Jed Finn, COO of Morgan Stanley Wealth Management and Head of Enterprise and Institutional Solutions
Source: Morgan Stanley
After making inroads in managing money for the simple rich, Morgan Stanley is turning its attention to the richest of the rich — family offices with tens of billions of dollars in assets, CNBC has learned.
The bank has spent the past four years developing a suite of products aimed at family offices, the increasingly powerful investment entities created by the world’s wealthiest individuals and families, according to the chief operating officer of wealth management, Jed Finn.
The move is the latest sign of the family office’s arrival as a key player blurring old Wall Street distinctions. The number of businesses has exploded over the past decade and, in their global quest for yield, family offices have evolved into all-purpose vehicles capable of making bets like hedge funds, investing in start-ups ups like venture capitalists and even buying businesses. .
But their size and complexity meant family offices were mostly ignored until recently, being too big for traditional banking wealth management channels and too small for institutional coverage, Finn said in an interview. .
“They fell through the cracks of what was there before,” he said. “This is a $5.5 trillion+ segment where no one has a meaningful share because there is no single offering that can truly meet the different needs of different families.”
The push comes as Morgan Stanley, led by CEO James Gorman since 2010, aims to reach $10 trillion in client assets, more than 50% above the current level. Gorman helped build Morgan Stanley into a wealth management giant, in part through acquisitions that helped the bank target a wide range of clients. The strategy has been applauded by investors, who prefer more stable sources of income to relatively volatile operations and investment banking.
The bank’s success in growing assets under management has led managers to seek other opportunities. In 2018, Finn started asking family office clients what their greatest needs were. Managers still rely on Excel spreadsheets to track holdings, manually updating numbers from reams of data sources that are quickly becoming outdated, he said.
“What they really needed was that source of truth,” Finn said. “How do you build a general ledger for a family where they can understand at all times what their total exposure is and allow different people, different rights to see it? That was the challenge.”
So the bank took its fund services platform for hedge funds, which maintains and tracks securities across all asset classes and geographies, and adapted it for the family office, creating a clear interface showing assets and performance.
The Morgan Stanley Family Office unit began onboarding businesses to the new platform last year and has added more than $25 billion in assets to date, the bank said. In a strong year for stocks, Morgan Stanley added a record $438 billion in net new assets in 2021.
“It was a game-changer for these families because now they can see where all their assets are in real time and make decisions accordingly, which was their biggest challenge,” he said.
New versus old money
In January, when asked about its $10 trillion goal, Gorman cited the fledgling family office business as one of the reasons the bank grew assets faster than in previous years. “The reality is that rich people get richer faster than less wealthy people,” Gorman said.
As the fortunes of the ultra-rich have grown, those with at least $250 million to invest have turned to the family office model, which gives them direct control of their finances in a lightly regulated vehicle.
Since offices do not have to register with the Securities and Exchange Commission as advisers, estimates vary depending on their number and assets under management. There are at least 10,000 family offices around the world, most of which were created in the last 15 years, according to accounting firm EY.
Morgan Stanley has had more success engaging the new rich on its platform than the old-fashioned families that are already managed. There has been an unprecedented wave of wealth generation over the past decade as start-up founders raise funds in private rounds, sell their businesses or take them public.
“If you look at every IPO in the last 12 to 24 months, you’ll see a manager who now has more money than he ever had, and generally there’s no team in place to handle it,” Finn said. “When it comes to the sixth generation [of wealth]the thing is already handled.”
Andy Saperstein, co-chairman of Morgan Stanley
Source: Morgan Stanley
The bank continues to add features to its family office dashboard, including the ability to hold shares of private companies. Morgan Stanley is also working on a matchmaking platform where start-ups can raise money directly from the bank, tapping into capital from family offices and other high-net-worth clients.
“It’s become a huge source of demand from these families. They want to be shown more and different types of uncorrelated investments,” Finn said.
Although rival US and European banks, including JPMorgan Chase and UBS, have struggled to serve family offices in recent years, Morgan Stanley believes it has a significant head start in creating a fintech-based solution for the family office. group, according to co-chair Andy. Saperstein.
“It would be very difficult for most competitors to try to create something like this,” Saperstein said. “We efficiently provide families with institutional quality services.”