Meeting the needs of Family Offices
Family offices have increasingly specific needs in terms of their market activities. These requirements are pushing some private banks to expand their offer to be closer to the services of investment banks and to offer the client the best of both worlds.
Paperjam video: Meeting the needs of Family OfficesInterviews of our experts Jonathan McKenzie and Stéphane Tavares.
Created at the initiative of wealthy families, family offices are structures that allow them to manage their family assets and focus on their legal, tax and investment concerns. "This is a booming sector with an international clientele, increasingly young, some of whom have recently made their fortune," says Jonathan McKenzie, Senior Advisor at Societe Generale.
The majority of this new generation's investments are still focused on traditional financial assets. Indeed, stocks, bonds and cash represent 55% of their asset allocation(1). "The activity used to manage these assets is above all carried out by the trading room. The latter is therefore particularly important for family offices.”
Some family offices have increasingly specific needs in terms of their market activities, which are often similar to the needs of institutional clients and sometimes even hedge funds. Faced with this situation, adapting its approach appears to be a necessity. "We have expanded our offer to provide a service very similar to the prime bokerage(2) service provided by investment banks. This offer has three main components.”
1. Access leverage(3) through financing solutions
The first is to offer access to leverage through adapted financing solutions. This leverage is often achieved by setting up loans that provide clients with greater financial resources by providing collateral(4). However, using this leverage requires dynamic portfolio risk management. "To do this, it is necessary to have a dedicated team and tools that allow for daily monitoring of this risk according to market trends. In addition, the activity must be framed by a clear and transparent risk policy aimed at protecting the bank and the client in the event of major market movements.”
2. Benefit from a complete execution offer
In order to answer the multiple expectations of family offices and propose an offer adapted to their needs, Societe Générale is attentive to the situation of each client. "These structures are multi-asset and invest in various supports. In response to this diversification need, we offer the possibility of dealing in all assets: equities, bonds, funds, structured products, but also the whole range of listed and OTC(5) derivatives", explains Stéphane Tavares, Senior Advisor.
Our customers are present on an international scale and are investing in the European, American and Asian markets. It is therefore essential to give them the possibility of working extended hours with the presence of operators from 8am to 10pm. "One of the other particularities of the trading room's operation is that we operate in open architecture. In fact, we work with many banks and brokers, which allows us to offer competitive prices on the market, especially for derivatives and structured products where prices can vary significantly depending on the counterparties.”
3. Provide access to expertise and advice
While providing access to execution is crucial, so is the ability to advise clients on their activities. Within the trading room, a dedicated team assists clients in the implementation of their strategies. In addition, being part of a large group gives access to all the research and knowledge of the investment bank. "Through this team, clients have access to specialists in each asset class. We are therefore able to help them structure all their transactions," says Jonathan McKenzie.
In order to meet the increasingly demanding needs of family offices, it is necessary to provide them with a dedicated offer. Thanks to the one-stop-shop(6) principle, the client has a unique access to numerous services. "The service we have set up offers financing capabilities and technicality similar to that of an investment bank within a private bank. The client thus benefits from the best of both worlds: the set-up, technicality and financing capacities of an investment bank and the customized follow-up of a private bank", concludes Stéphane Tavares.
(1) Figures from Luxembourg Association of Family Offices, October 28 2021.
(2) Prime brokerage is an activity developed by investment banks consisting of a set of services made available to professional hedge fund investors. The activity includes the following services: obtaining credit lines, placing and executing orders, estimating and monitoring risks, leveraged transactions, securities lending and borrowing, settlement and delivery of transactions, reporting and advice. (https://www.fimarkets.com/pages/prime_brokerage.php)
* Hege fund: Hedge management refers to a wide range of specialised, technical asset management methods or strategies foused on a specific market niche. Hedge funds aim to achieve an absolute, preferably stable, level of performance that is uncorrelated with the overall market trend, while minimising risk and guaranteeing the capital invested. (https://www.fimarkets.com/pages/hedge_funds.php)
(3) "Collateral" refers to all assets, securities or cash pledged by the debtor counterparty to the creditor counterparty to cover the credit risk arising from financial transactions between two parties. (https://www.fimarkets.com/pages/collateral.php)
(4) As part of a financing solution: use of debt to increase investment capacity.
(5) Acronym for Over the Counter. It refers to a product that is traded outside organised markets and directly between financial intermediaries.
(6) Single point of entry.
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