Wednesday, 27 October 2021

Grammig Advisory’s founder: “Next generation family offices more open to cryptocurrencies”

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Interviewed By Emmanuel Daniel

David Grammig, founder and managing director of consultancy firm Grammig Advisory, discussed the growth of family offices in Europe and other parts of the world but warned that due diligence should still be practiced in order to minimise investment fraud

The following is the edited transcript of the interview:

Emmanuel Daniel (ED): Family offices are all the rage at the moment. It's a business, it’s an industry in itself. But there's a layer that sits just one level above family offices and that is the people who bring them together, who network between family offices and create the opportunities. One such person is David Grammig, who is the founder and managing director of his own advisory firm and whose business it is to make opportunities happen between family offices.

How are you configured as a business? How do you work with clients?

David Grammig (DG): I have a non-linear career path. I worked in intelligence, as a financial crime investigator, and eventually was nominated as director for international relations with a single-family office in the Gulf. My job then was to build and maintain networks of peers of single-family offices for the family office that I've worked for. And what I’ve noticed is more and more families within my network were approaching me and asking me for the same sort of support and services that I delivered as an employee to the family office I worked for, because they often struggled to connect to people they were looking for, for a variety of reasons. So eventually, I left the family office, I set up my own firm, Grammig Advisory. What we do until today is we serve mainly single-family offices, but also corporate clients with a specific need to set up ecosystems of single-family offices with which they can connect and present themselves, engage exchange ideas, or do business with.

I lived in Israel, I lived in Turkey and this is from where I fulfilled my role with the single-family office as I was covering mainly Europe and Africa on behalf of the Gulf-based family. Turkey was sort of a hub in between these three regions that I served and when was connected to. I've lived in different places, all of which now serve me in my current role to connect people. First of all, I bring the experience from different sectors that helped me understand different sorts of businesses. And having lived in so many places, obviously helped me also in understanding people and cultures in very different settings. That's one of the struggles, one of the problems family offices face when they want to reach out to their peers in other regions and sometimes, they just don't know how to go about it.

ED: From your sense of the family office industry, what is the top theme that is on top of your mind when you think about this industry, which you are serving at the moment?

An ecosystem of family offices

DG: We see that family offices need to connect and they need to connect more, and they need to connect for a variety of reasons. This is where we help. The range or the backgrounds of family offices that seek our help is as diverse as the range of families you would find out there in real life. You’ve got the single household, you’ve got married couples, families with children, with no children, and just as diverse as families are. This is as diverse as family offices. As a few examples, Israeli families who would like to speak to their counterparts in the Gulf but they're either not allowed to because of the diplomatic rift, or now that they are allowed to but there has never been a relationship, so they don't know who to speak to. We also have family offices from Eastern Europe who are in the first generation where wealth transfer becomes an issue. Think about it, Eastern Europe was communist entirely until 30 years ago. So most of the wealth that is being held today is still first generation. Only now the wealth transfer is taking place. So even in their proximity, they have very few peers to ask on how to best do it. So there is no best practice within the Eastern European family office community. So the motivation for families to take up our services, it's not always investment driven, it's not always looking just for the co-investor. But also, it's often peer-to-peer learning, an exchange of knowledge, of ideas, or simply exploring new geographies where the family doesn't have a foothold.

ED: What is the defining personality of family offices in Europe and how is that different from Israel, or the Middle East in general?

GD: In the Middle East, you will hardly find single family offices. This is still until today, not a notion that is widely spread. In the Middle East you will find family businesses, holdings, conglomerates that are family run, but you don't find that typical, single family office. They almost act as one, but not quite. I don't think that the family office notion is that widely spread and that the family office community is as sophisticated yet. This is something that is changing, obviously, and that is developing in the Middle East. But they're not quite there yet compared to Europe, or the US. in the Middle East, you still have a lot of operational businesses. You have what I would call businessmen and business women who really are hands on, who do business right. But in Europe, you've got more the investor side. So perhaps they sold their business or they have a minority stake in the initial family business. Now they focus on wealth preservation for the next generation, whereas in the Middle East, many are still very much concerned with wealth generation, rather than the precedent.

ED: What is the difference between a high growth market and a wealth preservation market?

Wealth preservation vs. wealth generation

DG: The high growth market is a lot more open to external influence and support advisory. The wealth preservation market in Europe, they're fairly settled right there in their second, third, fourth generation. They're deeply rooted within their communities. They've got their bankers, their team of advisors, they’ve got their family office set up. And they know very well what it is that they're doing. I don't want to say that they're resistant to external advice, but it is probably a lot harder and more difficult to penetrate the family office and get in there and get through them, and maybe change their mindset, their view, and investment strategy as opposed to someone who is newly rich. So if you had a fantastic idea, a business model that took off, whether it is in the digital space, whether over the last 30 years, you set up an incredible real estate empire. So these people, these individuals, they are a lot more open to receive advice and input and be onboarded as clients from consultancy firms, banks, as opposed to those who've been in the business for generations.

ED: Do you get a sense that multifamily offices tend to be more product-centric, rather than “deal” or opportunity-first centric?

DG: Most family offices are not family offices, right. So you have a lot of asset managers, wealth managers that manifests who throw over the multifamily office cape and just disguise themselves as something that they're not. They start by calling themselves family office rather than multifamily office. So that's the first point that's already a little misleading or keeps the third party a little in the dark until they know better. And the purpose of the multifamily office or a family office in general, is multilayered. So we're talking about taxes, we're talking about legal stuff, we're talking about things like the education of the children, perhaps the security, physical security of the wealth owner, we're talking about investment in all aspects, whether it's direct and indirect, whether it's gold, public or private equity. But if you look at the so-called family office, that turns out to be a multifamily office, that then turns out to be an asset manager. What they do is they focus on one asset class, they do public or private equity, or they sell funds, or they've got a couple of funds on their own. But that's about it. This is as much as they do. So should they call themselves family offices? Well, probably not. Do they do it nevertheless? Yes. There are a lot of job descriptions that aren't protected. It's the same with family offices. So you really need to dig deep. You really need to see what is the offering. And do they actually qualify as a family office as per the definition? Most family offices actually are product-centric, because they're not really a family office, they throw over this cape and they try to go down the family office route to sell a product or fund a service.

ED: Do you see any activity by family offices on the new asset classes coming through cryptocurrencies, non-fungible assets, or tokens? What do you see taking place on that front?

DG: I see more interest in that from family offices who generated their wealth in the gig economy. So you've got the young entrepreneurs who founded a startup and then sold it for dozens or hundreds of millions and even set up their family office. So they have already a tech affinity because this is how they generated their wealth in the first place. And it's taken innovation that helped them become rich and they see the future. So let's take a family that made their wealth in food and beverage, or that made their wealth in the manufacturing industry, in the old economy in old Europe, in Germany and in France, you've got a patriarch who is in his 60s or 70s. I don't think that there is a lot of enthusiasm there for crypto, for tokenisation. If the next generation takes over, and you've got someone young, ambitious, with a vision and an understanding of where is the future going? I think then, the seed will fall on more fruitful ground. If you stick to a family office that is brand new and that was built on the basis of money earned in in the new economy and the gig economy, then yes, there is a lot more interest than probably from the old guard.

ED: Are there family offices that run the risk of being misdescribed or misplaced as in terms of its real identity or business model?

Masquerading as family offices

DG: Family office is not a protected term, so anybody can use it. So there are very few, I would say, family offices that aren't really family offices and who use the term family office to mislead others for their own financial benefit. But you know, you've got black sheep in the family office community as you have them in the financial industry, as you have them in any other sector. But this can be prevented by doing proper due diligence by knowing who you're talking to, by falling back on to your own network and checking other negative news. Have there been any sort of negative connotations related, connected to this family? People do fall for scammers. I don't always want to blame the people falling for them. But I think in many cases, this could have been prevented by doing proper due diligence and knowing who you're actually talking to.


Keywords: Family Offices, Generational Wealth, Wealth Preservation, Investment Fraud, Growth
Institutions: Grammig Advisory
Guest: Emmanuel Daniel, David Grammig
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