Back to the Learning Academy or ESG 101.

Buyside Breakdown Part 3: Family Offices

Buyside Breakdown | A 4-part series

Buyside Breakdown examines four types of investors, their influence on listed companies, and tactics to target them. In conjunction with our earlier series Leaving a Trail for Investors to Find You, listed companies have a comprehensive set of resources to better understand and attract investors.

Part 2: Family Offices

Family offices are an important buyside segment, owning a significant portion of global assets1. It is estimated that family offices control over six trillion dollars in capital worldwide2. With the cash and ability to choose investments, family office targeting should be considered in any investor relations program. They are known to target companies for investment3 and tend to look for long-term investments4. Family offices may have certain investment theories, favour certain equity sectors, or like specific geographies, so uncovering these preferences can aid in targeting this buyside segment. They are also less encumbered by rules that institutional investors might be bound by5. However, to paint family offices with a broad brush would be flawed; as there is a saying, “when you know one family office, you know one family office”, indicating the need to research and nurture these relationships6.

Indigenous Investment Firms

While Indigenous investment firms are not family offices, there are parallels in their objective; to preserve and grow wealth “to support the needs of future generations”10. In some cases, significant assets have been accumulated based on settlements, economic reconciliation, investment returns and/or business activities. As cited in a recent CIBC Mellon paper, Indigenous trustees work with investment management firms, who often invest in capital markets for the benefit of present and future generations10.

Why Family Offices Matter

Buying Power

With $6 trillion in capital, family offices have more buying power than all hedge funds globally2. Although family office assets tend to invest in funds, there is a growing trend of investing directly in target companies1. Generally, they also lean towards long-term investment periods, which can make them great capital partners. Family offices also tend to stick with their investment through a cycle rather than being opportunistic. This is because they are not under pressure from shareholders or clients with regards to yields5.

Influence

Each family office has different investment styles but the key thing is they make their own rules. While they may be very price-conscious, family offices have fewer restrictions on how they invest. For example, as reported in the UBS Global Family Office Report 2023, family offices prefer active management, with 35% of offices relying more on investment manager selection and active management to enhance diversification. In the same report, those surveyed said that over the next five years, they foresee greater allocation to risk assets, with 34% planning increases in emerging market equities11.

In a recent EY paper, their research indicates that family offices have interest in technology start-ups, noting fintech, biotech and e-commerce as areas of interest3.

The next generation of family office members also exert influence by looking at long-term investment strategies3. EY notes a preference for ESG-related investments, including those that can illustrate social impact3.

How to Identify Family Offices Shareholders

Identifying family office ownership in a company is not easy. It can rely on the direct relationships that are built with family offices. Building long-term, trusted relationships with family offices can provide insight into possible holdings. However, if an individual family office has significant holdings in an equity’s shares, they may come under Canada’s National Instrument 55-104 definition of a significant shareholder, and would be required to report their holdings12. In brief, the entity would need to own, directly or indirectly, 10 percent of the voting rights attached to the issuer’s outstanding voting shares12. Similar rules for reporting significant holdings exist in the US as mandated by the SEC.

How to Engage and Target Family Offices

Having an In

Family offices rarely accept meetings from unknown entities13, begging the question, how do issuers get introduced to family offices? One way is through family office conferences or investor days. From TSX/TSXV own experiences and feedback from these events, it is where decision-makers typically gather to identify deal flow, learn about recent market and industry trends, attend educational sessions and network with other family offices to exchange experiences and learnings. Organizations, like International Deal Gateway (IDG), that can help companies get introduced to family offices because they have built trust with family offices. TSX has worked with both IDG and Global Partnership Family Offices (GPFO) to offer issuers the opportunity to present to family office members.

Outside of the organized investment-driven events, attempting to network at philanthropic galas, Alma Mater events, and sports or social clubs, are ways to get introduced to family office members or their consiglieres, like wealth management professionals, private bankers, accountants, or estate attorneys13. Recently in an article by Spears, “intro-fluencers” have emerged on social media platforms2. They claim to be able to make connections to family offices. Their services can range from pitch coaching, to information on family offices, to some claiming access to contact details2. However family office advisors are entrusted to guard against unsolicited proposals, therefore companies should thoroughly vet intro-influencer individuals or firms2.

Who’s Who and do you Fit?

Family offices are known for being opaque. The essence of family office shareholder engagement is understanding who in the family office you are speaking with, are they executives or principals. Also it is important to understand their process; for example, does the office have an investment committee?5 Evidence suggests that women who lead family offices are more likely to make investment decisions that align with their values on sustainability, community support and gender diversity14. It is therefore important to know who makes decisions because it might underline a family offices’ investment philosophy.

Companies who have a better understanding of the family offices investment interest can then assess whether or not they fit the investment thesis. As mentioned, trends across family offices can be summarized as “performance with a purpose”, based on the trend towards active, growth-oriented and sustainable investing9. Multiplied across significant investment positions that family offices hold, this could continue the upward trend of ESG investment considerations14.

In a recent Broadridge Advisory study15, participating family offices noted their top concern for 2024 to be geopolitics. Keeping this in mind, companies should consider before engaging with this buyside group whether their operations and value chain are negatively affected by current geopolitical situations.

Corporate Access and Building Trust

Family offices want access to senior management. And senior management should lead the relationship building efforts5. Partnered with corporate access is the need to build trust. One way to build trust is through transparency16. Since family offices look for long term investments, it is worthwhile being earnest in your delivery since they are often not looking for a quick exit.

Patience is a virtue

Family offices are relationship driven so it is important to be patient with the engagement. It may take time to understand a family’s investment philosophy and generally there is a distaste for frequent and persistent targeting, but quarterly updates are welcome5. Family offices often have very small teams dealing with many investments. Decision timelines and due diligence processes can vary greatly5. Their wealth can be described as patient capital, reinforcing their tendency towards long, sustainable growth for their investments; but it can equally describe what issuers need to be when dealing with this buyside segment17.

TMX Support

  • Join investor events: Working with both International Deal Gateway (IDG) and Global Partnership Family Offices (GPFO), we sponsor specific family office investor days throughout the year. More about these events can be found on our Corporate Access webpage.
  • Review educational resources: Our Learning Academy has a number of resources that can help, like our Get to know the Family podcast for more generally, our Digital Influence podcast on company narratives.
  • Leave a Trail for Investors: The 6-part series, Leaving a Trail for Investors to Find You, companies can find tactics for effective targeting, for excellence in investor material preparation, website must-haves, and best practices for investor content creation. This series also provides tips on investor meetings.

Footnotes

  1. The Influence of Family-Owned Businesses by Share of GDP, Visual Capitalist, Dorothy Neufeld, December 20, 2023,
    https://www.visualcapitalist.com/family-owned-businesses-by-share-of-gdp/?utm_source=substack&utm_medium=email.

  2. How ‘intro-fluencers' are looking to profit from family offices, Spear Publishing Ltd, Robert Jackman, October 12, 2023,
    https://spearswms.com/wealth/how-intro-fluencers-are-looking-to-profit-from-family-offices/?utm_source=substack&utm_medium=email.

  3. Are you harnessing the growth and resilience of private capital?, Ernst & Young Global Limited, Ryan Burke, April 4, 2024,
    https://www.ey.com/en_gl/insights/private-business/are-you-harnessing-the-growth-and-resilience-of-private-capital.

  4. How single family offices are balancing tradition and transformation, Ernst & Young Global Limited, EY Global, May 11, 2022,
    https://www.ey.com/en_gl/insights/tax/how-single-family-offices-are-balancing-tradition-and-transformation.

  5. Khafagy, Omar, "Get to know the Family." The Exchange Feed, Season 4, Episode 6, TMX Group Limited, December 7, 2022,
    https://www.tsx.com/company-services/learning-academy?id=637&lang=en.

  6. All in the Family - A Guide to Family Offices, Toptal LLC, Greg Barasia,
    https://www.toptal.com/finance/private-equity-consultants/family-office.

  7. The Future of Family Offices: A Look Ahead to 2024, Ernst & Young Global Limited, Laurent Capolaghi, Lars Goldhammer, December 21, 2023,
    https://www.ey.com/en_lu/wealth-asset-management/the-future-of-family-offices--a-look-ahead-to-2024.

  8. What Is A Family Office?, WallStreetMojo, Aaron Crowe, April 9, 2024,
    https://www.wallstreetmojo.com/family-office/.

  9. An introduction to family office investments, Simple, Francois Botha, May 2, 2023,
    https://andsimple.co/guides/family-office-investments/.

  10. Indigenous Institutional Investors and Market Engagement: Walking Forward, CIBC Mellon, Jaimie Lickers, Trish Roberts, Gord Kosokowsky, May, 2023,
    https://www.cibcmellon.com/en/our-thinking/2023/ot202304-indigenous-institutional-investors.jsp.

  11. UBS Global Family Office Report 2023: Family offices planning the biggest shift in strategic asset allocation for several years, UBS, May 31, 2023,
    https://www.ubs.com/global/en/media/display-page-ndp/en-20230531-ubs-global-family-office-report-2023.html.

  12. National Instrument 55-104 Insider Reporting Requirements and Exemptions, Ontario Securities Commission, May 9, 2016,
    https://www.osc.ca/sites/default/files/pdfs/irps/rule_20160509_55-104_reporting-requirements-exemptions.pdf.

  13. Finding the invisible, how to meet Family Offices?, Obediah Ayton, September 17, 2019,
    https://www.linkedin.com/pulse/finding-invisible-how-meet-family-offices-obediah-ayton/.

  14. Growing impact of women in Family Offices, Mishcon de Reya LLP, Stephanie Lim Pierce, Emma Armitage, July 17, 2023,
    https://www.mishcon.com/news/growing-impact-of-women-in-family-offices.

  15. Global Family Office Report 2023, UBS, May, 2023,
    https://www.ubs.com/global/en/family-office-uhnw/reports/gfo-client-report-2023.html.

  16. Key steps to attracting a Family Office, Family Office Lists LLC, Danielle Patterson, May 2022,
    https://familyofficelist.org/key-steps-to-attracting-a-family-office/.

  17. Family offices emerge as real estate investment power players, RSM Canada LLP, Gene Garcia, Matt Riccio, August 14, 2023,
    https://rsmcanada.com/insights/industries/real-estate/family-offices-emerge-as-real-estate-investment-power-players.html.

Copyright © 2024 TSX Inc. All rights reserved. Do not copy, distribute, sell or modify this article without TSX Inc.'s prior written consent. Neither TMX Group Limited nor any of its affiliated companies guarantees the completeness of the information contained in this article, and we are not responsible for any errors or omissions in or your use of, or reliance on, the information. This article is not intended to provide legal, accounting, tax, investment, financial or other advice and should not be relied upon for such advice. The information provided is not an invitation to purchase securities listed on Toronto Stock Exchange and/or TSX Venture Exchange. The Future is Yours to See., TMX, the TMX design, TMX Group, Toronto Stock Exchange, TSX and Voir le futur. Réaliser l'avenir. are the trademarks of TSX Inc. All other trademarks used in this article are the property of their respective owners.

Related Articles

What the amendments of Bill C-59 mean for Canadian companies

Canada’s Bill C-59 received royal assent on June 20th, 2024 and officially became a law. See here the amendments to Canada's Competition Act.

From Reporting Compliance to Operational Excellence: Treat Sustainability Just Like Any Other Strategic Imperative

To create real value—both for the company and society—sustainability must evolve from being a peripheral activity to being integrated into every aspect of the business model.