00:00So clearly we had some concern from Jamie Dimon yesterday around private credit and we'll get to that conversation I'm sure.
00:06But just big picture, you've been surveying these family offices, asking them a lot of questions about where they're positioned and how.
00:13They're building credit lines earlier than they might in other cycles we've seen.
00:17What does that tell us about where their head's at, these family offices right now?
00:22I think that tells us two things. Firstly, they are preparing to be able to invest actively and quickly if they need to.
00:28Right. That's not a new phenomenon. And typically, family offices have used investment leverage on financial securities for many generations.
00:37But secondarily, they're really getting into understanding the debt capacity of their liquid assets.
00:43And they're doing that to prepare with more timeliness for bigger checks that they might need to write and rebalancing of their risk across their portfolios.
00:53And that preparedness is extremely important for illiquid asset financing because it just frankly takes longer to set up.
01:01Yes. So, yes, your mention of illiquid assets then takes me on to the private credit conversation.
01:06So these are family offices that have more illiquid portfolios than they used to.
01:10And that's partly because they're invested in more private market stuff of varying natures.
01:15Is that a concern to any of them or any of them worried about the fact that they've got less liquid portfolios these days?
01:22Yeah, I think that's a good question. So in terms of when we talk about private markets, we think a lot about private equity, private credit and allocations through historical funded investments that have been made.
01:32But it's much broader than that. But in a in a family offices portfolio, you'll typically find lifestyle assets.
01:38So potentially yachts, aircraft, art portfolios. But also, you know, one asset class, which has been quite negatively correlated to other asset classes has been sports teams.
01:49And frankly, as family offices have been allocated more and more, all those investments, frankly, have become bigger and bigger.
01:55That's, you know, as a result, become a bigger part naturally of people's portfolios.
01:59Right. It sounds like this sounds like all the alternative investing segments we used to run on Fridays.
02:03It's wine, yachts, football teams. Yeah, the wine market's been an interesting one over the last couple of years as the Chinese have backed down.
02:11What does dislocation mean to these people? What does it look like?
02:14Just kind of give me a sense of kind of does it mean different things to them than it means maybe to the rest of the financial market?
02:21So I think dislocation certainly means opportunity in certain segments.
02:25But it ultimately comes down to how level the client is going into this type of cycle.
02:29And if you look at the pressure, you say type of cycle. When you say type of cycle, what do you mean?
02:33Yeah, help us understand. No, sure.
02:35So look, I think family offices, and you'd have seen this in the results of our survey and the 209 family offices that we spoke to,
02:42over 60 percent of them hold significant real estate assets.
02:45Right. And if you look at, for example, U.S. office, U.S. office peaked the trough from early 2022 to where to about six months from before today,
02:55is down 42 percent on average. So, you know, you see a lot of family offices needing to reposition their portfolio.
03:02But opportunity then exists to potentially allocate more to some of those asset classes where they really understand them very well.
03:09So, again, U.S. office, we see a lot of clients now acquiring, especially in New York and Manhattan, where there's real opportunity to.
03:18So which assets are at cycle lows right now that they're interested in?
03:22Yeah. So, you know, to my mind, I mean, it's real estate in the U.S.
03:27I think it's office in London. I mean, when I say real cycle lows, I'd say we're probably three to six months off the real cycle lows,
03:34which is traditionally a time that family offices will come in because they're never quite there when the private equity is there.
03:41Yeah. There'll typically be a small lag. Right.
03:43But now there's absolutely opportunity. I think then when it comes to public markets, you know, we're seeing a return to the carry trade.
03:50So the carry trade has been quite quiet in terms of leveraging CLNs, leveraging fixed income instruments, a little bit more basis.
03:58And frankly, lower funding costs for banks means that that trade is coming back.
04:02Just going back to these war chests of extra liquidity that have been building up.
04:06How does that strategy change if and when the Fed cuts rates?
04:10Yeah. So, look, I think how does that strategy change if they if they cut rates is only going to encourage people to deploy it?
04:19And frankly, people's return hurdles are going to drop a little, frankly, because the cost of leverage is going to come down.
04:24So, you know, what we've seen across a number of clients is is them getting ready, setting up quite significant lines.
04:34But we are beginning to see people deploy and maybe maybe they're doing it in a way where with equity markets,
04:40they're not necessarily going in straight cash equity.
04:42They're selling puts despite very limited, limited value over the last quarter.
04:46They're still selling some puts just to make sure they're coming in maybe 10, 5, 10, 15 percent lower, if possible, versus where the market is.
04:55So they're preparing for volatility. Are you anticipating volatility?
04:59I think in this environment, I anticipate volatility.
05:04I mean, even I look at the article that was published last night by yourselves, where you look at the retail sector within Europe.
05:11A number of our clients, of course, 65 percent of our respondents here were Eurozone based.
05:18A number of our clients were operating businesses, a number of which are exposed to consumer goods.
05:23And of course, with margin pressure, with tariff pressure, that only means that people are going to need to tap other lines of credit to support those business potentially or go as far as raising other equity.
05:36So leverage across a client's full balance sheet helps them, you know, basically maintain also their operating assets with not too much leverage, potentially operating level.
05:47And this is a group of investors that are really quite long term.
05:51Very much so.
05:52It's like how the Pope thinks in centuries.
05:55So, I mean, does that that they're less bothered by the daily headlines around tariffs, threats and all the rest?
06:05Is that the message you get when you speak to them as well?
06:08I think they must take account of whether that changes the long term direction.
06:12Yeah. So investors ultimately like our family office is the decision maker, the UBO.
06:18There is no investor behind him.
06:20He's the source of capital, the source of wealth.
06:22And he's the decision maker, which makes his decision making process quite different often to that of a private equity fund.
06:28There's no need to return capital if he doesn't want to.
06:31So, I mean, if you look at a great example is UK real estate.
06:35Right. So whilst we see a reduction in the amount of transactions that are happening in the resi space,
06:39and we are obviously very publicly seeing a number of ultra high net worths leave the UK, they're not selling assets.
06:45So a political cycle might last five years, maybe even 10 years, but people aren't necessarily selling assets.
06:52And that's because their view on duration is much, much longer.
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