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How family offices manage their clients’ investments

They sometimes work with legacy managers, but establishing a broader, family-level strategy is their goal

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They say that if you’ve seen one family office, you’ve seen one family office. Each has its own unique characteristics.

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Well, the same holds true for how those firms manage and grow their clients’ assets, says Wayne Kozun, chief investment officer at Forthlane Partners, a multi-family office in Toronto.

Kozun says his firm takes an integrated or blended approach. They would rather handle investing responsibilities directly, but they also will adapt to clients’ preferences. Clients may be happy with their current public equity manager, he says, “but they may say, ‘I’m happy keeping manager A and B to run my global public equities portfolio, but I want you guys to help me do private equity and outsource the CIO.’

“We will help them think about how the different pieces fit together.”

Because of their level of wealth, family office clients have likely developed a higher capacity for investing or have been helped by a “council” made up of family members and other experts.

But some clients turn to a family office because something “isn’t working as well as it could,” or they have an unmet need, says Brent Barrie, family office director at First Affiliated Integrated Family Wealth Management, a multi-family office whose chief executive officer, Chris Clarke, is the author of True Family Wealth: Love, Money and an Inspired Life.

Taking the broad view

Barrie, who’s based in Halifax, says most families have existing relationships with investment managers when they meet with First Affiliated, which has locations in Atlantic Canada and Ontario.

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“Usually it’s not our objective to disrupt any of those relationships, particularly a relationship that’s already working well,” Barrie says. But clients rarely have an overall family-level investment strategy, he says.

We aim to help clients create an investment portfolio that’s similar to one of the large Canadian pension plans.

Wayne Kozun, Forthlane Partners

“While we don’t say, ‘Here are a couple of managers and you [should] use these people,’ we will help them review any portfolio managers they’re working with … and help them identify any potential portfolio managers who may be a good fit.

“What we are helping families do … is not to buy stock or bond A or B, but rather to select a manager for the clients’ small Canadian equities, or to manage their European equities.”

Using the pension-plan approach

At Victoria-based Burkett Asset Management Ltd., which established its family office in 2014, the investing approach has evolved, says founder and portfolio manager Kevin Burkett. His father, Chuck Burkett, serves as its chair.

“At the start, we entirely used outside managers,” Kevin Burkett says. “We were inheriting outside managers with new clients and were outsourcing parts of the investment management. As we grew, it became clear that managing their investments directly benefited clients with increased flexibility, tax optimization and cost savings.”

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Often, says Kozun at Forthlane, a lawyer or accountant acts as a sort of head of the family but “may not necessarily be well suited to be picking global investment managers, so we look for the best investment managers and investments on a global scale.

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“We aim to help clients create an investment portfolio that’s similar to one of the large Canadian pension plans, some of the best if not the best institutional investors globally,” says Kozun, who spent 22 years at the Ontario Teachers’ Pension Plan and helped found Forthlane in 2018.

“In a family office portfolio, we offer more exposure to alternatives, things like private equity and venture capital, and other fund structures like hedge funds,” he says.
First Affiliated forms investment strategies for its clients based on their needs, goals and values, Barrie says.

“The ‘needs’ part is understanding the client’s cash flows,” to support their current and future lifestyles. “Most of the families we work with also have goals for supporting either their family or the community at large [philanthropically, for instance], or both. The final step of the process is understanding their values.”

Mitigating taxes

Barrie relates the case of a couple who wanted to devote part of their assets to a charitable foundation, with all their adult children involved in making spending decisions. At family meetings, they shared their priorities in an effort to form an investment strategy for the foundation and how its money would be spent.

Family offices use varied strategies to help mitigate clients’ tax bills.

For instance, Kozun says, there’s “buy and hold,” which means taking on stocks for the long term to defer capital gains and other taxes. This allows money that would have been spent on taxes to be used for other things, including more investments.

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Burkett says working one on one with ultra-wealthy individuals has made it easier to keep fees in check and “manage portfolios around the desired tax outcomes.”

As an example, he cites the advantages of investing in certain asset classes using passive (indexed) approaches, particularly in large-cap U.S. stocks.

“We can do things like, in particular with U.S. large-cap allocation, be indexed and save considerable fees, but then take an active stock-picking approach in parts of markets where outperformance can more easily be obtained, with the overall objective of maximizing performance and minimizing costs.”

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