EUROZONE: The billionaire club

A statistic was published last month that made me lose focus for a while on my not-so-spectacularly-remunerated job. That statistic was 1,226 – the number of people to make the cut in Forbes’ annual report, “The World’s Billionaires.” That number is an all-time high, having grown from just 140 when the magazine started the ranking some 25 years ago.

What are we to make of this? If you are anything like me, the obvious conclusion is that the world is patently unfair. Nevertheless, curiosity got the better of me, so I started to read the list – but backwards.
Avoiding Carlos Slim Helu at Number 1, Bill Gates at 2 and Warren Buffet at 3, I looked up the other end of the ranking to discover one can make a fortune from such innocuous businesses as dental implants and lasers. In the latter case, the billionaire in question only started his business when he was 51, so there is hope for me yet.

Still, what does all of this have to do with private equity real estate?

Well, last month also witnessed another bit of news to do with billionaires. In London, a new firm called Family Office Real Estate (FORE) Partnership launched, presenting itself as a way of bringing together family offices in real estate club deals that the management team will source and manage.

Before bringing you more details, there is another statistic worth bearing in mind. Combined, the world’s billionaires control a staggering $4.6 trillion in wealth, which is more than the entire hedge fund industry. Obviously, this is a huge well of capital available for investment.

The size of the market is bigger still if one accepts that a family with €20 million in capital can be defined as a family office as well. Of course, it is hard to get rock-solid data on the number of family offices around the world, but Basil Demeroutis, managing partner of FORE, said there are at least 6,000 and as many as 10,000. That’s a lot of potential investors.

The thing is, for most private equity real estate fund managers, family offices are often not worth the pain involved in getting them to commit. It is a bit of a generalisation, but GPs typically see such investors at the rump end of their investor spectrum, given the smaller capital commitments they tend to make and the multitude of questions they tend to ask. Instead of waiting for the next quarterly report like many institutions do, the family office is all over the manager, wanting to know this and that. It is a gross parody, of course, but one likely bourne out of some experience.

For these reasons, some private equity real estate fund managers probably aren’t all that bothered that FORE has set up shop. That is interesting because billionaires working through their family offices are now among the most significant players in Europe’s commercial property market, according to the firm. In addition, they are now looking to shake up the way they invest in property with the aim of securing higher returns in a transparent way and at a lower cost than traditional property funds, it said.

Traditionally, high-net-worth individuals have only had two options to invest in commercial property: buy shares in a listed company or invest in a fund. Those that chose the fund route “invariably complain about lack of control over their investments, high fees, low transparency and the difficulty of exiting from deals,” the firm explained. FORE now offers such investors an alternative via a firm that gathers together family offices as a club. It is an intriguing move, and one that is worth following with interest.

The people behind FORE have an interesting background as well. Demeroutis previously was a partner of Capricorn Investment Group, a family office with more than €4.5 billion in total assets. He is too discrete to mention who lies behind that office, but a search on Google seems to suggest it is Jeffrey Skoll, the first employee and president of a tiny Internet company called eBay. The other main figure at FORE is Peter Dove, a partner who has managed various portfolios for firms such as RREEF Real Estate and Henderson Global Investors.

One of the big takeaways from the launch event last month was that family offices now see that the world has not ended following the European maelstrom of last year. Many may have sold out of equities since the global financial crisis of 2008, instead investing in something tangible that they can hold or put under a bed, such as gold. Now, however, they and their substantial cash pile have begun to warm to real estate.

Like gold, real estate is tangible. They can drive past it once in a while to check it is still there. No political leader can suddenly confiscate it from overseas, and it won’t get frozen unless the person behind the family office is accused of a huge criminal act, such as fraud, or is a dictator that has a hard time reasoning with his subjects.

So, if you are a private equity real estate fund manager that doesn’t care too much for family offices as investors, you might want to check who you are bidding against the next time you attempt an acquisition. It could be one of those 1,226 people listed by Forbes.