I never tire of talking about family offices, mostly because they are so relevant to the economic times in which we live.
So it was a privilege to once again welcome a family office expert – Thomas Handler – back to the show to talk about family office trends for 2015.
I can’t think of a better person to discuss the subject. Handler’s firm, Handler Thayer, LLP, was just named Best Private Client Law Firm in the U.S. by Private Asset Management Magazine.
They are the only firm to have received the award twice.
A family office, by the way, is simply a business organized to run the family’s affairs, Handler said. It could incorporate investment management, legal functions, risk management, accounting, reporting, property management and more, but most often it’s a financial business.
A family office can run the affairs of a single family or multiple families.
“For the most part, these families have a combination of active operating businesses and active real estate, in addition to passive portfolios,” he said.
This is a must-listen interview. Handler’s firm just produced the Handler Thayer Family Office Outlook for 2015, soon to be released, and he gave us a glimpse into the trends for this year.
Globally, Handler said, family offices are proliferating, especially in Asia and South America. Activity is relatively flat in U.S. due to high number of mergers, but there is a lot of growth in the “virtual” family office market, which tends to be at the lower end of net worth.
“It seems that it’s very well established now that the developed world has recognized that family offices are the global best-in-class approach to facilitating long-term wealth management and preservation,” he said.
Outlook
An obvious trend, Handler said, is taxpayer flight, which has been increasing globally at unprecedented levels. People and capital and businesses are fleeing high-tax jurisdictions.
“The point is that many taxpayers try to limit their solutions to the states they live in, and that is a horribly misguided notion. In effect, it is prudent to cherry-pick a jurisdiction and use it for what it does well,” he said.
“Flight was so dramatic out of the country last year. In 2013, 2,999 Americans left the country in one year. In the 12 years of the Bush-Reagan administration, 13 people left – and there was no exit tax. Now you pay an exit tax of about half. I think the number for 2014 is over 4,000. It’s the biggest number in the history of the United States.
“Much like the book Atlas Shrugged, at the end of the day if you keep picking on the people who are working hard and making it happen and risking capital, they simply take their marbles and leave. That’s exactly what we’ve been seeing,” he said.
Another trend: Despite the economic meltdown and ongoing recession, Handler said, family offices do not fully appreciate the risks to which they are subject.
“At this point, liquidity risk should be at the forefront of everyone’s mind. Nevertheless, there’s an inadequate appreciation of those risks and the steps that you take to ameliorate them,” he said.
Also, U.S. and European family offices – in an ongoing trend that’s picking up steam – are seeking out and participating in direct investment, especially in real estate and private equity, Handler said.
“These trends we expect to continue and escalate going forward,” he said.
“That’s very interesting in that these investors and family offices are trying to circumnavigate the system, cut out the investment bankers and the middle-men, and connect through various means with families who are operating a commercial building, or an industrial complex, or running a manufacturing company, or controlling the railway.”
We covered a lot more territory, including a list of the top states and countries for outflow of people and capital. Again, this is a must-listen interview.
Click here to listen to the full interview with Thomas Handler of Handler Thayer, LLP, on family office trends.
