to family offices, merely advising on portfolio decisions. Greycourt advises on $9.2 billion in client assets. The firm, with 41 employees, has 70 client relationships, both wealthy individuals and institutions, with an average account of about $130 million. Greycourt charges a minimum annual fee of $200,000 on discretionary assets and $125,000 on non-discretionary. That fee can be negotiated.
But the financial crisis upended that business model. Now, says Greycourt’s founder, Gregory Curtis , 70% of new clients coming through the doors are looking for an outsourced CIO. “During the financial crisis, wealthy families were either panicking or frozen,” he says.
Investment teams were understaffed and barely able to keep up with the fast collapsing financial markets. Portfolios were indiscriminately battered and wealthy families grew increasingly leery of complicated and costly investment strategies like hedge funds, which were pitched as stable ballasts but inevitably stumbled along with the market.We've linked to a couple of Greycourt's white papers:
So the emerging practice of outsourcing a family’s investment picks gathered in earnest after the financial crisis, when costly Dodd-Frank regulatory requirements also added on significant overhead costs. As Penta has noted before, the annual cost of running a $100 million family office is 1% of assets annually, about four or five times more expensive than running, say, $1 billion.
That is a high hurdle to clear for smaller family offices, says Bob Casey senior managing director of research for The Family Wealth Alliance, especially when real Treasury yields are essentially zero. “It’s treacherous to try to preserve the family’s real purchasing power in this environment, where traditional, conservative investments alone don’t keep your head above water,” he says.
According to a Family Wealth Alliance survey, half of single family offices with $100 million to $500 million in assets now think they lack sufficient expertise to analyze investments themselves....MORE
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