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{{a|pb|{{image|Synthetic equity swap|png|}}}}Another one of those things, like [[LIBOR]] and [[supply chain financing]] that seems so ordinary, unfussy, sensible and harmless; that, in its way, points up the holy terror of [[non-linear]] interactions in financial markets. | {{a|pb|{{image|Synthetic equity swap|png|}}}}Another one of those things, like [[LIBOR]] and [[supply chain financing]] that seems so ordinary, unfussy, sensible and harmless; that, in its way, points up the holy terror of [[non-linear]] interactions in financial markets. | ||
=== Like hedge funds, but — === | === Like hedge funds, but — === | ||
Normal investment | Normal [[investment fund]]<nowiki/>s — even [[hedge fund]]s — are somewhat arm’s length: there are checks, balances, and third parties involved with grave responsibilities, large sums of money and so on, and if anyone is cavalier things — and regulators — can get ugly, fast. | ||
Financial services regulators care about the fragile interests of the poor, defenceless super-rich; they presume that grizzled old [[broker-dealer]]s who service those needs can look after themselves. [[Archegos|This has not always proven to the be the case]], but still. | |||
Investors are generally diverse, and different people to the [[Manager|investment manager]]<nowiki/>s, and for everyone’s peace of mind there are {{strike|rentseekers|agents}} employed make sure things are done properly. Custodians, depositaries, fund administrators supervise [[subscription]]s and [[redemption]]s, manage account movements and calculate [[NAV]]s; all are distinct from the investment manager and each is likely to have its own compliance and operations teams. These agents ensure everything is done as it is meant to be, and that the auditor can easily sign off the accounts. | |||
Because there are no third party investors, a family office is different. Is a [[Special purpose vehicle|vehicle]] established by an [[ultra high net worth]] investor to manage her own, her family’s and, on occasion, her friends’ unfathomably 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. | 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. | ||
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 | 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 a GFO has its own GC, an operations team and a Bloomberg terminal is a bit of a status-signal; a sign that it’s 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. | I am making all of this up, needless to say. But you get the picture. It’s Doctors & Nurses stuff for the oligarch set. | ||
===When wealthy families attack ... each other=== | ===When wealthy families attack ... each other=== | ||
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: | 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-fuelled 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 their poor [[broker]] 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 | This leaves their poor [[broker]] 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 private 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. | ||