Family offices have become influential players on the world’s investing stage. Like any institutional investor, family offices are looking for asset managers that can work with them to develop solutions based on their evolving needs and investing opportunities. PIMCO partners with single- and multi-family offices and family foundations across the globe, so we understand the complexities facing family offices as they decide on their investment choices and how to delegate elements of their portfolios to asset managers. In the following interview, Marcio Bogoricin, Caleb Pitters and Davide Gysi discuss some of the challenges facing family offices and how PIMCO partners with clients to support their evolving goals and objectives.

Q: How has the family office market changed over the past five years?

Marcio Bogoricin: We have seen a significant increase in the number of family offices over this time period, and they have continued to evolve and institutionalize. There is a greater focus on governance and efficient decision-making structures (such as investment committees and boards), as well as partnerships with service providers to maximize investment returns and efficiency. In addition, family offices have been hiring increasingly sophisticated teams of investment professionals to develop deeper specialist expertise and expand the investment opportunity set. Intergenerational equity and managing the transition from one generation to the next are also issues that family offices are addressing in a more structured manner.

Another trend we have seen is that family offices continue to expand connectivity beyond their regional peers to develop a global network. This enables them to understand what other family offices are doing, adopt global best practices, and invest alongside peers in markets that might be unfamiliar.

Q: How does PIMCO partner with family office clients?

Davide Gysi: One of the most common reasons that family offices choose to partner with PIMCO is to optimize their time and resources by delegating certain portions of their portfolios to us. It is often much more efficient for them to focus on specific areas of expertise – such as direct private equity investments or management of a proprietary portfolio – while partnering with asset managers for the remaining allocations. We have assisted clients on a broad range of solutions, including traditional fixed income portfolios, credit portfolios, alternative investments, liquidity management, and, for those in the U.S., municipal bond investments.

PIMCO’s global footprint can be a factor for family offices in deciding to engage in a strategic relationship with us. For example, family offices located outside the U.S. may have expertise in their local or regional real estate market but, given the size and complexity of the U.S. market, are looking to partner with a manager that has a more comprehensive understanding of this sector.

Q: What are the potential benefits to family offices of delegating elements of their portfolios to PIMCO?

Caleb Pitters: PIMCO takes a consultative approach when working with family offices. Initially, we seek to gain an in-depth understanding of their investment objectives, liquidity needs and risk appetite. We will often offer to conduct a tailored portfolio analysis to identify what may be the best solutions for our clients in accordance with their specific goals and objectives.

We offer a variety of solutions, ranging from mutual funds that may meet the needs of many family offices, to separately managed accounts for those family offices that require greater customization.

As an additional benefit to partnering with PIMCO, we organize networking and educational events specifically tailored to family offices, along with exclusive access to our senior portfolio managers, renowned research and tailored solutions studies from our client analytics and solutions team. These studies can include custom stress testing/scenario analysis and peer review. In each region of the world, we also have dedicated account managers, providing regular contact and high quality, institutional-level service to our family office clients. For example, during market dislocations, our account managers have provided our family office clients with tactical investment ideas, such as during the early 2016 energy/high yield sell-off and, more recently, with opportunities in collateralized loan obligation (CLO) equity, which can be a very complex asset class.

Q: Which asset classes have been discussed the most with family offices seeking to delegate elements of their portfolio?

Bogoricin: There are three main areas where we can assist family offices:

  • Liquidity management. We offer short-term cash management solutions for family offices for a variety of different liquidity needs. For example, some family offices might need to draw on funds within the next six to 12 months, but want to earn more than a bank deposit in the meantime. Other family offices might require effective liquidity management that will allow them to make swift decisions, for example if they need to make an acquisition or to meet private equity capital calls.
  • Core strategies: Fixed income and credit. We are experiencing increased demand from family offices for potential solutions in this area. Historically, many family offices used to manage their fixed income allocations in-house, buying individual bonds and relying on industry reports to assist them in making their selection. Over the last three to five years, in line with the increasing complexity of financial markets, we have seen a growing trend towards delegating the fixed income and credit portions of family office portfolios to external asset managers. With our 47-year track record in fixed income investing and 60+ credit analysts, PIMCO offers a wide range of fixed income investment strategies that we have developed to help our clients meet their evolving needs and investing goals.
  • Alternative investments. A growing number of family offices are looking for investments that are not correlated to the “traditional” markets. We have seen an increase in the opportunity to partner with clients on alternatives, including private equity-style or drawdown strategies, hedge funds and alternative risk premia strategies. In regions of the world where interest rates are high, family offices may be seeking higher yields and returns from their investments. As a result, we have seen a growing demand in Latin America and Asia for alternative investment solutions.

Q: What is PIMCO’s approach to partnering with family offices on allocating to alternative investments?

Gysi: Alternatives often represent a significant portion of a family office’s portfolio. They typically offer the potential for higher returns and lower or no correlation to traditional asset classes, but less liquidity and greater exposure to risk.

When working with family offices to identify which alternative investments may suit that client’s needs, we take into account expected returns, tolerance for volatility, liquidity requirements and the overall fit within a client’s portfolio (e.g. correlations to other assets and regional or sector exposures). With the help of our client analytics and solutions team, we conduct tailored analysis to assist family offices in identifying their risk profile and income generation needs. Then we work with them to select the alternative offerings that are believed to best address their requirements and fit into their overall portfolio.

PIMCO has been using quantitative strategies within fixed income for three decades, and we have been managing dedicated alternative strategies for over a decade. Our strategies emanate from core competencies in quantitative analytics, credit analysis, and residential and commercial real estate investing. They leverage the strength of PIMCO’s deep resources and experienced personnel, our extensive relationships with global financial institutions and other sellers of risk, and our renowned macroeconomic and asset-level research.

Q: How do you expect family office needs will change over the coming five years?

Pitters: We expect family offices will increasingly focus on strategic relationships, where they can extract investment and analytical expertise across multiple asset classes. We expect to see persistent interest in “club deals” and co-investments as well as more demand for separately managed accounts with the flexibility to tailor mandates to their needs. We also believe that the number of European and Asian family offices will continue to grow significantly.

In terms of investment opportunities, we anticipate that illiquid co-investments will continue to find favor with family offices. As capital market return assumptions continue to decline, after tax returns will likely become increasingly important. Consequently, in the U.S., some family offices are focusing more on opportunities in municipal bonds, while others are considering the merits of tax-efficient investing in alternative strategies via private placement life insurance (PPLI).

Family offices will continue to seek asset managers that can act as an extension of their own in-house capabilities. In our view, family offices are increasingly looking for partners that can understand their needs and adapt to accommodate them. PIMCO focuses on delivering excellence for our clients in every aspect of our relationship, particularly in terms of the service we provide via our account managers and investment teams. We are committed to delivering value to our family office clients including and beyond investment performance.

The Author

Marcio Bogoricin

Account Manager

Caleb Pitters

Account Manager

Davide Gysi

Account Manager

Related

Disclosures

Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517), PIMCO Europe, Ltd Amsterdam Branch (Company No. 24319743), and PIMCO Europe Ltd- Italy (Company No. 07533910969) are authorised and regulated by the Financial Conduct Authority (25 The North Colonnade, Canary Wharf, London E14 5HS) in the UK. The Amsterdam and Italy Branches are additionally regulated by the AFM and CONSOB in accordance with Article 27 of the Italian Consolidated Financial Act, respectively. PIMCO Europe Ltd services and products are available only to professional clients as defined in the Financial Conduct Authority’s Handbook and are not available to individual investors, who should not rely on this communication. | PIMCO Deutschland GmbH(Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany) is authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 32 of the German Banking Act (KWG). The services and products provided by PIMCO Deutschland GmbH are available only to professional clients as defined in Section 31a para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. | PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2), Brandschenkestrasse 41, 8002 Zurich, Switzerland, Tel: + 41 44 512 49 10. The services and products provided by PIMCO Switzerland GmbH are not available to individual investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (8 Marina View, #30-01, Asia Square Tower 1, Singapore 018960, Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited (Suite 2201, 22nd Floor, Two International Finance Centre, No. 8 Finance Street, Central, Hong Kong) is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862 (PIMCO Australia) offers products and services to both wholesale and retail clients as defined in the Corporations Act 2001 (limited to general financial product advice in the case of retail clients). This communication is provided for general information only without taking into account the objectives, financial situation or needs of any particular investors. | PIMCO Japan Ltd (Toranomon Towers Office 18F, 4-1-28, Toranomon, Minato-ku, Tokyo, Japan 105-0001) Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No.382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association and The Investment Trusts Association, Japan. Investment management products and services offered by PIMCO Japan Ltd are offered only to persons within its respective jurisdiction, and are not available to persons where provision of such products or services is unauthorized. Valuations of assets will fluctuate based upon prices of securities and values of derivative transactions in the portfolio, market conditions, interest rates, and credit risk, among others. Investments in foreign currency denominated assets will be affected by foreign exchange rates. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | PIMCO Latin America Edifício Internacional Rio Praia do Flamengo, 154 1° andar, Rio de Janeiro – RJ Brasil 22210-906.

All investments contain risk and may lose value. Alternative investments and hedge fund strategies may be leveraged and may engage in speculative investment practices that increase the risk of investment loss. The performance could be volatile and a hedge fund’s fees and expenses may offset its trading profits. A single adviser applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. The strategies generally involve limited liquidity provisions as well as complex tax structures and there may be delays in distributing important tax information.

Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Collateralized Loan Obligations (CLOs) may involve a high degree of risk and are intended for sale to qualified investors only. Investors may lose some or all of the investment and there may be periods where no cash flow distributions are received. CLOs are exposed to risks such as credit, default, liquidity, management, volatility, interest rate and credit risk. Equities may decline in value due to both real and perceived general market, economic and industry conditions. High yield, lower-rated securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Income from municipal bonds may be subject to state and local taxes and at times the alternative minimum tax. Private credit and private equity are considered speculative and therefore subject to a unique set of risks. Private placements may only be suitable for persons of adequate financial means who have no need for liquidity with respect to their investment and who can bear the economic risk, including the possible complete loss, of their investment. The value of real estate and portfolios that invest in real estate may fluctuate due to losses from casualty or condemnation, changes in local and general economic conditions, supply and demand, interest rates, property tax rates, regulatory limitations on rents, zoning laws, and operating expenses. Diversification does not ensure against loss.

PIMCO does not offer insurance guaranteed products or products that offer investments containing both securities and insurance features. Strategy availability may be limited to certain investment vehicles; not all investment vehicles may be available to all investors. Please contact your PIMCO representative for more information.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice. Investors should consult their investment professional prior to making an investment decision.

There is no guarantee that the investment objectives or the desired results of any strategy, account or portfolio will be achieved. It should not be assumed and no representation is made, that past performance is reflective of future results. Nothing herein should be deemed to be a prediction or projection of future performance.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2018, PIMCO.