The UHNWIs are a ballooning sector of the wealth pyramid, having grown fourfold over the past century. They make up a tiny percentage of the world’s population but are disproportionately the target of companies selling luxury goods, philanthropic enterprises and increasingly entrepreneurs.
The super growth of the super wealthy means that more and more investors are seeing UHNW families as a premium source of funding. According to EY, there has been a 10-fold increase in the number of UHNW family offices based worldwide since 2008, controlling in excess of $4 trillion as of the end of 2018. The next generation of UHNWIs are managing their money differently from before: they want more control and greater returns. They are increasingly choosing to invest their money directly in private companies.
Fahim Amdani, CEO of Ivory Capital Group, is tapping into this trend. Ivory Capital Group is an M&A boutique firm that also encompasses an investment club with over £600m of active deal flow. I caught up with him to find out more about how UHNW families are doing things differently and how to access the investment of these often discreet families.
Philip Salter: What are the core activities of your group and interactions with family offices?
Fahim Amdani: Ivory Capital Group has two core divisions. Our advisory arm supports SME owners that are exploring the full or partial sale of their company - this could be to a strategic trade buyer, private equity or a family office who want to build their portfolio of direct company investments. The Ivory Investment Club is a digitally driven portal that provides family offices with unique access to deal flow globally and today through the club, we are syndicating and raising capital for projects across a spectrum of real and alternative assets; including student accommodation, hotels, logistical warehousing, aviation and marine financing and pre-IPO tech companies.
Salter: Why are the wealthy increasingly investing directly in private companies?
Amdani: Historically, UHNW families have entrusted private equity firms to invest on their behalf – which has meant they have had to pay management fees away. Today, global wealth is growing year-on-year and it is often the ‘next generation’ - members of a family who are keen to professionalise their family office and go direct – either alone or alongside a consortium of other families, in order to exercise more control, bring operational value to management teams and drive greater returns.
Salter: Do family offices have a different approach to investing?
Amdani: Family offices provide a refreshing alternative to traditional routes of exit for owner-managed businesses. As a families’ original source of wealth is almost always through entrepreneurial endeavours, a principal in a family will always resonate with the journey of the entrepreneur across the table, as no doubt they will have been in that position before. For this reason, they can often win a deal on the relationship they establish with an entrepreneur during the sales process. Many are also known to act quickly, as a result of one principal signing off on a decision – rather than a whole investment committee.
Salter: On average, do family offices look for something different in the companies they invest in?
Amdani: Every family is unique in its remit – some prefer to invest in the sector they originally created their wealth in, while others prefer to diversify their assets into completely different sectors and hedge their risk. A lot of families seek cash generative companies where they can hold them as ‘evergreen’; consistently drawing dividends and adding to their wider portfolio income. Having said that, it is not uncommon to see family offices now aggressively competing in sales processes against private equity funds and approaching a deal with an institutional mindset, whereby they seek to exit in a defined period.
Salter: What should entrepreneurs look for beyond just the capital?
Amdani: Capital today is not a scarce commodity, with ‘dry power’ at record highs and ready to be deployed into high quality deals. It’s important that an owner seeking to explore an exit or an investment to consider the concept of ‘smart capital’ and what other value an investor is bringing beyond the numbers. This could take the form of introducing strategic relationships to the firm, facilitating entry into new markets or simply offering invaluable advice from someone who has been there and done it.
Salter: What advice would you give to a young entrepreneur with a good idea but limited contacts who wants to access private wealth?
Amdani: Identifying and accessing active family offices is often difficult, as they are discreet in nature and do not necessarily publish deals or proactively seek deal flow as much as institutions – often they only review deal flow from trusted advisors. That dynamic is changing somewhat, with many now hiring in-house origination staff to source off-market and unique projects. Networking is important, as well as ensuring you have genuine value-add to their existing portfolio or future plans, which can be achieved through organically coming across their radar through gaining customer traction and proving a unique product or service in your chosen sector.