The Houghtons, the family that founded glassmaker Corning eight generations ago, run their multifamily office like a co-op. That’s not a gimmick. Market Street Trust, as the multifamily office is called, manages $1.3 billion for 40 families. Clients of the firm not only pick up the usual wealth-management advice, but they also own a piece of the family-office business. By pooling assets this way, and running the business like a not-for-profit, Market Street Trust is able to significantly lower costs.
Here’s how it works: Each new client buys a stake in Market Street Partners, which owns the business. The upfront fee is 0.3% on your total assets, which essentially covers the firm’s capital requirements. That fee buys a portion of the business equivalent to your percentage of assets under management. For instance, the Houghtons own 79% of the firm’s assets under management, so they also own about 80% of Market Street. Once a client decides to leave, they get back their assets and are repaid their 30 basis points, but they also forfeit all ownership rights of Market Street.
But nor do clients earn hefty profits from their shares. “Profits are reinvested in the business, so it essentially operates like a not-for-profit,” CEO Marianne Young says. It would be inefficient from a tax perspective to pay dividends, she explains, because shareholders would be taxed at both the corporate and individual level. Instead, revenues are used to help expand the business, attract top talent, and maintain an attractive fee schedule for clients. The annual fee is 1% on the first $4 million in assets, but that declines to a modest 0.2% for accounts in excess of $15 million.
- John W. Cahill/Emporis
- Market Street Trust, which was started by the founding family of glassmaker Corning and manages $1.3 billion, is run from a modest building in Corning, N.Y.
Bob Casey, senior managing director of research at the Family Wealth Alliance, says Market Street’s structure has an “unusual flavor.” Other family offices have opened their doors to outside families—just think Rockefeller & Co. or Bessemer Trust, created by the Phipps family—but Casey knows of only a few firms, such as the New Jersey–based family office Pathstone, with a client ownership structure similar to Market Street.
“Wealthy families want three things,” says Casey. “Objective advice, a stable relationship manager, and stability of ownership.” Market Street offers these, but also allows clients a level of control unattainable at other multifamily offices, short of maintaining their own single-family office. Casey summarizes the attraction: “It has limited overhead, no marketing machine, and the obvious appeal of stable Houghton money.”...MORE
Sunday, August 3, 2014
Big Money: Family Office, Co-op Style
From Barron's Penta ($5mil and up) blog:
