Family offices take on alternative investing

Family Business

Milwaukee-based Marcus Investments LLC is a family office that was formed by the Marcus family, controlling shareholders in The Marcus Corp., in 2006 to invest its liquid assets.

All of the members of the family are involved in the family office, which focuses almost exclusively on private direct investments in middle market Milwaukee-area companies, because those have produced the best returns, said Christopher Nolte, president of Marcus Investments.

“There’s a benefit to being closer to the assets, to being the general partner and investor in an opportunity,” Nolte said. “That’s why Marcus Investments was created.”

Marcus Investments is one of several family offices in southeastern Wisconsin, which are generally established by high net worth families to manage their wealth. And the setup is becoming more popular, which has contributed to a surge in the private equity investments many of them target, according to a recent report by JPMorgan Chase & Co. and Pitchbook.

In 2017, total U.S. venture capital investment was almost $83 billion spread across 8,650 transactions, up from $69 billion invested in 7,751 deals in 2016, according to Pitchbook. Already in the first quarter of 2018, total venture capital investment was at $28 billion nationally.

Family offices invested about $3 billion per year in more than 100 minority-stake venture capital deals annually from 2013 to 2017, according to the report. That’s a sharp uptick from 2012 and 2013, when family offices invested in about 70 deals per year totaling about $1.2 billion. At the same time, hedge funds and mutual funds have been investing in venture capital deals less frequently, and instead focusing on public equity and fixed income markets in order to generate returns more consistently. Family offices may be better able to handle long-term illiquid investments in startups, the report points out.

Butkiewicz

“Since the financial crisis in 2008, people have been more disciplined in how they invest,” said Doyle Butkiewicz, managing director at J.P. Morgan Private Bank in Milwaukee, who works with some family offices in the market. “I think that, too, may have an impact on people being more organized around their investments.”

The rise of family offices may be driven by families seeking to diversify their risk, he said.

“Private investments lend themselves to family offices because in many cases, that would be more generational wealth or long-term wealth they can afford to invest in long-term asset classes,” Butkiewicz said.

PNC Bank’s multi-family office, Hawthorn Family Wealth, mainly works with families that have $20 million or more in liquid assets.

Karen Collingsworth-Crusse, vice president and senior relationship strategist at Hawthorn, has seen the trend toward private investing increasing among wealthy families.

“There are more angel investor groups and family offices investing in venture capital startups,” she said. “It’s happening more in Wisconsin than it used to and I think that’s an evolution that as those companies grow after their venture capital investment, there’s more opportunities to invest in businesses.”

Collingsworth-Crusse

“There is an arbitrage between the public markets and the private markets,” Nolte said. “That is that publicly traded investments are typically more expensive than privately traded assets because of the liquidity, because of the size and sometimes because of the management teams that are operating those private companies.”

Nolte declined to disclose Marcus Investments’ assets under management, and said the number of investments the firm makes each year depends on the opportunities. It generally targets firms with between $2 million and $10 million in EBITDA, and it aims to take a controlling interest in the company.

Usually, families with more than $30 million in assets join a multi-family office or consider creating a single family office, said Rhona Vogel, founder and chief executive officer of Brookfield-based multi-family office Vogel Consulting Group.

”It’s a family that needs more than simply some decisions on what’s best to invest in,” Vogel said. “It’s a family that needs broader asset allocation, a broader range of financial choices, and they have to be integrated with a bigger picture plan.”

Vogel

Often, a family office provides private equity investing, hedge fund investing and direct investments in private operating companies. For single-family offices, Vogel said it makes most sense for families with more than $500 million in assets, since there is overhead to consider.

As a multi-family office, Vogel has about 20 employees who serve about 30 families – each of which includes all living generations and could stretch to 300 family members.

Vogel said she has seen the national trend toward more private equity investment by high net worth families over the past five years, which is driven in part by the search for higher returns. Generally, the private equity investments her clients seek are in private companies that are profitable, and a small portion of the pie goes to higher risk startups.

“You have a shrinking number of shares available in the public equity market,” she said. “Over time, certainly, generally those shares, unless you buy a company in its very young infancy stages, don’t produce major return flow. By investing in private equity, families are looking for stronger returns over the long term and better cash flow.” 

Milwaukee-based Marcus Investments LLC is a family office that was formed by the Marcus family, controlling shareholders in The Marcus Corp., in 2006 to invest its liquid assets.

All of the members of the family are involved in the family office, which focuses almost exclusively on private direct investments in middle market Milwaukee-area companies, because those have produced the best returns, said Christopher Nolte, president of Marcus Investments.

“There’s a benefit to being closer to the assets, to being the general partner and investor in an opportunity,” Nolte said. “That’s why Marcus Investments was created.”

Marcus Investments is one of several family offices in southeastern Wisconsin, which are generally established by high net worth families to manage their wealth. And the setup is becoming more popular, which has contributed to a surge in the private equity investments many of them target, according to a recent report by JPMorgan Chase & Co. and Pitchbook.

In 2017, total U.S. venture capital investment was almost $83 billion spread across 8,650 transactions, up from $69 billion invested in 7,751 deals in 2016, according to Pitchbook. Already in the first quarter of 2018, total venture capital investment was at $28 billion nationally.

Family offices invested about $3 billion per year in more than 100 minority-stake venture capital deals annually from 2013 to 2017, according to the report. That’s a sharp uptick from 2012 and 2013, when family offices invested in about 70 deals per year totaling about $1.2 billion. At the same time, hedge funds and mutual funds have been investing in venture capital deals less frequently, and instead focusing on public equity and fixed income markets in order to generate returns more consistently. Family offices may be better able to handle long-term illiquid investments in startups, the report points out.

Butkiewicz

“Since the financial crisis in 2008, people have been more disciplined in how they invest,” said Doyle Butkiewicz, managing director at J.P. Morgan Private Bank in Milwaukee, who works with some family offices in the market. “I think that, too, may have an impact on people being more organized around their investments.”

The rise of family offices may be driven by families seeking to diversify their risk, he said.

“Private investments lend themselves to family offices because in many cases, that would be more generational wealth or long-term wealth they can afford to invest in long-term asset classes,” Butkiewicz said.

PNC Bank’s multi-family office, Hawthorn Family Wealth, mainly works with families that have $20 million or more in liquid assets.

Karen Collingsworth-Crusse, vice president and senior relationship strategist at Hawthorn, has seen the trend toward private investing increasing among wealthy families.

“There are more angel investor groups and family offices investing in venture capital startups,” she said. “It’s happening more in Wisconsin than it used to and I think that’s an evolution that as those companies grow after their venture capital investment, there’s more opportunities to invest in businesses.”

Collingsworth-Crusse

“There is an arbitrage between the public markets and the private markets,” Nolte said. “That is that publicly traded investments are typically more expensive than privately traded assets because of the liquidity, because of the size and sometimes because of the management teams that are operating those private companies.”

Nolte declined to disclose Marcus Investments’ assets under management, and said the number of investments the firm makes each year depends on the opportunities. It generally targets firms with between $2 million and $10 million in EBITDA, and it aims to take a controlling interest in the company.

Usually, families with more than $30 million in assets join a multi-family office or consider creating a single family office, said Rhona Vogel, founder and chief executive officer of Brookfield-based multi-family office Vogel Consulting Group.

”It’s a family that needs more than simply some decisions on what’s best to invest in,” Vogel said. “It’s a family that needs broader asset allocation, a broader range of financial choices, and they have to be integrated with a bigger picture plan.”

Vogel

Often, a family office provides private equity investing, hedge fund investing and direct investments in private operating companies. For single-family offices, Vogel said it makes most sense for families with more than $500 million in assets, since there is overhead to consider.

As a multi-family office, Vogel has about 20 employees who serve about 30 families – each of which includes all living generations and could stretch to 300 family members.

Vogel said she has seen the national trend toward more private equity investment by high net worth families over the past five years, which is driven in part by the search for higher returns. Generally, the private equity investments her clients seek are in private companies that are profitable, and a small portion of the pie goes to higher risk startups.

“You have a shrinking number of shares available in the public equity market,” she said. “Over time, certainly, generally those shares, unless you buy a company in its very young infancy stages, don’t produce major return flow. By investing in private equity, families are looking for stronger returns over the long term and better cash flow.” 

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