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Technology And The Family Office

“The term CIO, I was told, was short for ‘career is over.’ Writes Gary Reiner, operating partner of General Atlantic, in a piece called “The Hollowing Out of the IT Function…And Making it Much Much More Meaningful”.

Here, of course, CIO refers to Chief Information Officer. Reiner, who is a former CIO of GE, continues in the piece: ‘We were sentenced to making sure that:

  1. The help desk was responsive, particularly to executives
  2. Servers stayed up
  3. Email worked
  4. The big roll outs came in on budget, schedule, and specs
  5. We kept our environments secure from the Advanced Persistent Threat (cyber espionage), disgruntled employees, lost devices, etc.

We were told by the CEO that if we don’t hear any grumblings or complaints about IT, that means it’s going well.’

But, as Reiner so wisely points out, the world has changed and someday in the future, the role of the CIO will ‘hold the key to the kingdom.’

The IT Director disconnect

For many single family offices, the numbers are still very slight, in appointing a director of IT (here, the CIO). Granted for those with fewer than 15 employees, executives wear multiple hats.

But, if you’ve got 20 or more on staff, it’s a good idea to have an appointed tech guru in-house.

“And that’s sometimes where we see a disconnect,” says Cory Eaves, managing director at General Atlantic in New York. General Atlantic was originally the family office for Chuck Feeney, who co-created duty free shopping. It has since morphed into a private equity firm. “You talk to families that have 20-30-50 employees, and they are facing [a myriad of] IT challenges and you sort of ask, ‘interesting, who is charged with solving this issue?’ Many say, ‘We don’t have someone’ or ‘it’s finely distributed and 4-5 people look after it’. I think they do themselves a disservice when they don’t invest in their leader to solve these sorts of issues.

For instance, having assets across multiple custodians, multiple asset classes, where you are trying to present to a family their position, their risk, their returns is a particularly this-can-give-me-a-tumour type of issue. Eaves emphasises that it’s the same challenge that asset managers at some of the largest financial institutions in the world face, as well as wealth managers. And yet, if you are in a family office, you are solving these problems with the resources of 5-10 people, some kind of microscopic number, compared with some of what the big banks are trying to do. “I think family offices really see this as an important challenge that they face,” adds Eaves.

Says Pat Hedley, also a managing director at General Atlantic in New York: “It’s not just the hardware aspect of it – that’s kind of a clarifying piece. It’s not just about getting the right hardware systems and technology in place. The more important aspect is getting the right data and the right analysis resulting from that to the right systems that support the business. And making sure that those work properly and provide what is necessary for good decision making.”

For those larger single family offices that have implemented a director of IT, their role is perhaps vaster than you might think. Of course, the four major responsibilities lie in strategy, help desk, network and programming. Yeah, it’s the mundane stuff Reiner was talking about, like maintaining high quality network administration, in other words, ensuring that your stuff is being backed up, is secure and things work overall; or if you are out on the road with your iPad, that things are working as well as the help desk. If the printers don’t work, you guessed, or something is broken, yep, that’s right. [Readers, programming may not be something all offices do, especially if your office doesn’t go beyond spreadsheet macros].

But, there is more, as Jon Carroll, founder, president and CEO of Family Office Metrics, based both in New York and West Palm Beach, Fla., points out. The director of IT will also be responsible for the direct interaction with the accountant and the CFO and the investments around reporting, data management, and also client information management, or the CRM aspect of the business.

“This is especially true in the multi family office space, but it’s still true in the larger staffed single family office, because of the complexity of their investment allocation or because of the numbers of people in the family,” says Caroll. “If you’ve got 50 people in the family and they are all shareholders in the operating company, therefore investors need to be dealt with that way. Of if beneficiaries of trusts are just family members. they can be spread across different locations. So you can see there is a whole CRM element that will typically be a major function of this person, together with the management of the data, alongside the reporting that comes out, interfacing and liaising with the accountant.”

Carroll also stresses that the lack of an IT director in a smaller single family office tends not to bear any relationship to assets under management. “It’s much more about complexity and also the scale of the family office itself,” he says.

The CFO of a single family office in Manhattan supports this idea. His happens to have a director IT because alongside the single family office resides a family foundation and the operating company, thus warranting two websites that constantly need to be updated as well as its system and a server that can cater to all of its moving parts.

So, what about the smaller entities that are grappling with the same complex issues as their larger counterparts? Outsourcing, of course.

Jason Haft, principal of consulting services at SunGard Investran, says he has seen a spike in interest among family offices for outsourced services. “What we are seeing are a number of growing complex structures where family members have varied investments, a variety of assets and they are looking for a better way to manage their portfolios, rather than just using Excel spreadsheets,” he says.

General Atlantic’s Eaves agrees that outsourcing plays a part of the answer for the smaller single family offices, because generally they are less complicated. It’s a simpler scenario in that they may have one custodian and one outsource provider for their entire back office. But, he adds that outsourcing can provide means for the larger entities as well. “I think when you get larger families that are multi generational, multi asset class and highly geographically distributed, that’s when the complexity comes in and outsourcing is probably still the answer but even then there is an even more complicated outsourcing landscape where you are dealing with multiple vendors, multiple parties – that sort of thing.”

SunGard Investran’s Haft also notes that clients are looking for more transparency, due in part to the economic crisis, where people want to know what their risk exposures are, what their investments are being held at and be able to produce that on demand. “The challenge that everybody has is you are going from these disparate systems; managing by portfolio, by excel file that’s been handling allocation,” says Haft. “Platforms like Investran can remove all of those disparate systems and keep it all in a central location so that you can quickly access your data and pull up all of those types of reports on demand with the click of a button.”

The cloud issue

Haft addresses a major concern among industry; that of the Cloud system. [Readers: Cloud computing is the use of computing resources (hardware and software) that are delivered as a service over a network (typically the Internet), by way of Wikipedia].

The Manhattan-based single family office CFO notes that there is a great deal of concern over information security with the Cloud system.

But SunGard Investran’s Haft says the tech provider has had a lot of success with family offices who are using its Cloud solution. Roughly 35%, he says, of new clients are taking up the platform that SunGard Investran hosts and provides all of the managed services associated with the application. He notes that when clients use its Cloud solution, it is used specific to their environment; it is not shared with any other family offices and is a very secure, controlled environment.

Adds General Atlantic’s Eaves: “I think if the Cloud providers get better and better, I think the functionality barrier to move things out becomes less and less. In other words, you can find better solutions at a lower price every year that the bar raises on these things. I would expect over time it’s just going to drive more and more of these smaller entities to consider hosting things on the Cloud and outsourcing than maybe they are comfortable with today.”

But, in cases where the smaller single family office executives are wearing a few hats, one of which includes IT, Family Office Metrics’ Carroll advises that you cannot “be an educated buyer of outsourced services, or a successful, prudent buyer of outsourced IT services unless you have some knowledge yourself. You need to know enough about it so you can make good decisions regarding what people are spending your money on.”

He also emphasises that a prudent practice is to require continuing professional education across a set of technical and business related activities for management.

“There’s a lot of different perspectives or certifications that would encourage this type of continuing education,” adds Carroll.

Successful IT path

Coming full circle with Reiner’s belief that CIO will reign supreme, Eaves imparts what he believes will be the ultimately successful path: “Hire an IT director, have a strategic plan for what you want to do around IT, and then build systems and tools and outsourcing partners around that that can help you execute that plan. I think you need all three. I think a lot of organisations have an IT leader that are not as crisp as they probably could be about having clear strategic goals that they want to achieve with IT. This could be rolling out mobile capability to your family, or wanting to have more accurate analysis and a more holistic picture of your risk position. Have some clear things you are trying to achieve from an IT perspective. And I think that will set the course a little bit for how you steer the ship on the IT side.”

Reproduced with permission from Family Office Review

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