Building a single family office is already challenging but bringing it to life to seize opportunities for wealth growth and investments adds another dimension of complexity.
Often, newly established family offices have a limited network, struggle to access a qualified deal flow, find it hard to find co-investors for their projects, and need peers to learn from.
As a first step, family offices must become part of an ecosystem to collaborate with advisors, specialists, and other market participants.
There is no plug-and-play solution, and often a collaboration between family office executives is not enough to build longstanding relationships. Ideally, families align in purpose and values to leverage capabilities and opportunities.
If they appreciate the added value of networks and partnerships, the access to private wealth ecosystems will enhance their family office's value proposition and contribute substantially to its success.
Still, wealth owners and their family offices will have to navigate an intransparent environment.
Today we speak to David Grammig, the founder of a Zurich-based boutique consultancy firm that grows and maintains sustainable networks on behalf of single family offices and wealthy families, about family office networks, access to unique investment opportunities, and why families should drive the networking process.
Thanks, David, for taking the time to chat with Centro LAW. What are family offices' main challenges when exploring network opportunities?
Thanks for the opportunity to share my view on this matter. I would love to start with a quote.
In his book Extreme Money, Satyajit Das writes: "Don't network. Focus on building real relationships and friendships where the relationship itself is its own reward, instead of trying to get something out of the relationship to benefit your business or yourself."
I believe this should be the ultimate goal for every family office – building friendships, although it's damn hard. We are all out there to do business, hoping the next meeting will bring the next deal or clients.
The challenge many family offices face – whether when trying to build friendships or even just simple networks – is the exploration of the unknown.
I can share a few examples. Take a family business that sees opportunities in Africa or India. These are exciting places to do business in as they hold great opportunities but aren't without risks.
As a European investor, you don't go to Africa alone. You look for local partners and families on the ground who understand how the continent and their respective countries work in business, politics, and culture.
Chances of meeting such families in your golf club or at the annual gathering of investors and entrepreneurs you usually attend are slim.
Then we have the newly established family offices, and we aren't necessarily discussing those managing newly generated wealth. We see many families in the 3rd or 4th generation with operational businesses setting up their SFOs only now. But then what?
They will ask specialized lawyers like yourself to build the structure. And when being handed over the keys to their family office, they realize: "We don't have anyone to talk to. Where are the deals coming from now?"
These family offices are like the new kids on the block; they need friends who explain the rules on the playground and whom to be friends with.
Also, you have well-established family offices. They have been in the game for a long time and have many friends and strong networks.
Eventually, the family decides to create its own fund, perhaps because they have multi-generational pharmaceutical industry expertise and immense quality deal flow.
Thanks to their insights, they have an outstanding investment thesis that sells itself to their network. But then they are setting up the second or third fund, and the actual fundraising begins – nothing they can or want to do.
Placement agents are a way, but the family then loses control over who is presented with their opportunity. The challenge is to speak to a big enough audience to raise the required funds while not making it accessible to anyone but to like-minded families who appreciate the effort, thoughts, and expertise put into it.
Lastly, some families have particular challenges and seek unbiased insights from peers who have been through similar situations. Families speak the same language. It is natural.
No two families are the same. You might be familiar with the saying, "if you know one family office, you know one family office." Every case we have dealt with was unique because the families are.
You assist family offices in building an international network. Can you please describe your approach and process?
Together with the family, we create two profiles: a profile of the family with basic information about them, why they are looking for a network, what they expect from the network and what they can offer in return. These profiles are often anonymized upon request of the families.
And then, we create a search profile with the criteria specified by the client family as to whom they would want to be in their newly created network.
Then we reach out to families that match the search profile, introduce the case and present the client.
In the last step, we connect the client and the families we identified for them to build an ecosystem and lay the foundation for friendship.
To achieve this, we need to bring everyone together physically, so they get to know each other and build trust and a relationship.
Our mantra is: "Technology cannot replace a handshake." And we want family offices to shake hands.
In our experience, partnerships between family offices work best if there is an alignment in values and purpose rather than a mere interest in specific investment opportunities. What's your view on the fundamentals of successful partnerships?
This is mostly our experience as well, although not always.
When a client with a complex family dynamic asks us to build a network for them because they want to learn from others in similar situations how they structured the succession, then an alignment in values is paramount.
The same applies to families in the impact space. But sometimes, it is just about business – especially in demanding industries and regions worldwide.
Let's take the mining or the oil and gas sector. There is often not much room for values or purpose. But again, it all depends on the family, their specific case, and the goals they pursue.
Although the initial contact between family offices is often initiated by their executives or external advisors, lasting and beneficial connections also require the involvement of the families. How do you enable their engagement and create an environment of trust?
That's the secret sauce, and excuse me if I sound like a broken record, but again: it all depends on the specific case. Who is the family that requires a network? What is the purpose? What is the end goal? How delicate is the topic?
Authenticity is vital for us, and we want to ensure that the family owns the relationship, not the family office and its executives.
Connecting the beneficial owners should always be the ultimate goal as they have the last word: they are the wealth owners and will nurture the relationship long after executives and advisors have moved on to work for someone else.
It's like at any UN or G7 meeting. The sherpas, undersecretaries, and ministers do the negotiations, but the presidents and prime ministers set the tone, sign agreements, and are held accountable.
Everyone plays an important role, but it cannot end at the sherpa or executive level. It needs to go all the way to the big boss, may it be a prime minister, the beneficial owner, or the founder of a company.
Trust is won over time, and we cannot create trust on behalf of a third party. But we can create an environment where trust can be built, and that's what we do.
Family offices have significant exposure to direct investments and compete with institutional market participants over the best deals. In your experience, how can they build an ecosystem to access unique opportunities?
Well, here, I cannot entirely agree. Not everyone has significant exposure to direct investments or at least not high-quality off-market opportunities, especially not the smaller family offices.
That is precisely why they want to connect, bundle forces, and increase their reach and impact.
Some families fill niches and are experts in their respective fields, which helps them attract deal flow. This goes hand in hand with a certain level of visibility and exposure.
But a typical family office is naturally a shy creature that doesn't want to be too exposed. If they want to fly under the radar and still have access to deals, then they need a strong network, contacts in crucial industries, and prime locations.
Take the VC world. Serial founders in Berlin, London, or San Francisco with outstanding track records can choose whom they ask for money.
They usually talk to a small circle of friends and previous supporters who believed in them before they had a track record that speaks for them.
These opportunities are gone before anyone even hears about these opportunities.
And now we are back to the friendship part I mentioned at the very beginning. It is not enough to have a network or to know someone. It would be best if you had friends in the right places.
What's your advice for wealthy families that don't have their own family office and want to interact with like-minded families to create opportunities?
I think it is a question of what you have to offer. The larger and more sophisticated the family office, the harder it is to impress them.
So the trick is to be of value to them, which I find usually works quite well when you have an operational business.
The family with the operational business has insights others don't have. While economists gather data, the families already feel what's happening. They have a sense of the direction things are moving into.
And they have an operational experience that is particularly valuable when considering investments in new technologies or products.
Don't underestimate the value of experience. Experience includes mistakes that were made in the past. No one is particularly keen on admitting failures, but I believe they are a lot more valuable than smart advice on doing things right.
We all make a thousand mistakes throughout our careers as investors and entrepreneurs, and learning from the one mistake someone else made means we make only 999 mistakes, saving money, time and headaches.
About David Grammig
David Grammig is based in Zurich, Switzerland, and is the visionary behind an exceptionally unorthodox network-building approach in the family office space, leveraging his career experience in banking, intelligence and business development industries.
As former Director for International Relations at a GCC-based single family office, David has established, and continues to grow, valued connections with fellow family offices over the years. David lives by the credo "no level of technological sophistication can replace a handshake," which is no different regarding his family office networks.
18-10-2022