What Identifies a True Single Family Office?

The term single family office has become subjective. Paul Reynolds, director at Thamesis Limited, discusses the nuances of a single-family office and debunks misconceptions of how the wealthiest people in the world manage their money.

By Kristen Oliveri

Single-family offices are often thought of as the outliers of the financial services industry. Definitions of them vary, regulations around them can be cumbersome, and, often, individuals can’t even identify what a “true” single-family office is. Kristen Oliveri, Head of Private Wealth Content at Markets Group, sits down with single-family office veteran Paul Reynolds, the director of London-based single-family office Thamesis Limited, who began his career in the private banking wealth management sector before transitioning over to work for two different single-family offices.

Reynolds has experience in working within and creating different structures and is a “specialist generalist” when it comes to investment management to family office structuring and everything in between.

In his interview with Markets Group, Reynolds discusses the nuances of a single-family office and debunks misconceptions of how the wealthiest people in the world manage their money.

Markets Group: Let’s put some parameters around what actually a single-family office is. People outside of the industry have no clue about the nuances within it.

Paul Reynolds: It's a good question. One of the most common phrases within the family office industry – and it is an industry, a growing industry – is once you've seen one family office, you've seen one family office. And like all cliches, there's a reason for it. It's correct. If you think of a family office as an office to serve a family, every family is different.

And therefore, what will be required from every family office, the structure, what they do, depends on that family. There were no rules. Some family offices are run by family members or employ family members, and some will not. Some will manage the money internally. Some will outsource that. Some families still own their founding business, and some have sold it. So, there are no generalizations. Every family office is different, but ultimately a family office is there to serve one family.

Now, taking that a stage further, what does it do?

The way I like to start thinking about a family office is think about your own family and the things that you have to do, maybe the things you do in the evening, the things you do on the weekend to keep your admin under control. You might have some investments, which need managing. And maybe you have some assets such as a house or even some art. I hope you'll have some insurance and a bank account. In normal times, when we're allowed to travel, you book travel, and you may even book other things such as restaurants, opera and theatre. You'll have to do a tax return and maybe you give some money to charity. If you have children, you think about educating them and helping them when they start a new business. There are numerous other things that you have to do when you have a family.

If you're rich enough, at a certain point your life gets so complicated that you are overloaded with all these things and you start outsourcing. I always think that the most valuable asset that anybody has is time.

And as you get richer, it's more and more important to you that you don't spend all your time doing all these things that I've shown here. At a certain point, you say you will prefer to spend your time doing business or hobbies or whatever you want, and you want someone else to do these things for you. And at that point you may seek to start your family office. And when you've got your family office, the family office sits around you, allowing you to use your time the way you want to, and someone else takes the role of doing all these things.

MG: How large do you think a family must be for the entire family office structure to make sense?

PR: I started off saying there's no generalizations. Some family offices are ‘so-called’ family offices. I come across some that maybe have an assistant and maybe a senior person on a part-time basis. Some family offices I come across have 60-plus people, so obviously the financial implications of those are very different. The reality is you probably must have in excess of $100 million. In reality, in excess of $500 million to make it a really cohesive office with enough staff. It's a luxury, but when you get into the ultra-high-net-worth, it's a necessity.

MG: How can anyone in the industry or otherwise differentiate between those who are truly a single-family office or not? Maybe one looks more like a multi-family office or a bank or an RIA. What are the nuances there and how can you tell?

PR: Well, again, no generalization. I'll keep saying it, but on the whole, if you take the situation that I'm in, I work for one family and I'm employed by a company Thamesis, owned by that family. My sole aim is to provide a fantastic service to that family. There's no differentiation between the shareholders and the customers. When you move into a multi-family office model, they're trying to run it as a business, making a profit, paying dividends. I'm just trying to basically provide a fantastic service.

MG: I know you've had a long, storied career in the wealth management business. Tell me a little bit about what your career path has been and how it led you to Thamesis.

PR: I worked for two single-family offices and one multi-family office. I also sent spent nine years at Credit Suisse and during my time there, I worked in various areas doing relationship management, investment management, project management and business management.

I sometimes like to say I'm an expert generalist. I work in a small organization. I never know what's going to land on my desk today. Very often, it'll be things that I've never done before, in a way, that’s part of the highlight. But you need to be someone who's happy doing anything that needs doing.

If you just want to do investment management, that's fine if you're working in the investment management team of a family office, but it's not fine to be running the whole office, you've got to be that generalist who can help when there's a problem. You've got to find a solution.

MG: Given what you just said, in my estimation, someone in your position is a Jack-of-all-trades. Could you even describe what you do on a day-to-day basis?

PR: The easy answer is anything that's required. If you go back to that definition of the family office, all the different things. So, someone can phone me up today and say that they want to set up pensions for their staff or they want to buy a property, or they want to sell a property or they're looking for a tax structuring, or they're worried about succession or they want to review their will.

So effectively anything that's required, the reality is a big part of my time is spent on investments and in reality, if I try to make it as simple as possible, I would say that a significant part of my time is spent on project management. When that family member comes along and says I have an issue, I need to then solve it. I'm using external sources, I'm the one that needs to make sure everything's tracking forward.

MG: Does the family that you work for have a mission statement, and if so, how does that sort of tie into their overall investment philosophy?

PR: It’s interesting. We've discussed this many times and for the family I work for, we decided not to have a mission statement. The family is the first, second and third generation and the patriarch who made the money really doesn't want to restrict it. The next generations as to what they do, we have various legal documents that are trying to put a structure around what we do, but we don't have that mission statement.

MG: In terms of how they view investments, what are the opportunities they're looking for and how does your team approach that?

PR: I would say if you looked at our investment philosophy, it’s varied. There's one family who says they review their investments every quarter, and by quarter, they mean not every three months, but every 25 years. Of course, a quarter of a century. One of the advantages that a family office and a family can have is that they're not going to get sacked if they underperform an index over two successive quarters. So, we're long term and that allows us to do things that maybe institutional investors can do. We're diversified. Our biggest thing that we do is spend a lot of time deciding what decisions we make in house and what we outsource.

If there's a fan, someone out there listening to this and thinking about starting their family office, I would say that's the most important thing is what skills can you bring in and what skills are you going to have? Can we buy the best investment managers? No, we can't. So, we outsource stock positions, but we look at asset allocation ourselves.

We do very little direct investments. We leave that to other people. We very rarely use loans, debts or leverage. On the whole, we invest in funds or partnerships. And I would say that we prefer portfolios managed by boutiques where we can meet and know the investment manager rather than manage by massive entities. Institutions, we tend to like high conviction, low turnover. Investors, we're not interested in closet trackers but that all comes from many, many years of discussion and lots of thinking about how we think to do things.

MG: In terms of your due diligence process, I'd imagine it's all about relationships and having the ones with the managers you work with. Is there anything else you want to elaborate on that process in terms of due diligence or creating those relationships that help you sustain the overall investment plan?

PR: Yeah, I think there's only one thing. It's about relationships. It's about spending a lot of time getting to know managers. It's about actually meeting the right people. It's about following up. I've built a great network over the last 14 years and it's utilizing that network. But there's one other thing that we do is we have an investment committee, which is made up of both family members and non-family members. I think that's really important. So effectively it's not one or two people making the decisions. We have three or four highly experienced veterans in the wealth management and investment management area that can actually sit down with us and meet some of our managers. So, we can get multiple views before we make a big decision.

MG: Switching gears from investments to legacy planning, how does the concept of legacy planning come into play for the family you work for?

PR: We're not trying to structure things so that the family office and family wealth runs through multiple generations. It's there for the first generation who made the money, their children and their grandchildren. If there's money around after that, that's fantastic. I would say legacy planning is a major issue for any family of wealth. Personally, I believe wealth can have a massive positive effect, but also it can be a ball and chain, so a lot of time when we're looking at decision making, we're thinking: is this going to have a positive effect? Or maybe it will have a negative effect? Fortunately, not with the family I'm working with, but with other families, wealth has driven siblings and cousins apart, so we're looking maybe wider than legacy planning. We're looking at taking decisions that ensure that the family remains bound together.

MG: Any final thoughts on how family dynamics, legacy planning and investments all come together? The misconception is that [family offices] are just about investments and that's what they do for wealthy people. It's so much more than that.

PR: I suppose my final thought would be this: The wealth management industry uses this term “the trusted advisor” over and over again. Actually, when you're working for a family office, my whole goal and reason is to give them good advice. But even with that, becoming a real trusted advisor takes time. Sometimes people almost think that you can take the badge of being a trusted advisor and you can pin it on your chest, and it happens overnight. Building really, really solid relationships, trusted relationships where people are happy to delegate to you and leave it to you, takes many, many years. And if you find the right person, then that's fantastic. And they build the right team, that’s fantastic. But it's a hard job.


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