Source: Visual China
Author 丨 Zhang Rui
Editor 丨 Kang Xiao
Produced by 丨Shenwang Tencent News Xiaoman Studio
"Don't try to find valuable information on the official website of the well-known single office (family office), and many of the official websites of the family office have not been updated for many years, and do not disclose the information of me and my family office," Li Meng told the Deep Web.
Li Meng works in a single family office established by a well-known entrepreneur, and the boss he serves is a representative of the "92" entrepreneur, and the total assets under management of the family office have reached tens of billions of yuan.
Low-key and cautious are common features of single-family office employees, and rarely appear in public industry forums and summits except for internal activities organized by familiar investment institutions. It is difficult for the outside world to find more detailed information and information about the well-known single office on the Internet.
Family office is a family wealth management model, with the long-term development of family assets and the intergenerational inheritance of wealth as the goal, through the formation of a professional service team, to provide ultra-high net worth families with a full range of financial, investment, legal and family affairs management and other services. Private equity, real estate, credit, hedge funds, commodities, digital assets, etc. are all ways to allocate assets in family offices.
In April 2015, just one month after Alibaba's 180-day stock lock-up period ended, Alibaba Group Executive Vice Chairman Tsai Chongxin opened a multibillion-dollar Family office in Hong Kong. At that time, at $80/ADS, Tsai's 79249896 stake in Alibaba stock was worth about $6.3 billion.
According to the Wall Street Journal online, the family office, which went into operation in the summer of 2015, was co-managed by Oliver Weisberg, managing director of the Hong Kong office of hedge fund Citadel LLC, and Alexander West, founding partner of the Hong Kong hedge fund Blue Pool Capital funded by Tsai Chongxin. Early Alibaba executives such as Tsai Chongxin sought wealth diversification management.
The establishment of the family office of Cai Chongxin coincided with the "golden period" of the development of China's domestic business industry, and it became a trend for a new generation of entrepreneurs who relied on real estate or the Internet economy to accumulate a large amount of wealth to establish a family office.
"90% of china's family offices were established after 2013," Gao Hao, director of the Global Family Business Research Center at Tsinghua University's Wudaokou School of Finance, concluded after interviewing 20 single offices in China with an average size of $1.5 billion (about 10 billion yuan).
"In addition to asset preservation and appreciation, the various contradictions and conflicts faced by ultra-high net worth people in work and life, family office or family trust can provide legal solutions," Zhang Hong (pseudonym), a business manager of the home office center of a well-known trust company, told the deep web, the role of family offices for investors, "equivalent to adding a safety valve to assets."
Due to the task of preserving and increasing the value of family assets, these institutions serving ultra-high-net-worth families are like the "gatekeepers" of wealth of the rich. The risks brought about by husband and wife opposing each other, brotherly quarrels, and children's disputes for property can be eliminated under the mediation and operation of these institutions.
Due to the requirements for privacy and wealth confidentiality of ultra-high net worth individuals, the practitioners of these institutions strive to be "invisible" and not be noticed by the outside world.
The "Invisible Man" at the Spire of Fortune
How "reclusive" are the employees of a single office? Michael Larson, chief investment officer at Cascade Investment, Bill Gates' family office, revealed a detail in an interview with Fortune magazine: Waterfall employees are required to sign a confidentiality agreement that remains in effect even after leaving the company. Family offices also do not encourage employees to use social networks such as Facebook and Twitter, and restrict employees from sending external emails to maximize personal and home privacy.
"In addition to protecting the privacy of entrepreneurs' property, another reason that cannot be ignored is that the funds of a single office mainly come from the entrepreneur itself or acquaintances, which belong to the LP, do not need to find money from the market, and there is no need to do brand output," the person in charge of the vertical new media "Home Office New Wisdom Point" told the deep web.
To explain the source of funds for home offices, we must first clarify the three types of domestic home offices.
One is the private banking department or family office set up by mainstream financial institutions, for example, some banks and trust companies will set up home service centers for high-net-worth people; the other is the single family office set up by entrepreneurs and other groups themselves, which specializes in serving an entrepreneur or an ultra-rich group to provide personalized services. The Sunrise Capital Management Company established by Daniel Zhang and his wife Shu Ping, and the family office Jiachen Capital established by Wu Yajun's ex-husband Cai Kui belong to one type; the third is the family office founded by financial professionals or third-party wealth management companies, most of which are mainly joint family offices.
Among the three types of home offices, the home offices established by mainstream investment institutions and the joint home offices established by financial professionals have fundraising needs and require the endorsement of well-known managers. The single office mainly manages the funds and assets of the entrepreneur's family, standing at the tip of wealth management, and there is no pressure to raise funds.
"A sense of control and autonomy is the core driving force behind the establishment of a single office by the super-rich family, and it is difficult for the super-rich family to trust third-party institutions such as banks and wealth management companies," said Christof Christof, a member of the Zapp family single office of the German steel industry. Christoph Zapp said in an interview with the media.
For super-wealthy families, the weight of the trust relationship is higher than the appreciation of assets.
The closer you get to the spire of the pyramid of wealth, the harder it is to gain trust. This kind of trust requires the blessing and accumulation of time, and it is difficult to be overtaken by curves, so it is often the "own people" in the eyes of super-rich families who can occupy the core position in a single office.
The head of Li Meng's home office followed the entrepreneur to "fight the world" early on, and the entrepreneur's daughter was also an important member of the family office; Kevin Liu, CEO of Jiachen Capital, also began to follow Cai Kui since the Longhu period; Wu Yajun's Shuanghu Capital had been in charge of Zhang Yan, who had joined Longhu in 2004 before his daughter Cai Xinyi took over; Li Xiao, the actual manager of Shark Capital, had been acquainted with the founding team of Ele.me when he was the director of Gopher Asset Investment, and began to manage his wealth very early.
Not only is there a single family office, but also in the establishment of private banks and family offices in banks and trust companies, judgment and confidentiality are also the primary criteria for ultra-high net worth individuals to judge an institution. "Gaining customer trust is the foundation, employees must sign confidential employment agreements, and leaking information about customers, their families and friends is a big taboo," Zhang Explained.
"If the cuckoo does not cry, it will cry"
"Gentleman's Zee, the fifth generation and slash". Since ancient times, China has had the saying that "three generations of wealth are not enough". Although most single-family companies are "tailor-made" based on the specific needs of wealth families, there is one thing in common: the core problems of single-family offices to solve the wealth families are first of all property preservation and inheritance; second, the appreciation of assets.
The Brooklyn Family Business Academy in the United States once did a study: 70% of North American family businesses did not pass to the second generation, 88% of family businesses did not pass on to the third generation, only 3% of the companies are still operating after the fourth generation; about 4% of Europe can be passed down to the fourth generation; its research in Southeast Asian countries revealed that when Chinese family businesses handed over from the first generation to the second generation, the market value of their listed companies shrank by an average of 60% in five years.
"Isn't it easier to lose 1 million less than to make 1 million?" The person in charge of Li Meng's home office often emphasizes this sentence in internal meetings.
From the perspective of the operating model, the single family office pays more attention to wealth preservation and appreciation.
Investments in a single family office can be divided into direct investment and indirect investment. Among them, the LP that becomes a well-known investment institution is one of the main ways of its indirect investment. According to the observation of "Deep Net", sequoia Capital, Hillhouse Capital, Source Code Capital, Yuanjing Capital and other well-known investment institutions have a family office behind them.
"Whether it is direct investment or indirect investment, as long as the investment income is not good, the loss is the wealth family's own money, so the single family office is more stable and inherited," Li Meng explained.
Direct investment needs no elaboration. In terms of indirect investment, GPs such as investment institutions are equivalent to professional managers, who invest and allocate assets after raising funds from family offices, funds and other LPs.
The income of GPs such as investment institutions is mainly divided into two parts, one is that the LP pays the GP management remuneration, and the management fee is generally 2%-2.5% of the total subscribed capital contribution; the other is that after the GP achieves a specific goal, there is a certain proportion of dividends. This means that in the performance inspection cycle, even if the GP investment income is lost, the loss is also the LP's money, and the GP loss is only word of mouth and brand, which will affect the amount of funds raised in the later stage.
"If the cuckoo does not cry, wait for it to cry". The founder of Li Meng's home office often uses this phrase to enlighten investment managers. "As long as you stick to it for a long time, the market has enough opportunities; as long as you have cash flow in your hand, wait a year and a half without problems, don't worry."
In the founder's cognition, compared with the fluctuation of short-term family wealth, whether his family can steadily survive the turbulent economic cycle is more important.
Many single-family offices have the Rockefeller family office as a guideline.
In 1882, American oil tycoon Rockefeller established the world's first family office to manage his vast family fortune. John Rockefeller divided the wealth into three parts: the Rockefeller Family Fund, Rockefeller University, and the Rockefeller Endowment Fund. Among them, the Rockefeller Family Fund mainly guarantees the accumulation and inheritance of family wealth. Today, the Rockefeller Global Family Office in Room 5600, 56th Floor, 30 Rockefeller Plaza, has made the family "richer for seven generations."
However, the stability of a single office and the passage through the economic cycle require the guarantee of "financial resources". According to data released by Family Capital, the average annual base compensation of senior executives in a family office with assets of one billion US dollars is 919,400 US dollars, and the average total compensation is 2370 100 US dollars, which is a lot of expenses for a single family office.
Family Capital's research model is mainly based on European and American family offices, because family offices are imported products, the business model, service content and capacity building of local family offices in China are still in the exploratory stage. At the end of 2021, McKinsey counted that there are nearly 10,000 institutions in China with the name of "home office", but there is still a certain gap with the mature markets in the West in terms of specialization, integration, and institutionalization.
"The home offices that can afford to raise a professional investment team and have a relatively complete investment strategy on the market can be counted with ten fingers", the CIO of a single office has explained the current situation of the domestic home office market on 36Kr.
Real estate has become the "new favorite" of a single office
In the logic of "time to iron out the fluctuations of economic cycles", real estate has become a "safe habitat" for family offices.
On January 20, 2022, the duplex unit on the 73rd floor of 220 Central Park South in New York, and a lower-floor worker's house welcomed the new owner, Blue Pool Capital, the family office set up by Tsai Chongxin.
Chongxin Tsai Source: Visual China
Blue Pool Capital bought the unit for $188 million ( about 1.2 billion yuan ) from original property owner Dan Och , JPMorgan Chase & Co. offered it a $71.5 million mortgage for a 30-year period, According to Bloomberg. Dan Och, a well-known hedge fund manager, purchased the unit in 2019 for $95 million. This "change of hands" allowed Dan Och to earn more than $90 million in more than 2 years.
This is the second time that Tsai Chongxin has bought the mansion at 220 Central Park South. Last July, Mr. Tsai spent $157 million (about 1 billion yuan) to buy the building's 60th and 61st floors, NBC reported.
Although venture capital is still one of the most important investment methods for family offices, with the high global inflation rate, the allocation of real estate has become an important way for many well-known family offices to allocate assets.
Last September, just after Tsai bought two large flats at 220 South Central Park in New York, Cascade Investment, Bill Gates' family office, spent $2.21 billion from Saudi Prince Walid bin Talshat to buy a 23.75 percent stake in Four Seasons Wine. Following the purchase, the Bill Gates family holds a 71.25 percent stake in Four Seasons, becoming the controlling shareholder of the latter. In addition to Four Seasons, Bill Gates also holds stakes in The Charles Hotel and the Ritz-Carlton.
The hotel is only one of the ways the Bill Gates family holds real estate, Bill. Gates and his ex-wife, Melinda, are also the largest private farmers in the United States. NBC News reported in June 2021 that over the past 10 years, the Gates family, with the help of Cascade Investments and other companies, has acquired more than $690 million in assets and more than 269,000 acres of farmland in nearly 20 states within the United States. These lands generate more than $1-2 billion in rental income for the Bill Gates family each year.
A report by asset manager BlackRock explains the allocation of real estate by well-known family offices: "When inflation exceeds 2.5%, the total return on privately held real estate and infrastructure assets around the world exceeds that of major stock and bond indices."
How high is inflation now in countries such as Europe and the United States? According to data released by the US Department of Labor, inflation in the United States has increased by as much as 7.9% in the past 12 months as of February this year; the National Bureau of Statistics announced that the British inflation rate in February recorded a 6.2% year-on-year increase, a new 30-year high.
But real estate is also not a "golden oil" for the capital allocation of family offices. As for how to choose real estate, Feng Qinghua, founding partner of Reed Xin, said, "It is best to choose real estate with a rental return of nearly 6% and can be sold at a 30% discount. If you can't get it at a 30% or 20% discount, as long as the price of the real estate changes slightly, it will put the family office in a panic."
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