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Investors are generally diverse, and different people to the investment managers, and for everyone’s peace of mind there are {{strike|rentseekers|agents}} employed make sure things are done properly. Custodians, depositaries, fund administrator types who can supervise [[subscription]]s and [[redemption]]s, manage account movements and calculate [[NAV]]s; all of whom will be distinct from the investment manager and for that matter the fund directors themselves, each of whom will likely have compliance and operations teams, to ensure everything is done as it is meant to be, and that the auditor can easily sign off the accounts. | Investors are generally diverse, and different people to the investment managers, and for everyone’s peace of mind there are {{strike|rentseekers|agents}} employed make sure things are done properly. Custodians, depositaries, fund administrator types who can supervise [[subscription]]s and [[redemption]]s, manage account movements and calculate [[NAV]]s; all of whom will be distinct from the investment manager and for that matter the fund directors themselves, each of whom will likely have compliance and operations teams, to ensure everything is done as it is meant to be, and that the auditor can easily sign off the accounts. | ||
A family office is a [[Special purpose vehicle|vehicle]] established by a [[ultra high net worth]] investor to manage her own, her family’s and on occasion her friends’ money. How the other half lives, huh? | A family office is a [[Special purpose vehicle|vehicle]] established by a [[ultra high net worth]] investor to manage her own, her family’s and on occasion her friends’ unfathomally huge stacks of money. How the other half lives, huh? | ||
These people move in circles mere mortals cannot imagine: they have enough dough to employ their own financial wizards to work it to their great advantage. Sure enough, like gulls around a seaside chippie, the [[rentsmith]]s soon arrive: an office manager, some [[operations]] people, a [[general counsel]], and before you know it they are have a full-scale para-military organisation. | |||
Now blood is thicker than water, and everything, but | But it isn’t quite the ''same,'' if it is all in the family: these gatekeeper roles feel a bit plastic; a little play-people: if anything really goes ''[[tetas arriba]]'', there aren’t any outside investors who might complain, just the boss. That your GFO has its own GC and an operations team with their own Bloomberg terminal is a bit of a status-signal; a sign that you’re properly in the big league. So, you might see some of these roles doubling up: the same guy who invests 50% of the fund is also director of the fund company, and [[CIO]] of the [[investment manager]], and his playboy son who did a semester of business law while at film school gets to be GC. | ||
I am making all of this up, needless to say. But you get the picture. It’s Doctors & Nurses stuff for the oligarch set. | |||
Now sure, blood is thicker than water, and everything, but that only takes you so far, and when rich families do fall out, it can be spicy. This can put bona fide external counterparties in a awkward position: They may be managing a long-dated, levered $500m portfolio only to discover that Lorenzo is no longer talking to Giuliano, young Bernardo the GC hasn’t been seen since embarking on a 72-hour coke-filled bender in Casablanca three weeks ago, their main position is tanking, you can’t get any instructions, and while common sense would recommend that, for the purpose of not losing even more money they ''should'' talk to each other to agree what to do, they won’t. | |||
This leaves the poor dealer in an invidious position. To whom should it listen? What can it do? The cold logic of the situation says, “close the relationship out” — this is prudent, but may upset the seventh wealthiest man in Florence, and more importantly, his [[Senior relationship management|senior relationship manager]] in the Wealth Management division. | |||
===The Voldemort factor=== | ===The Voldemort factor=== | ||
Still, internecine squabbles don’t happen ''that'' often, and as long as they don’t, at one level, GFOs are harmless, dull and dreary: well, not ''dreary'', exactly — it’s hard not to be a ''bit'' glamorous when you have a superyacht in Monte Carlo and your own Island in the Caribbean — but for a [[prime broker]] these are like [[hedge fund]]s, only smaller — ''usually'' smaller; not always — and with no outside investors making them all the more harmless: no [[ERISA]] money, no — well, limited — [[AML]] worries, no sudden [[NAV]] drops on account of precipitate withdrawals from dissatisfied investors. Just steady sailing from a super wealthy fellow running her own money, and therefore well-incentivised not to throw it around. | Still, internecine squabbles don’t happen ''that'' often, and as long as they don’t, at one level, GFOs are harmless, dull and dreary: well, not ''dreary'', exactly — it’s hard not to be a ''bit'' glamorous when you have a superyacht in Monte Carlo and your own Island in the Caribbean — but for a [[prime broker]] these are like [[hedge fund]]s, only smaller — ''usually'' smaller; not always — and with no outside investors making them all the more harmless: no [[ERISA]] money, no — well, limited — [[AML]] worries, no sudden [[NAV]] drops on account of precipitate withdrawals from dissatisfied investors. Just steady sailing from a super wealthy fellow running her own money, and therefore well-incentivised not to throw it around. | ||
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There was a further risk, not adverted to in the {{CS report}} but idly speculated upon in the financial press by those with a taste for schadenfreude: ''did'' [[TCWSNBN]] lose all its money, or did it somehow manage to squirrel some of it away? | There was a further risk, not adverted to in the {{CS report}} but idly speculated upon in the financial press by those with a taste for schadenfreude: ''did'' [[TCWSNBN]] lose all its money, or did it somehow manage to squirrel some of it away? | ||
We know the family office withdrew all its [[Margin excess|excess margin]] from a number of brokers in the days leading up to the catastrophe — it is presumed, to meet [[margin call]]<nowiki/>s coming in thick and fast from ''other'' [[Broker|brokers]]. But every broker has an imperfect, asymmetrical view of the customer’s behaviour: it sees money going out the door; it does not see ''to whom''. | We know the family office withdrew all its [[Margin excess|excess margin]] from a number of brokers in the days leading up to the catastrophe — it is presumed, to meet [[margin call]]<nowiki/>s coming in thick and fast from ''other'' [[Broker|brokers]]. But every broker has an imperfect, asymmetrical view of the customer’s behaviour: it sees money going out the door; it does not see ''to whom''. | ||
Now it is one thing to rob Peter to pay Paul, as the saying has it. But to rob Peter ''and'' Paul and then ''kick the balance out to the sole shareholder in a [[dividend]]''... would that be brass of a whole different ball game, wouldn’t it? To be clear: the JC has no information about this at all: the suggestion, made elsewhere in the press, is wild speculation; it seems unlikely and would surely fall foul of [[Voidable preference|voidable preferences]] in most places, but it remains an uncomfortable technicality of [[corporate veil]]: the family office and its owner are different, legally distinct persons. At first blush, the [[prime broker]]’s straightforward contractual claim is limited to the net assets of the corporate entity to which it is contracted. | Now it is one thing to rob Peter to pay Paul, as the saying has it. But to rob Peter ''and'' Paul and then ''kick the balance out to the sole shareholder in a [[dividend]]''... would that be brass of a whole different ball game, wouldn’t it? To be clear: the JC has no information about this at all: the suggestion, made elsewhere in the press, is wild speculation; it seems unlikely and would surely fall foul of [[Voidable preference|voidable preferences]] in most places, but it remains an uncomfortable technicality of [[corporate veil]]: the family office and its owner are different, legally distinct persons. At first blush, the [[prime broker]]’s straightforward contractual claim is limited to the net assets of the corporate entity to which it is contracted. | ||