Family Office Feature: The Evolution of Family Offices

Rob Moore: Hello, my name is Rob Moore. I am Jersey Finance’s UK based director focusing on private wealth, family office, and international banking. Welcome to our Jersey Heard podcast, which today will focus on family offices. I’m delighted to introduce Tom Powell, Chief Commercial Officer at Somerton Group.

The Somerton group represents the collective holdings of a fifth-generation single family office. The group is privately owned with headquarters in Jersey with its origins dating back to the 1850s. Tom focuses on building strategic partnerships, expanding access to the firm’s investment offerings, origination and supporting long-term commercial growth. Welcome, Tom.

Tom Powell: Thank you. Thanks for the invite.

Rob Moore: Tom, could you start by telling us a little bit about your background and how you came to work with family offices?

Tom Powell: Yeah, certainly. So my background is in liquid listed derivatives. I started life at the derivatives exchange in London and then went to SocGen. [00:01:00] I was there for nine years trading on the liquid listed derivative markets predominantly, and a little bit of OTC, and that was working specifically with nascent hedge funds within that space, more the systematic funds at the time.

Those that were sort of evolving the derivative trading landscape. And one of the biggest problems that all launching funds have is access to capital. So a fundamental part of what our team within GEM was doing was not only giving market access, also we had a strong asset raising component. And that meant that we were forging bridges with family officesin sort of the early two thousands or sort of broader investors at that time. And so my exposure to them was sort of vicarious, but that grew into certainly a knowledge of the space by names rather than the people initially. And then the more I went into the space before moving from the sell side in banking [00:02:00] to actually moving into hedge funds on the buy side. I got more and more exposure to the world of family officer investors and the myriad styles and appetites that they have.

Rob Moore: That must be quite interesting actually. The move from you know what’s maybe considered a very fast moving environment to a single office, you know, which can be quite isolated.

Tom Powell: Yeah, that’s an interesting one. In that, at Summerstone we’ve got 35 staff, so we cover four offices. The head office is here in Jersey and then we’ve got an office in San Francisco, an office in Cayman and in London. So it doesn’t have a particularly small feel to it, and it’s very much got an investment focus. So there is a mindset of how do we keep growing the pot generationally. And as such, the team that I work with, not only CIO, Nick Wakefield is ex of the systematic derivatives trading world [00:03:00] himself, but also the team around us are very much youthful, energetic markets focused.

So we keep a very close eye on the movement. So on the one hand, yes, it’s not the busy trading floor, but on the other hand it’s a very civilized environment where you still geteffective market exposure and energy. So yeah, I wouldn’t describe the family office environment as, or certainly our family office as a sleepy one.

Rob Moore: It’s often a misconception about the family office that they are, you know, quite a sleepy environment. But, you know, are there any kind of misconceptions about family offices that you’ve experienced and could share with the audience?

Tom Powell: Yeah, I think there’s a certain mismatch of expertise expectations and Jersey is one of the most over brokes environments. You see a lot of people fly in thinking they’re going to knock on the door and tell us a thing or two. And what I find to be, a misconception or maybe it’s just a misunderstanding of [00:04:00] the sophistication of the market, is probably the biggest failing for people coming in to sell us things, is that we are fortunate enough in the family office space now to have experienced market professionals. Not only from the listed liquid space, which is where I come from, but also family offices don’t have the hiring risk constraints that a lot of environments do.

So we have hotel specialists, we have retail specialists. We have very much top of their game people working across the board, most of whom have forged their careers outside of necessarily the family office niche. But have come there to excel rather than to go out to pasture. And I think that’s probably what people’s biggest mistake is landing, thinking that they’re going to know a lot more than the office does. In many cases we’re actually very well informed.

Rob Moore: Expertise is certainly one of our kind of strong points internationally. One of those things from [00:05:00] a Jersey perspective is it’s often described as a real hub for private wealth and family offices. You know, what in your opinion, makes it really kind of stand out internationally?

Tom Powell: Well, I mean, you just touched on expertise there. There’s a concentration of expertise across all areas of finance, and there’s probably a deeper pool in the wealth advisory space than most. So I mean, the elephant in the room is always the tax and the efficiency that we can generate by being in Jersey from a taxation perspective but the fact that there is no capital gains tax, no inheritance tax, and it’s relatively easy to set up and get going belies the fact that actually there are many complexities that go into finding that staff and putting them in and growing around, certainly the wealth, that there is a perception of Jersey as being a deep pool of expertise in the wealth space, but I think more broadly, it’s the accounting, it’s the audit and these are the real functions that tie [00:06:00] particularly the diverse investments of family offices where we hold everything or family offices more broadly, hold everything from chemical industrials in Northern England through to Sub-Saharan hotel chains. And all of those need reporting. They all need consolidated accounting and they all need to go back ultimately to a centralized cash flow and accounting systems, which can be read and understood by a very small number of people and those are normally the principles and the senior management of the family office.

So, Jersey really excels in having that in spades and some of our staff have come directly from the big four here on the island, and have sort of segued into then doing their CFA exams, then doing further professional development, which they’ve been able to do on island, but in our house to really become specific to the needs of the family office. And that’s been brilliant. There is an understanding of the [00:07:00] flows and importance of investments and cash management which underpins, so it means no one’s really starting from zero.

Rob Moore: Thanks Tom. I’d be interested in hearing what kind of trends you are currently seeing and how family offices are structured and managed in Jersey.

Tom Powell: I’m fortunate enough to be connected to quite a large group of other family offices that are structured as family offices and one of the things I’m sure you’ve encountered is that ‘family office’ is a term that encompasses an enormous array of pools of private wealth, and that ranges from first generation recently maybe divesting from their core income generating activity into collectivising holdings, and maybe that just means it’s the principle plus a competent administrator, all the way through to something that’s far larger, where you’ve got teams of well, such as we have, teams of research analysts, we’ve got our own internal trust company, we’ve got compliance specialists, we’ve got, I think, 11 [00:08:00] accountants. That spread means that pinpointing a trend within each of those areas is probably harder, but I would say that firstly, I’m getting a lot more inquiries from overseas families, and friends that work for overseas families, asking about the move to Jersey, which obviously tells us that we’re on the right radars and we’re doing the right thing.

And also the way that they are structuring, in that technology affords maybe a lower head count, people are more open fundamentally there’s been decades of ‘we’re a family office, you’re not even going to know our name’ to now the pivot being ‘well actually we’ve established as a family office, we’ve got these professionals in house working. We are doing what we think is a good job and we do something specific in an area and we could take people along with us. Now taking people along with you can have two [00:09:00] benefits. One, touching on what you mentioned earlier with the origination, taking along people with you in one investment that we are making may lead them to say, well, look, we are doing something interesting over here, which maybe you’d like to participate in, where they’ve got an expertise that we wouldn’t have internally, and then we can piggyback each other’s expertise. So that’s certainly a trend of higher collaboration between offices and less of this absolute anonymity.

And secondly, providing some of the building blocks that people have got beyond investment opportunity to actually service opportunity. A lot of the larger family offices now are providing their services to potential trusted partners so we’ve got X, Y, and Z. You’ve got A, B, and C, but maybe you are lacking expertise in these three areas. You can use ours for a fee and we can use yours for a fee, and we see that across software development. We see that [00:10:00] across geographical due diligence, expertise and also just in process and systems sharing.

So, I wouldn’t say there’s a specific investment theme, but I’d say broadly, if you were to categorize it, there is a broad elevation in the expertise of the professionals within family offices, and there is an increased level of openness and thirdly an increased level of sophistication. So that’s probably the three things that I would identify.

Rob Moore: It’s interesting when you touch upon the, I suppose co-investment opportunities. How are you seeing that environment changing? Because I suppose historically, a lot of family offices had trouble with getting access to some really good deals, you know, and how you find that environment’s changed over the years?

Tom Powell: I would say that the market is actually more competitive and if you are raising and you’ve got the right product, you are now able to access huge pools of varied family [00:11:00] offices. So a lot of the communications that we’ll have between families is done over social media and it’s a quick WhatsApp ‘Here, are you looking at this? Any interest in that?’ And it means that you can cover the ground far quicker. So you can approach from multiple investment perspectives, a far broader number of people, whether that then leads to co-investments remains to be seen.

But certainly from co-invest and origination perspective, you get to see a vast number of interesting deals that don’t rely anymore on having a single or maybe three brokers on a telephone calling you up. Now you can review very rapidly in your own time on the side of desk and you say, ‘oh, right, yeah, I’ve been looking for a hotel there’ or ‘our newly listing private equity fund, which we’re bringing to market actually is suddenly of interest to, you know, these five people’. And it takes no time at all to reach that. So. I think [00:12:00] the speed of finding interested parties, doesn’t necessarily lead to direct investment, but certainly finding interested parties for co-investment and collaboration is far quicker now and that goes back to that reduction of anonymity.

People actually having a hook in the water and no longer rely on just random. You actually have curated groups of families sharing information between them.
It also works not only from a sort of anyone has an opinion on a jurisdiction set up from, it also actually works from service providers and even down to sort of individuals, you can very rapidly vet whether someone selling something or promoting something, is who they say they are, is coming from, the same background on what I view, or whether it’s really not worth the time to look at. And that’s also a positive.

Rob Moore: It’s interesting to kind of hear that, I suppose that professionalization side of the family office and that environment becoming a lot more open and transparent to doing business. How are you finding the family office [00:13:00] position and again, that evolution of the marketplace and having to adapt to the increased scrutiny around transparency and compliance with families.  They seem to be a little bit more under the spotlight than maybe some of the kind of corporate institutional organizations. How are family officers managing that?

Tom Powell: Yeah, I mean, I wouldn’t say that they’re more under the spotlight, or certainly not more under regulation than institutions. They may be in the spotlight because there are these sort of slightly clunky pools of capital and, and every one of them is obviously different from a regulatory perspective. Bear in mind, if you are a single family office, then realistically it is really looking to maximize the returns on investments made in the name of the family, and also protecting against the loss of the wealth of the family.

So you’ve got two facets there. Regulatory speaking, I don’t think there should be, you know, beyond compliance with market regulations and all the usual things that any [00:14:00] professional would adhere to, it’s a bit of an awkward space that is naturally going to be very resistant to overregulation and is also what is it that you’d be trying to achieve through regulation.

So we watch that very carefully and we engage very much with our own very strong governance structures, we engage with the regulator. I mean, partly because of our governance structure, we take a very much belt and braces approach, so all of our investment funds are structured through the JFSC. We have three Jersey Private Funds and one Expert Fund, which is sort of far more at inception than it needed but it gives us flexibility longer term, and it also means that we will always be, yeah, our biggest fear is name damage and we find it far easier to comply and adhere to it all global regulation than try and get cute with it.

But no, from a regulatory perspective, I don’t think that the family offices need anything bespoke. You know, as professionals internally, we adhere to our own professional codes of [00:15:00] conduct, our memberships and what have you.

So it’s an interesting area and yes, the spotlight is on them, but I think it’s probably on them externally. I’m not talking Jersey here, more internationally where governments see these pools of capital that can be vast and try and work out how they can tax them and of course that is part of the benefit of structuring correctly. But from a regulatory perspective, given that they’re not risking the life savings of retail customers and that sort of thing, then it’s sort of, well, I wouldn’t even say it’s a grey area, I would say it’s an area where regulation is not required.

Rob Moore: So Tom, with the generational transfer of wealth underway, you know, we have some key challenges for families and, I’d like to maybe touch upon how, Jersey’s positioned to help, given the fact that you’ve touched upon governance earlier and looking at both corporate governance and family governance, and the fact that you are a fifth generation family [00:16:00] office. so succession planning appears to be working really well within the organization.

Tom Powell: Yeah. It goes back to the culture of the family itself and that is very hard for any external to really impact or effect from Summersone’s perspective there is a clearly ingrained work ethic that you could probably trace back to its origins in Newcastle and the identification of opportunities, risk taking. I think what’s probably useful around Summerstone is that everyone from the current principal of the office through to the next generation coming through. Everybody works and works hard, which, you know, I really do think is ingrained in the ethics of the family.

Rob Moore: You do mention the next generation coming through and, you know, how do you see the role of Summerstone, or the family office space evolving [00:17:00] over the next kind of five to 10 years to factor in the changing aspirations of that next generation?

Tom Powell: That’s really key and beyond broad currency debasement, the other concern for any family is what does the next generation look like, and what would the legacy be? And going back to your points about structure and governance, how we have been able to hopefully manage that and only time will really be able to tell is that everything is structured very cleanly, each is its own operating business has its own internal governance structures, boards, what have you, and it means that everything is transparent. So from the next generation coming through, they can see clearly that we have wineries in the Napa Valley,we have large scale construction. One of our holdings is the world’s biggest data cable across the Pacific Ocean. We’ve got the liquid listed funds, which are structured around [00:18:00] finding opportunities in liquid markets. We’ve got the hotels business andeach of those is effectively self-sufficient and is there to appeal to the commercial natures of the next generation coming through so that they have got choices around what is an interesting passion to follow.

Similarly, in the same way, as the family moved away from shipping into real estate, into data centres, into hotels and really the diversification, whilst there is a deep respect for the heritage, there is not an anchor that says, because we have done this in the past, the next generation must keep doing it.

The most important thing is, certainly from the family’s perspective, is how does that line continue? And if it is led from a passion for digital assets or if it is led from a passion for health tech, we wouldn’t put a constraint on that. And hopefully the systems and structures are in [00:19:00] place to facilitate that rather than impede it.

Rob Moore: You mentioned, the digital assets and tech. Do you think technology will kind of fundamentally change the way family offices operate going forward?

Tom Powell: Yeah, I mean look, our fundamental thesis generationally has been that technology will continue to play an increasingly important role in all of our lives and it is without exception, the industry. So, will it affect the way that family offices are structured? Potentially. Will it increase efficiencies? Yes. Will it lead to new investment opportunities such as the data centres have, such as the data cables have, such as the new AI enterprises that we’ve backed have? Absolutely. But I don’t think we’d be looking at saying it’s going to revolutionize the founding office space any more than any other sector.

What it should do is continue with that, sort of, story of transparency, ease of access to deals, and [00:20:00] opportunity sets. So, no, that’s where I see the technology playing the biggest role.

Rob Moore: Well, I’m really mindful of time and I’m very grateful for you giving up the time to chat with us today. But finally, if a family is considering setting up a family office, why should Jersey be on their shortlist?

Tom Powell: I mean, you’ve got to look at the infrastructure that’s already here in Jersey. You’ve got global family offices with an existing footprint, which means that you’ve got experience from some of the world’s largest family offices already here, present. And therefore not only an educated, informed staff,you’ve also got systems and structures that work not only from simply getting people working in the efficient manner that would suit the requirements of a family office, but also the support structures around that banking, the administration services, the transport links, even down to [00:21:00] the personal considerations.

I think about this much more from the commercial side, but from a personal perspective, you’ve got education on the doorstep. You’ve got access to the UK, you’ve got a primary business language of English, you’re in a great time zone, and all the other things that Jersey benefits from in all industries are very relevant to the family office space. As family offices become more sophisticated, it feels like they’ll only get more of an ecosystem here and it’ll become more appealing.

Rob Moore: I couldn’t agree more, but then again, I may also be slightly biased. Thank you. I really appreciate you taking the time to speak with me today. We hope you enjoyed listening to the podcast.

Don’t forget to subscribe to Jersey Heard on your chosen podcast platform and follow Jersey Finance on our social media networks to keep up to date on our work in Jersey, the UK and beyond.