THE RISE OF THE FAMILY OFFICE
While no one was looking, family offices have transformed into financial titans.
The family offices through which the world’s wealthiest 0.001% invest are a disruptive new force in global finance that few have heard of. A new report in The Economist sheds light on “family offices” (broadly defined as personal investment firms) and how they came to grow bigger and more powerful as a wave of populism sweeps the country.
Family offices control $4 trillion of assets, which is more than hedge funds and equivalent to 6% of the value of the world’s stock markets, according to the report. Some of them are large enough to compete with banks and private equity groups on deals. And make no mistake, their impact on the financial industry will only get more noticeable.
In 2008, an estimated 1,000 single-family offices were in the world. A decade later, EY reports the number has grown to more than 10,000 family offices globally.
How did this even happen? Well, for one, the number of billionaires worldwide is growing. Thanks to an increase in liquidity events, founders and their heirs are cashing out and generating large amounts of capital that needs to be managed. Another factor has to do with the notion that the wealthy have become disillusioned with third-party money managers and their absurd fees. “The feeling is that if you want the job done well, you have to take it in-house,” a wealth-management consultant told The Economist.
Here’s where it gets interesting — family offices are embracing risk and their appetite for sectors such as cannabis, e-sports, and blockchain technology is increasing. The reason that the flexibility in somewhat controversial investments is allowed is that family offices don’t answer to external investors nor regulators. It gives them license to engage in a wider range of more aggressive and ambitious investment strategies.
As a result, startups that are working on companies many traditional investors won’t yet touch (ie: cannabis & crypto) will likely look to an alternate source of equity funding and growth capital. In other words, the family office becomes a lucrative option. According to industry data, direct investment is on the rise and constitutes roughly 14% of the average family office portfolio.
But there’s a downside to this type of autonomy. Because of the secretive nature of family offices, it can become difficult to understand the inner-workings of the organization. As the Economist notes, “Combining very rich people, opacity and markets can be explosive.”
If you’ve been reading Term Sheet consistently, you know I’m an aggressive proponent of transparency and accountability especially when large amounts of capital are involved. So I’ll leave you with this line from the report: “In a world that is suspicious of privilege, big family offices have an interest in boosting transparency. In return, they should be free to operate unmolested.”
#METOO REACTIONS: In a letter to staff members, Jefferies CEO Rich Handler made it clear he wouldn’t tolerate male bankers shutting out their female colleagues for fear over the #MeToo movement. He said, “There is no excuse to exclude anyone from business meals, top-level meetings, presentations, mentoring, travel or social situations based on gender or any other designation.” He called the response of icing out women “thoughtless, paranoid and fundamentally wrong.”
You might remember that two weeks ago I called the #MeToo backlash a reaction, not a solution, and I asked Term Sheet readers for their opinions. I got a lot of responses. Here are a few:
(A male reader): “I agree that behavior is not a solution. But I must admit, our current environment — where people are often assumed guilty until proven innocent; where one insensitive (or even borderline insensitive) comment can cause massive personal damage; and where some are constantly searching for ways to be “offended” — gives me pause. Though I won’t take it myself, I understand why some men might take this route. The environment simply does not encourage more interactions with people — irrespective of gender. I’m not going to let it affect what I do; I will stay the course. But I think it’s a fair question that people should consider: How can we advance women’s issues without discouraging good men from participating? Some people are dishonest and some people do overreact. How do we address those people? Brushing it off as absurd isn’t addressing, or even acknowledging, that perhaps that’s a valid question to ask. And if there’s no safe place to have this discussion, many men will likely opt out altogether, as these men did.”
(A female reader): “If funds are explicitly not hiring women and telling their male employees not to interact with them, it’s for one reason: they don’t trust their male employees to interact appropriate with women. Until LPs start recognizing this and demanding change, I doubt anything will.”
(A male reader): “There is no doubt that folks, both male and female, are more aware of their actions with the opposite sex. I think that’s a good thing. Does it prevent some of the things you mentioned like one on one dinners or meetings with the opposite sex? For sure. But that’s not necessarily bad. Putting yourself in a bad situation to begin with isn’t good. And for sure, being more careful and respectful should not affect performance or advancement.”
(A female reader): “I’m wondering what these men think the solution will be. Even if an industry of men write off an entire gender, that gender is not going away and will not be silent. A lot of it sounds like they want women to just shut up and take it, but I don’t see that kind of reversal happening, nor providing a meaningful solution for progress in ANY industry. I also have a hard time with the argument that they feel vulnerable. If they are making a woman uncomfortable by their comments or actions, chances are their comments or actions are inappropriate. What was the parallel response by men during the Women’s Right to Work movement?”
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• Faire, a wholesale marketplace, raised $100 million in funding at a $535 million valuation. Investors include Lightspeed Venture Partners, Y Combinator, DST, Founders Fund, Sequoia, Forerunner and Khosla.
• Synthace Ltd, a London-based developer of a cloud software platform for automating the success rate of biological research and development, raised $25.6 million in Series B funding. Horizons Ventures led the round, and was joined by investors including Luminous Ventures and SOSV.
• dott, a Netherlands-based micro-mobility company, raised €20 million ($22.6 million) in funding. EQT Ventures and Naspers Ventures co-led the round, and were joined by investors including Axel Springer Digital Ventures, DN Capital, Felix Capital, FJ Labs, and U-Start Club.
• TransferGo, a London-based money transfer company, raised $17.5 million in Series B funding. Vostok Emerging Finance and Hard Yaka co-led the round, and were joined by investors including Revo Capital, U-Start Club and Practica Capital.
• Pypestream, a New York-based AI solutions startup, raised $15 million in funding. W.R. Berkley led the round.
• Propel, a financial health tech company, raised $12.8 million in Series A funding. Nyca Partners led the round, and was joined by investors including Andreessen Horowitz, Kleiner Perkins, and Omidyar Network.
• Wisdo, an Israel-based social network focused on communities around physical health, mental health, self-growth, sexuality, identity and family, raised $11 million in seed funding. The investors were not named.
• Osprey Informatics, a Canada-based provider of intelligent visual monitoring solutions for industrial operations, raised $3.75 million CAD ($2.8 million) in funding. Shell Ventures LLC and Evok Innovations co-led the round, and were joined by investors including InterGen Capital.
• Harness Wealth, a New York-based wealth management innovation startup, raised a $4 million in seed funding. Investors include Bain Capital Ventures, Sinai Ventures, Torch Capital, firstminute Capital, L2 Ventures and Red Swan Ventures.
• Minit, a Bratislava-based process mining software vendor, raised 3.3 million euros ($3.7 million) in funding. Investors include Earlybird Venture Capital and OTB Ventures.
HEALTH AND LIFE SCIENCES DEALS
• Mission Bio Inc, a South San Francisco-based provider of single-cell DNA analysis and precision genomics solutions, raised $30 million in Series B funding. Investors include Agilent Technologies, Cota Capital, LAM Capital and Mayfield.
PRIVATE EQUITY DEALS
• 360 Finance, a Shanghai-based online consumer lending platform, raised $51 million in an IPO of 3.1 million shares (20% insider) priced at $16.50, the low end of its range. It posted revenue of $46.7 million and loss of $25.1 million in 2017. Qihoo Technology backs the firm. Citi, Haitong, AMTD Asset Management, and Lighthouse Financial are underwriters. It plans to list on the NYSE as “QFIN.” Read more.
• Merck (NYSE: MRK) agreed to buy Antelliq Group, a France-based provider of digital animal identification, traceability and monitoring, from BC Partners for approximately 2.1 billion euros ($2.4 billion) in cash (including debt).
• Basis, a New Jersey-based price-stable cryptocurrency startup, is shutting down and returning investors’ money. The company had raised approximately $133 million in venture funding from investors including Bain Capital Ventures, GV, Andreessen Horowitz, Lightspeed Venture Partners, Foundation Capital, Stan Druckenmiller, Kevin Warsh, WingVC, NFX Ventures, Valor Capital, Zhenfund, Ceyuan, Sky9 Capital, and Digital Currency Group. Read more at Fortune.
• AnaCap Financial Partners agreed to sell AssurOne Group, a France-based insurance broker to Societe Centrale Prevoir SA. Financial terms weren’t disclosed.
• Ancor Capital Partners sold Simply Fresh Foods, a Buena Park, Calif.-based producer of fresh, all-natural foods, to Lakeview Farms LLC. Financial terms weren’t disclosed.
• One Madison Corporation agreed to acquire Ranpak Corporation, a Concord Township, Ohio-based manufacturer of paper-based box packaging solutions, from Rhône Capital for about $950 million in cash.
FIRMS + FUNDS
• Morgan Stanley Investment Management raised more than $1.4 billion for its North Haven tactical value fund.