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Multifamily offices weather the storm, eye expansion, study finds

Considering all that went wrong in the markets last year, 2008 turned out to be a relatively good year for multifamily offices, according to a study released today by Family Wealth Alliance LLC.

Considering all that went wrong in the markets last year, 2008 turned out to be a relatively good year for multifamily offices, according to a study released today by Family Wealth Alliance LLC.
Assets at the 79 firms that participated in the annual Multifamily Office Study fell by 9.2% to $286.3 billion — compared with the S&P 500’s 37% slide last year.
What’s more, the median number of client relationships at multifamily offices rose by 8.6% to 38 in 2008, from 35 the year before. At the same time, the attrition rate among client relationships was only 2.6% last year, according to the survey.
“It’s remarkable,” said Tom Livergood, chief executive of the Wheaton, Ill.-based organization. “This is telling us that the [multifamily offices] have weathered the hurricane tsunami of the financial crisis pretty well, and they’ve obviously picked up clients at the expense of wirehouses and money center banks. They appear to be very well-positioned for the future.”
In fact, a number of multifamily offices have been contemplating expansion plans: 60% of the surveyed firms said they have taken part in informal merger talks from August 2008 to August 2009, and half said they’re likely or somewhat likely to take part in a merger within the next year.
“Multifamily offices want to expand and are looking for scale and a bigger geographical footprint,” said Robert Casey, senior managing director of research for Family Wealth Alliance and author of the study. “They are very optimistic and see real opportunities to grow market share.”
“The challenge is that there are more buyers out there now,” Mr. Livergood said. “But that’s good for the sellers.”
MFOs also found it easier to hire last year.
Only 8.5% of firms reported trying to fill a senior-level vacancy with an outside candidate last year, down from 23.7% in 2007 and 18.6% in 2006.
“The job market was much looser last year,” Mr. Casey said. “Human capital is still a big issue for multifamily offices, but not as acute as it was 18 months ago.”
Survey participants named The Goldman Sachs Group Inc., Bessemer Trust Co. NA and GenSpring Family Offices LLC as their biggest competitors.
And one in six firms said it experienced a loss from financial fraud in client funds under advisement, ranging from $250,000 to $35 million.
In most cases, according to the study, the losses came from hedge funds of funds, “in particular those that had invested one way or another with Bernard L. Madoff.”
The study participants represent about two-thirds of U.S.-based multifamily offices and approximately 90% of the industry’s assets.