Morgan Stanley aims to serve the richest of the rich as the family offices grow

Jade Finn, Morgan Stanley Chief Operating Officer at Wealth Management and Head of Corporate and Institutional Solutions

Source: Morgan Stanley

After creating a way to manage money for the rich, Morgan Stanley is focusing on the richest of the rich – the family office with billions of dollars in assets, CNBC has learned.

According to Jade Finn, chief operating officer of asset management, the bank has spent the last four years building a suite of products made by the world’s richest individuals and families, increasingly strong investment firms, towards family offices.

The move marks the latest sign of the arrival of the family office as a key player in blurring the old differences on Wall Street. Companies have exploded in numbers over the past decade, and in their global search for yields, family offices have become a vehicle that can go anywhere, create bets like hedge funds, invest in start-ups like venture capital firms and even buy companies directly. Can .

But their size and complexity mean that family offices have been largely ignored until recently, too large for the bank’s traditional asset management channels and too small for institutional coverage, Finn said in an interview.

“They’ve fallen into the cracks of what they were before,” he said. “It’s a $ 5.5 + trillion segment where no one has a significant share because there is no single offer that can really meet the diverse needs of different families.”

The shock comes when Morgan Stanley, led by CEO James Garman since 2010, aims to reach $ 10 trillion in client assets, 50% more than current levels. Gorman helped Morgan Stanley become a wealth management giant, in part through acquisitions that helped the bank target a wider spectrum of clients. The strategy has been applauded by investors, who prefer a more stable source of revenue than relatively volatile trading and investment banking.

The success of the bank in the field of growing assets under management has led executives to look for other areas of opportunity. In 2018, Finn began asking family office clients what their biggest needs were. Managers are still leaning on Excel spreadsheets to keep track of holdings, manually updating statistics from data sources that quickly become obsolete, he said.

“What they really needed was that source of truth,” Finn said. “How do you create a simple notebook for a family where they can understand at any time what their total exposure is and allow different people, different entitlements to see it? That was the challenge. “

So the bank has taken its fund service platform for hedge funds, which preserves and tracks values ​​across asset classes and geographies and adapts it for family offices, creating a clear interface showing holdings and performance.

The Morgan Stanley Family Office unit began onboarding companies on the new platform last year and has added more than $ 25 billion in assets so far, the bank said. In a strong year for equities, Morgan Stanley added a record $ 438 billion in net new assets in 2021.

“It’s been a game changer for this family because now they can actually see where all their holdings are in real time and decide accordingly, which was their biggest challenge,” he said.

In January, when asked about its $ 10 trillion goal, Gorman cited the new family office business as one of the reasons the bank is growing its assets faster than the previous year. “The reality is that rich people get richer faster than less rich people,” Gorman said.

As the fortunes of the super-rich increase, those who invest at least $ 250 million are drawn to the family office model, which gives them direct control of their finances in a lightly controlled car.

Since offices do not have to register with the Securities and Exchange Commission as advisors, their number and asset estimation under management varies. There are at least 10,000 family offices worldwide, most of which have been created in the last 15 years, according to accounting firm EY.

Morgan Stanley’s platform has had much more success in signing new rich people who have already managed than the old money family. The last decade has seen an unprecedented wave of wealth creation as start-up founders raise money in private rounds, sell their companies or go public.

“If you look at every IPO in the last 12 to 24 months, you see a principal who now has a lot more money than before and usually has no team to handle it,” Finn said. “When it comes to the sixth generation [of wealth]The matter has already been managed. “

Andy Superstein, vice president of Morgan Stanley

Source: Morgan Stanley

The bank is going to add powers to its family office dashboard, including the ability to hold private company shares. Morgan Stanley is also working on a matchmaking platform where start-ups can raise funds directly with the bank, tapping capital from family offices and other ultra-high net worth clients.

“It simply came to our notice then. They want to show more and different kinds of unrelated investments, ”Finn said.

While rivals from the U.S. and European banks, including JPMorgan Chase and UBS, have been jockeying for family office space in recent years, Morgan Stanley believes it has made significant progress in creating a fintech-driven solution for the group, according to co-president Andy Saparstein.

“It would be very difficult for most competitors to create and create something like this,” said Superstein. “We are effectively providing institutional-quality services to the family.”

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