Customizing technology, reporting, and structures for family offices

Speaker A: This is family Office intel at Dentons, the place where we discuss developments currently shaping the industry and actual ideas for advisors, executives and families. We share uncommon knowledge from insiders for the modern family office. I'm Edward Marshall, global head of family Office here at the firm. The following is a conversation with Sean Parkin. Sean's got over 20 years of experience in the financial services space and he is the founder and principal consultant at Haul Road Investments. Uh, before he started Haul Road, Sean spent seven years at the Boston uh based asset manager, State Street Global Advisors. And uh, at State street he had numerous roles including uh, head of uh, Australian head of ETFs, uh and he was a vice president within the institutional client group, uh, working with insurance companies, endowments and family offices. He's also had roles in the capital market space uh, with lonesec and a couple other players including JP Morgan in London. He also had a very interesting Mongolian detour uh as, as part of his professional experience that we'll be sure to talk about today as well. So thanks you for coming on Sean.

Speaker B: Pleasure. Thanks Edward.

Speaker A: Uh, so let's, let's kick off with uh, a little bit of background of how you got into the family office space itself.

Speaker B: Sure. So basically as it says in the bio, I was at State Street Advisors and a, um, part of the, when I was on the exchange rated fund side in particular on the institutional relationships, um, part of that remit was with family officers. So they actually used um, exchange traded funds, uh, mostly our US and European funds, uh for strategic asset allocation, tactical ass allocation, things like that, um, being able to implement their, you know, their macro and um, tactical theories with these and using a lever like that. So I got talking uh, to some family officers through that and that was about, oh geez, 10, 11 years ago, um, I was with State street as it says for seven years and then um, obviously when I, when I started Hall Road, and we'll probably get to that, but it was a, it was a pretty easy sort of decision to maintain you know, family offices as the preferred uh, client base, to be honest.

Speaker A: Excellent. So you also write a weekly newsletter and you've been doing that for quite a while. What, what inspired you to get started with that newsletter?

Speaker B: Well, um, when I left State street, um, I think one of the, one of the things I always loved doing was writing. Um, and one of the things that I, I found in my writing was that um, having an audience is always better. So I use it as a connecting tool really to be honest, when, when I left the firm just to remain in contact with ex clients, current clients and contacts. And my first job, um, in finance was uh, sort of writing the overnight market reports for the stockbrokers that I worked for. And so that never really left me. And through my whole career I really liked writing and finding sort of the more um, idiosyncratic components of the market and um, being able to share that with people. So I think the newsletter was just really, to be honest, was maybe 10 people were on it and that was really just connecting with uh, the client base that I'd had before. And it's sort of growing from there. So it's been, it's been very. I mean it's a pleasure to write and I'm just happy that people are, um, finding it of value, to be honest.

Speaker A: So the audience is now global. But you're based, uh, in Australia, correct?

Speaker B: That's correct. I mean, uh, on the west coast of Australia in the world's most isolated capital city, uh, Perth. So it's where I grew up when I was a kid before I moved to. I left in 2000 and then came, uh, back 17 and a half years later. And my wife's from Fremantle and we met in London. But yeah, so back in Perth now, which has been great.

Speaker A: Fantastic. So you also talk about technology for family offices and sort of the struggles, uh, that both single family offices and multifamily offices face in this space. Why is it so hard for people to get this piece of the puzzle?

Speaker B: Right? Yeah, I mean it's, it's one. So when, I mean, it's probably worth, you know, talking around sort of how Paul Road, the business that I run, sort of came to be. And to be honest, that was. It was born from frustration from client, from family office that I spoke to. Right. So when building a business and, and trying to find out where you fit within, you know, the financial services ecosystem, uh, a big part of that, well, for me anyway, was finding where both the client pain points and the demand intersects with my interest and um, the things that I find enjoyable to work with. Right. So I spoke to a lot of families when I left, um, State street and it was really around sort of what the main pain points were. And to a single family, I think most of them said, well, really if someone could help us with the reporting piece, um, because they found that going from as, you know, most of them sit on Excel, you know, where they have the liquidity event they have, uh, um, you know, they start investing and things like that. And because there's so many counterparties and so many idiosyncratic sort of data sets that come in a lot of the time the fallback is into, onto an Excel and you um, it's very hyper customizable, it's inexpensive, people know how to use it relatively easily. Um, but they get to a point or they start to see a point where that uh, is no longer viable from a risk perspective, from a analytics perspective and things like that. So. But there's no real, and in the experience that I've had anyway, there's no real counterparty that's willing to take that on in, in whole, in you know, basically as a, as a whole service. Um, you know family offices kind of sit within that gray area between retail and institution in terms of size. So they are large in asset and asset owners but probably not large enough a lot of the time for a custodial bank to take them on as a single client like they would with a pension fund or something like that. So you have this conundrum where you've got institutional like investments and counterparties, um, but you don't have the ability or the scale or the willingness to spend that money that you would as an institutional asset owner. So that's the conundrum, um, pretty much across the board. So we look at sort of three main pain points which tends to be aggregation, aggregation of data sets, aggregation of data across multiple counterparties, the uh, automation of that data and then sort of the output of the, the analytics and reporting pace. So you know, as much as we say, you know, you met one family office, you met one family office as you probably heard ad nauseam. But there is some homogeneity in family office space which is there seems to be um, an issue, well not an issue, a challenge with curating that infrastructure. There's no sort of silver bullet unless you do pay institutional type rates.

Speaker A: But why do you think that silver bullet doesn't exist other than the cost factor? Is there other factors to consider around um, customization and things that are idiosyncratic to families themselves?

Speaker B: Yeah, I mean it's, they are, they are hyper customized, very unique. Um, but I think if you look at the counterparties that might take on a similar style client, um, the, the potentially the revenue isn't there. Right. So if you look at the counterpart, you know, you look at the platforms and the technology that has grown in particular in Australia and, and things like that which is focused on the advisor space, you know, that mass, you know, you've got relatively um, uniform uh, sort of counterparty uh issues, things like You've got single stock, you've got exchange rated funds. So a lot of that is exchange traded or easy to track or you've got, you know, relatively um, vanilla structures of managed funds or commingled trusts and things like that. You rarely have to go outside of those two. So they can scale it and they can m. The revenue, um, opportunity is in the scale because they all kind of look the same. There's not a lot of outside of the box, there's not a lot of non custodial assets and things like that. So for a lot of people that are spending money on technology, um, the family office space is either hard to reach, hard to access or it's so customized and so and non, non, um, custodial and therefore hard to get, you know, everything in place that it potentially isn't that attractive as a revenue piece. Um, so I think we see that and like I said, they sort of sit in that middle part where they're not quite that big institutional level, but they're certainly not retail. So it's, it's kind of a hard cohort to, to segment m, if that makes sense.

Speaker A: It's like the worst kind of Goldilocks.

Speaker B: Yeah. Yeah, exactly.

Speaker A: So when a family is going, starting out with that spreadsheet and kind of putting a MacGyver approach to how they're, they're doing their reporting, how do they make that jump in to something that you think is, and you've seen with um, clients that you've worked with that is a little bit more robust? What are some of the best practices on the tech and infrastructure side of things?

Speaker B: Well, I think I like to start with um, the priorities if that m, you know, finding, you know, when I'm engaged by family office in terms of sort of figuring out or helping them curate that infrastructure, a lot of the time we start with what's the priorities that they're, that they've got as an office. And a lot of that is what we're looking for. This particular reporting output, we want to get off Excel. We want to reduce some of the key person risk in terms of, you know, some one person might manage the, the single sheets or the, you know, have access to or know the, you know, how to do the pivot tables and things like that. Um, so a lot of the time we start with, well let's, let's look to get off Excel and this, you know, for a lot of people that's, that's not um, that attractive because you know, a lot of people like you, so you probably see, you know, I mean depending on who you talk to, there are potentially hundreds of billions of dollars of family office money run off Excel. And the reason is, is because it is very, very customizable and it gets the outputs as long as you put the effort in and you can manage it. So my best practice generally is to try to get off Excel and into a cloud based platform of some description. Um, we have one in Australia and New Zealand called Share Site, which for a lot of people is ah, um, a retail stock and managed funds platform. But there is a significant amount of family offices that use it because it creates a sort of first step outside of Excel onto a cloud based platform that you've got some automation, you know, the public market automation. Um, there's some straight through processing that you don't have to manually put together. You can give permissions, you can give some basic reporting. You know there's, there's quite, and it's very customizable just like Excel. So we have people that use it and then potentially have a um, more proprietary um, performance analytics over the top of it. But it's really what we're trying to do is get onto that because the next iteration of that because they, well you know this is fine but what we're looking for now is more around the analytics piece and we're looking for better um, reporting and things like that. It's a really good step to go from there to a uh, more sophisticated platform because all the data is in one place now, right? It's all, you know, you've got the bat, you don't have that backfill issue, you've got a significant amount of transactions that have been inputted. Um, you can call it what you like. So from the new platform the new counterparty might be able to match it in terms of the white, the nomenclature of your asset classes and things like that. So what we try to do is say well if you're not looking to do the big spend and the big project and things like that, please look at something that's going to get you out of Excel and onto something that's cloud based. At least then you can make a decision that's um, up the sophistication level and the switching costs won't be as high. But then you can have something that's aggregated and you remove some of the data risk perspective. So that, that tends to be where we start and then we have conversations around what, what other aspects that you need looking after.

Speaker A: Uh, what about the non financial aspects of technology that families require things to help them around with operations, organizing everything, uh, around the family and what their actual goals are. Have you seen any good platforms or best practices around leveraging technology to help them just run the business of the family office?

Speaker B: Yeah, it's, I mean to be honest, I try to stick to the investment piece as much as possible. Just that because it's. But like nothing happens in a vacuum, right? So um, if you think about the investment piece, it is very heavily connected to the finance piece, right? And they go hand in hand. They might have different outputs from a reporting perspective, but the finance piece. So the finance office or the CFO or even um, the counterparty that they use for that has to be in conjunction with the, the investment office infrastructure. So from the reporting side, um, you know, the other part of what you're talking about I guess is that um, whole of office operational piece. And that's when you get into things that are probably outside of my bail to be honest. But I have seen, you know, some very good um, communication tools, you know, because I think for me anyway, and the feedback from some clients has been, well, what the. One of the purposes of setting up the family office structure is to have everyone in one place, have everyone come to a central area and be able to see each other and things like that. Um, and having that as a central connectivity for communication and uh, a repository for data across all aspects of the family office. So I think to be honest, one of the biggest parts is going to be things like document storage and communication tools within that. Um, but then because you've got the executives and you've got, you know, people that sit outside but, or outside the tent technically, but uh, are still very much a part of the operations of that office, um, that need to be able to be communicable. And I think over Covid and things like that, I think what we did see in particular around the family office side was being able to be external and, but maintaining those communication lines. So I think if anything, um, what I found is that having secure uh, data storage and document storage across not just the investment piece, but across the whole thing, but also very good communication tools, um, have been invaluable I think. Um, so I think, you know, if you look at the standard sort of communication tools out there, but uh, to be honest, as long as it works, it's, it's going to be a lot better than having nothing or it's going to be emails or trying to catch someone on the phone and things like that. So I think in My experience that's probably been on the technology side where we've seen a big uplift in the last couple of years.

Speaker A: Any differences or things to note in the multifamily office space on the tech side?

Speaker B: Yeah, I mean multifamily office and I guess it's a, I mean for me it's kind of a naming convention that gets used a lot. Um, and I have my own definition if it's, if it's helpful which is, you know there's, there's a big difference I think between a multifamily office in my experience and a wealth manager. Right. Uh, and so I think if you're a, well a multifamily office for me and this, this is just my, the way that I view it, people can have other opinions. But um, if you're managing the assets of more than one, but the sole purpose of that multifamily office is to manage the assets, not to mat, not to get new clients, not to produce product, not to get um, fees for service and things like that. It's just really around sort of aggregating um, more than one family, um, for the sole purpose of keeping it within one space. Then that to me is a multi family office. If you're going into that sort of revenue based commissions and um, managed expense ratios and building product and looking to gather more and more clients then to me that's more of a wealth management model. Um, even though you might have a restricted amount of or very small cap of clients, it's still sort of more of on the wealth management side. So from the technology perspective because it kind of is bifurcated between those two. Right. So if you're, you've got two or three families and kind of see that in the founder family office, um, mentality which is maybe someone has a group of people of had an exit at the same time and they'd like to keep the assets together. They tend to use infrastructure that is um, a little bit more uh, around sort of the number of clients that they have. Right. So you've had three or four families, you might have three or four people within each of those families. So you're getting a relatively large number. So I think being able to have scaled reporting or reporting that can go at multiple entity levels and really start to unpack that nesting component around who owns what is really, really important. Um, and the wealth manager model I think is the same thing. Right. So you're seeing those platforms in particular in this, in the US and we, and you know, whole road brings them into the, into Australia as well, which is that very hyper customizable, um, wysiwyg. So what you see is what you get, um, platform where they can make views that are very specific to each person. So I think single family office is less of a use case for that sometimes if you're only looking for one or two reports. But if you've got 15, 20 people, um, you do need that flexibility on customization of reports. And I think most of the time it's just around trying to get good data, um, relevant data for people and being able to I guess delineate between each one of those entities or each one of those family members. So I think that tends to be the difference between sort of the single family office which might have a fewer amount of people and multifamily office or wealth management where you potentially have significantly more.

Speaker A: Let's zoom out of technology. You're monitoring a lot of different family office trends across different geographies and what people are doing there. What are you seeing that's compelling? Um, that's now that we're kind of coming out of the pandemic and other areas and trends in the family office space, uh, from your vantage?

Speaker B: Um, I think. Well we're seeing, I mean and I can speak to sort of my client base in Australia in particular which is um, we're seeing a lot more people start family offices, you know, build out a um, or they're starting to use the terminology a bit more. I mean I don't know you but when I was first starting in this space you kind of had to explain what a family office was each time. Um, and I think the technology cost, but also a lot of the other costs associated with running what is ostensibly a multi asset class portfolio management business, um, are coming down. Um, but we're also starting to see, people see it from a career perspective as being attractive. Right. So you're starting to see almost a. Ah. And, and again this is from the investment side in particular which is we're starting to see um, you know, institutional grade or institutional like um, investment people moving into the family office space where um, previously you know it was seen less as an attractive proposition from a career perspective because you know there's, it's not a corporate year, you know, you're not, you're not got that big long term progression. You kind of, you're embedded pretty quickly. Um, so we are starting to see it as a bit more attractive. Um, I think, I mean compared to the corporate side, um, the work from home is less obvious. Like, I think we're starting to see a little bit more in terms of having people come into the office, uh, because it is a very flat structure. There's only a few people. You know, it's, um, you know, you do like to see the, and the principals do like to see people. You know, it's. I don't think it's as much of an uh, a work from home kind of environment. And you know, I'm not sure if this is sort of what you're looking for, but I mean, we're starting to see a little bit more on the, on the investment side, in particular on the private market alternative side. But also, you know, there is an element of what that next generation is going to look for in terms of, uh, from the investment also with the operations and that can, you know, through the lens of impact, environmental, social and governance factors and philanthropy. So it's, that's a bit of a mishmash of trends, I guess. But I think what we're starting to see is that, you know, the family office space is becoming better known as a terminology. And it's more attractive, and it's more attractive not only for people that are looking to work in that space, but also more attractive for people that are looking to set up these structures for specific reasons. You know, um, for all the things that people set up a family office for, it's becoming a little bit more, um, a little bit more prevalent, I think.

Speaker A: And sometimes I, instead of calling it trends, which is a popular phrase, I like to call it themes because some of these are going to be ever present, right? They're going to be, uh, perennial issues and things that families need to think about there. But I think you mentioned a couple of the most prominent ones that are there. But you also mentioned this, this point of starting a family office. In your experience, where what's that breaking point of when a, uh, family should consider starting their own family office?

Speaker B: Well, I mean there's, there's kind of, I mean you can kind of take it two ways, right? You can take it from an asset size perspective, which I think a lot of people do, um, which is to say, oh, you know, and you've probably heard the numbers, which is, you know, over $250 million or something like that. That's where you go, well, this, be there is. There's a case for the costs of running it and being able to get access as a, as a corporate structure is going to be beneficial, um, to you know, start a family office. Um, but again, it's it's, it really is. Sometimes it's like, I don't think people should. I think that, you know, there's. If you're looking to, if you can, um, offload a lot of the. And this is more on the investment side again, if you can offload that to one counterparty and have them look after it, and then you can look after the things, or you can enjoy the things that wealth brings and your interests lie, then I don't know if it's worth, um, starting a family office. There has to be a reason. And the reasons tend to be, um, very idiosyncratic. Some people, like I said, they start a family office with a, uh, smaller asset size because they want complete agency over the way it's run. They want to run it as a corporate structure, not as an individual. They want to include the family in, um, might be that they have a significant amount of assets and they want to internalize some of the operational and investment piece. And um, they have a diversified, um, asset class or investments that need running under a corporate banner. Um, sometimes it's to try and retain staff. Um, sometimes you see people going, well, I don't want to work for an individual, but I will work within a corporate structure because of the protections and the normal corporate sort of components that go with it. Um, so I think that tends to be where if someone wants those things, like if they want someone to work for them and only them and have complete control and it's just their investments and things like that, then I think that's a very good case for it, regardless of asset size. I mean, obviously within reason. Um, but there's also a good case for not having a family office because it's, you know, there's. You have to run it, you have to staff it, you have to have the legal and the corporate and the tax and all those sorts of things in place. And that can be expensive. It has to be, um, there has to be a reason for it. So I think it's. There's no real one answer. Uh, um, most people I talk to that have started a family office or some of them have said, well, we were just told to like that was just the way that you've got over a certain asset size. You need to, you set up a family office. And some were very specifically looking to open a family office because they had very specific reasons to, um, all those ones that I sort of mentioned. But yeah, it is, it is very, um, individually driven. And I don't think anyone's got the exact right answer And I think that's why we sort of lean on asset size as sort of a determinant. Uh, but yeah, it's um, it really is up to the uh, the individual family or the individual themselves.

Speaker A: So Mongolia, you had you mentioned the Mongolian detour. Tell us a little bit about it.

Speaker B: Oh, I um, I'm in Western Australia so I grew up in Perth and Western Australia is a big mining resources uh town and state. And so on my gap year after high school I did uh, I worked on a mine site up in the middle of Western Australia in a place called Meekathara on a, in a laboratory which is, it sounds technical but really it's a big shed in the middle of the desert and you sort of figure out how much gold is within each um, you know, within drill, um, within the drilling sort of grade control and expiration. So I did that for a year and then when I was. I was a stockbroker in Sydney and I was intending to go to London. Uh this is quite significant amount of time afterwards but I wanted to go to London and I think the Aussie dollar at the time was about 37 pence. And so my father was um, involved in mining, steel and uh, a company called, he was involved um, in the company called, called um, SGS or Scientific Services and they needed uh, someone to help out on a, what they call a chemist style cover um, in um, in Mongolia and I. And he said we don't want to do that because you can get some money before you go to London. And I said that sounds fantastic, I'll do that. So went via Beijing and ended up in Ulaanbaata and ended up in the South Gobi Desert in a place called Turquoise Hill which is um, Oyotogoi, which I think is Rio Tinto now. And I was there for six months in the dead of winter in Mongolia. So spent half the time in Oyo Togoy and half the time in Ulaanbaata. Um, and they're you know, hanging out at the British Consulate and generally trying to stay out of trouble. Yeah, it was, it was fantastic. It was freezing cold. It was like minus 35 degrees Celsius. So it was um, probably. And I'd never seen snow before in my life. So before I went to London. So that, that was my first experience with, with snow as well. So yeah it was, it was a fantastic experience. Mongolian people were amazing and drank fermented horses milk and significant amount of vodka and uh, lived in a ger or what you'd call a yurt for A while as well.

Speaker A: Minus your Mongolian lessons that you've learned. If, um, you had to think back at your career, both either the professional, personal side, what's something that you wish you had known back then that you know quite well today?

Speaker B: I'll tell you what. I think some of the work that I was doing or jobs that I had, which at the time I thought weren't very, you know, interesting and you know, what I thought was supposed to be high finance and you know, I had these visions of Wall street and things like that. Um, but I ended up doing work around sort of middle and back office and some of the, you know, understanding the piping and, and not necessarily all the trading and all that, you know, that really interesting stuff around, uh, buying and selling. Um, I think if I'd known that I, what I'm doing now and really where the pain points for a lot of clients are, I think maybe taking a little bit more time in that middle office, back office function just to just, uh, increase my knowledge base quicker would have been something that I would look to do. And you know, like, like most people, when you sort of reach this part of your career, you kind of look at how all these little things sort of add up and it just gets, it's having that diversification just purely because I traveled and I probably took jobs that I had to during, you know, bear markets and things like that, they all sort of accumulate into, into a job now that I really enjoy. So I, I don't know if I'd change anything or look back on anything, but I think it would be nice to know that the jobs that I was doing at the time weren't just placeholders. They were actually very, very good learning experiences. So that's been good.

Speaker A: Well, thank you, Sean. Thanks for your time today. And if people want to get a hold of you, what's the best way to do it?

Speaker B: Uh, LinkedIn probably, um, I'm very active on LinkedIn, so under the whole road investments and Sean Parkin is, uh, I'm on LinkedIn. Um, like you said, if you're looking to get the newsletter, it's a family office newsletter sent every two weeks. It's just really, it's global now. It's um, a lot of people across the world. So it's, it's not just Australian family office, it's, it's the things that we talked about tonight in terms of trends and things like that. So, um, that's always a good way to connect with me is to subscribe to the newsletter and you'll receive it every two weeks. But yeah, look out for me on LinkedIn as well and more than happy to, to chat with anyone around the family office space in particular and um, infrastructure and technology and all the pain points that we, we saw that we, we see there and, and continue to, to try and work and uh, fix those challenges for families and family offices.

Speaker A: Great. Yeah, it's a, it's a great newsletter and I'd recommend anybody to, to sign up, uh, to sign up for it. So. Well, thanks again Sean and thanks to all of you for listening in today. If you'd like to get in touch with Sean or if you have any questions, do send us an email to dentons.com or reach out directly to him through his LinkedIn if you like. If you enjoyed today's conversation, are so inclined subscribe to our channel, review us on Apple Podcasts, follow us on Spotify, or keep in touch with us wherever you prefer to listen to podcasts. And as always, sharing this episode is very much appreciated. Probably the best way that you could show your support to sign up for our newsletters and learn more about our solutions and research. And if you have office place, please do check out our website. That's dentons.com forward/family office. That's it. Bye everyone.