Family lawyers are now just one stage in attending to pre-nups or divorce say US attorneys. If a business is involved in a split, you may need a specialist employment attorney to ensure no law suits follow if one partner suddenly finds themselves out of a job on separation.
Most family attorneys are highlighting more and more the need for separate counsel when planning pre-nups. They say it makes everything clearer cut and less open to litigation if parties have had separate and fair advice before entering into the partnership. It’s a failsafe even if the law doesn’t demand it.
In large money pre-nups a further waiting period should be created between a pre-nup and signing – to allow for proper reconsideration or any worries to be cleared up before the wedding.
Many rich clients will have a “minder” but attorneys or advisors should make sure they see the client directly because there must be no query that clients haven’t understood a point, particularly when 40% of marriages end in divorce. Attorneys and counsel are further advised to videotape discussions so that clarity remains if litigation ensues in future years. Another back up is that a private judge be present to protect all parties.
Thursday, 13 December 2007
US pre nups
Cross border pre-nups and divorce
In the USA you may need several pre-nups to take into account the various complexities across the different states. You may also need a team of lawyers to put a pre-nup together. Most US
lawyers can master three or four jurisdictions but that is their limit.
Key things to watch out for are: where to divorce. Where clients marry rarely matters but take advice about which divorce court you decide on. Each varies wildly and favours one or other party dependent. Although California laws still apply in the USA, wherever you choose to get divorced.
The key thing, advisors say, is to act quickly in divorce. The person who files the papers first gets the divorce heard in the jurisdiction of their choice. One quick thinking wife rang an estranged husband and said she wanted to reconcile. She arranged to meet at their UK house. He heard a knock on the door and was immediately served divorce papers. This means her divorce will be heard in a court favourable to wives and equal sharing and one that doesn’t believe in pre-nups. Pretty unpleasant stuff but it illustrated the point that moving quickly is essential (and perhaps being wary of UK visits without officially filing if you are a husband planning to divorce!)
http://www.kattenlaw.com/
The complexity of the USA tax system for private individuals
Governments can seem like a crying baby – always hungry, demanding more and their food is found through taxation, which is becoming increasingly complex, especially in the USA.
For USA clients worldwide taxation of assets is the norm’ which is similar only in the Philippines. California is considered to have the highest tax rates and with fifty one states with different laws, it is territory that is to be negotiated with care. As Josh Rubenstein, Joint Managing Partner of Katten Muchin Rosenman, New York office confirms “don’t ever make assumptions either here or abroad about tax issues for UHNW clients. You will inevitably be wrong. Check every detail.” Josh also warned that the IRS are hot on temporary visas. He said “it won’t stop the IRS going after clients and claiming domiciliary.”
With tax treaties on the increase, Paul Roberts of Price Waterhouse Coopers also cautions that information sharing between governments is also on the increase. He said “Fifty countries now
have treaties and identify trends.” He continued “There is now a new tax group called JITIG that is set to increase information sharing between the countries involved. So far they are Australia, Canada, US and UK but Japan is also joining. This group puts agents in each country to help report across the group.
The upshot of this is that particularly for the USA, foreign accounts will/could get discovered so exact reporting on foreign accounts or trusts is paramount. Al Peguero of PriceWaterhouseCoopers, San Francisco agreed with this theme. “The government can
and will find assets even in far flung offshore islands.” He says there are various “traps” the government are laying which makes his job totally about tax protection these days not avoidance or evasion, as people often believe.
Josh confirms this viewpoint saying "the US government recently changed the date on one filing time (very late in the day) and penalised anyone who didn’t notice and no excuses were accepted." The fine was more onerous than usual with a percentage of the assets in question being taken rather than a few hundred dollars penalty. This means you can’t even assume rules are the same month on month and may need warning systems in place.
http://www.kattenlaw.com/
Monday, 10 December 2007
Helping families in business expand using private equity
Cobblestone is a specialist, family business, private equity consultancy based in Boston, USA. They work with wealthy families in business to help with preservation of the structure and expansion. Ninety percent of their work is international which has been the case for the last eight years. Eugene O’Malley is managing partner and says he also works with a few USA families on domestic transactions. A recent deal involved two private families merging their businesses together and reviewing the financial and strategic issues involved.
Eugene previously ran the international consulting practice at Arthur D Little based in Cambridge, Massachusettes but in 1989 he set up on his own and was fortunate to be able to take clients with him. He has historically handled all incoming instructions for families wanting to buy businesses and says this has been mainly for Dutch and UK families.
Cobblestone Advisers have wealthy clients all over the globe spanning such far flung places as Brazil and Egypt. I express surprise at this wide spread, but Eugene is pragmatic saying “I understand how to get a transaction done and have a large network of collaborators who’ve worked with me for a long time. This business needs particular skills: families demand honesty and directness and don’t like political people. You can’t play a political game. They value independence and input without any agenda.”
Eugene says his most recent transaction was for a family in Germany where he brought in an Irish private equity investor to create a subsidiary and separate off part of the family business. For family businesses looking at private equity he guesses there is a universe of around a thousand businesses who may each want $50million.
Of the typical type of work he does, Eugene say there is no one circumstance, commenting “I could be working with families wanting to expand from Holland into India, or Holland into Germany. I tend to be called in because families in business want to move outside of their existing client base, particularly in the UK where there are lots of families in business looking to grow.”
The usual investment profile is cross border with Cobblestone working in Brazil, Thailand and he has also helped one Singaporean family invest in Brazil. He says half of his work has some capital requirement, then explains “a family may have great know how but no capital so we’ll put them together with another family with money but without connections.”
Of the trends he sees Eugene says Germany has for many years and will continue to be an important market mainly because there is a strong, capable family owned business sector without liquidity. He comments “I think Germany has the most families in business of any country. It’s the most important market out there now. They don’t have cash because they’re always reinvesting in their business so there is an easy opportunity to help them expand using private equity.” Eugene adds “Germans have excellent skills in technology and have a strong exporting market which other economies are interested in. They also understand global trends. I have a collaborative of families who want to work with other families so I look for opportunities to bring different families together.”
As to why Eugene ended up in the niche world of families in business he says it started as an offshoot of his corporate career. His life before Cobblestone was with Fortune 500 companies in a 3000 strong entity and occasionally families would cross his path. Of this past time he says “seventeen years ago an average engagement was valued at $150,000 which seems paltry now.”
The families that Eugene deals with come to him because they are looking for a one on one project manager. I ask what sort of deals he is doing for them. He comments “as an example, one of the families I’ve worked with, I advised should incorporate a private equity strategy. We built a suitable profile with a view to introducing private equity firms and people into the family so that they could proactively look at it.” Eugene adds “in deals with families there has to be more than just money brought to the table. The majority of the families want someone who understands their business and can add value beyond money. They also want to deal with the decision maker.”
Eugene says he has a long term pool of investors who are successful individuals looking for opportunities and he also introduces these into the families he works with. He comments “one currency trader I work with put $25million into a private equity family office deal. These people are not generally visible but have a lot of money. I also work with funds who see this as an opportunity to diversify their own investments. The families I deal with are more interested in results than a name brand and they want those working with them to be objective and not conflicted out.”
I ask for an estimate of how many family businesses Eugene thinks there are as a universe. He puts a finger in the wind and says “a rough estimate would be around ten thousand families in each country.” He adds “some are going through transitions and many don’t have succession plans. I think private equity can really help them plan for the future. It can take minority or majority positions perhaps with another family member.”
Eugene says all his work comes from referrals and they generally tend to be from families he’s worked with in the past. He says “it may take five years to get another instruction. It’s that type of the business; families don’t need ongoing help of this nature.”
Cobblestone Advisers started working with families in business exclusively around twelve years ago, dropping their corporate client base. Eugene comments “family businesses always have a need for capital because there are always opportunities out there for them to capitalise on. Opportunities arise because they have substantial wealth and assets and so others approach them. Also in many cases it’s not part of the main family business that needs finance, it maybe that they want to expand or fund someone from the next generation into a new hybrid business. Eugene says families may want to expand into new business areas and says there is increasing interest in bio farms and fuel. He comments “there is a big trend to invest in bio pharma and bio fuel worldwide. You have countries like Brazil who are into sugar cane ethanol, lots of interest in the UK and Asians are also in that market place.” He adds “Bio fuel is normally corn based but corn is becoming expensive so investors are looking at other options.”
Of his role in the private equity deals Eugene says he acts as a facilitator but also sits down with the family and maps out a plan so that they are clear about what they want to achieve before they start. He says “there is usually a lack of trust from the family who worry they may end up with a raw deal. They are honest, hardworking and very wary. As there is a certain amount of lockup and disclosure I have to educate the incoming person about the family business. Chemistry is crucial and a positive approach from the private equity house to promote benefits whilst they work out if the partnership can work. It’s a long process with deals usually ranging from $20-50 million.”
Eugene continues saying “in this business, it’s reliant on the families participating. They have to fully disclose their finances and there is nothing you can do to help them if they won’t. Usually there is a defining moment when we are at the table that gets the talk going.” He gives us an example of a recent project, saying “I got a call from a family in Mexico who wanted to grow their business harnessing the internet. They wanted an adviser in a particular area relating to the internet and needed connections. This is the type of thing I will help with to see how they can partner or find finance to expand with appropriate private equity houses.”
Eugene says there have been many changes in the industry and one downside is that private equity firms have become less flexible as they’ve got bigger. He says now they all work on a formula and if the family business doesn’t fit they won’t consider it. He says this creates problems and means the work has become quite specialist navigating private equity houses into this market.
I ask what size of market he thinks he is working in. He comments “there are thousands of families looking to access private equity. There is a tradition in most cultures to pass the business on which is why it can be useful to review private equity and partnership loans. Although in the Americas it’s the reverse and they generally sell off the business and take the capital.”
One of the more complicated deals he has worked on involved a family business that was quite substantial. It was a European family who were offered the acquisition of another family business. Unfortunately there was a situation where one part of the family business had done a major lay off of staff so they felt it was un-politically correct to have an announcement of new deal and that their board may refuse to co-operate. Eugene helped set up a special purpose vehicle that acquired the family business being sold via a private equity deal. The SPV held on to the business for thirteen months, then later the family purchased it from the private equity house with board approval, paying a premium to do so. Eugene says “it meant they went from a number six position to a number one in their industry. An opportunity they would have missed out on.”
Eugene says the pitfalls of a family business/private equity partnership if not properly run, are that the family might end up with a poorly structured deal. He comments “you have to deal with operational and financial issues. It’s like going through a business plan of sales and having a dialogue about expectations on both sides. It’s very important that there is mutual agreement in how to execute the business or things will unravel.” He says often the family may spend more time focusing on the money rather than on the results they will have to deliver after the fact. Eugene says if everything works well these deals have a real impact on profitability. If not and things go wrong then there will be exit provisions for the family, or as Eugene puts it: a planned divorce. He comments “These deals are always about more than just money and families do have expectations with regard to nurturing their business. On the side of the private equity houses, they need good deal flow which is available in this sector.” He says one family business has done business with five different private equity groups in five different regions of the world.
As private equity houses have a habit of loading businesses and staff with debt, I ask how Eugene handles the macho corporate mix into honest, hardworking families. He says “you can’t allow private equity houses to come in without some guidelines. Families can’t be loaded up with debt nor have money taken out of the business so provisions will be made to prevent this. A plan is mutually developed, agreed and executed. Also families don’t take the money and walk away. The private equity house will be in a strong, supportive role to help the family.” Although Eugene adds “clients have become more aggressive with their money making ideas. With one family he was working with he said they were set to make about $4million but the owner said “I want to make $40m not $4m.” Eugene says in this case, they then advised him differently.”
As to what type of deals work in this scenario, Eugene says one of the best uses he has seen is with a first generation family transferring into the second generation with several siblings entering the business. Eugene explains “usually you may get rivalry but here we raised finance to allow each to hive off into a different business to use their skills without conflict. With one family we did this with a five year plan and the father stayed at the head running the main business whilst children worked in separate extensions. It works well in some cultures like the Middle East. It allows each one of the siblings the potential to grow their own business with their own skill sets.” Eugene says in Europe the founder always wants to bring the children in, but because they recognise how difficult it is to succeed in business, this is a good way to provide for their families and motivate their children. He says it can play a role with one child but it works best with multiple family members with net worth of more that a $100million.
As hedge fund people are springing up everywhere, I ask Eugene if he has a view. He says “Most family offices have been involved with hedge funds for ten years or more although it seems as though it’s only been about five years. I think they are generally moving away from them and dropping asset allocation from 20% to 10%. They feel there is so much money in the liquid markets that the returns are better elsewhere.” He also adds a side comment saying “hedge funds are converging with private equity because of the pressures they are under. Their challenge is the deal flow.”
Eugene thinks there are around five thousand family offices around the globe and mentions the well known Sand Aire with Alex Scot in London. He says “I think the average family office has around $25million and there are probably around fifteen hundred in the USA of this size. I would say there are five hundred that are meaningful around the globe which would mean a couple of hundred million dollars.
Advice that Eugene would give to families in business now is to keep a sharp eye on the global economy. He says “there are many opportunities to work with partners in China or India that businesses need not be fearful of.” He also says that private equity transactions can be executed very quickly so there is little downtime before inflows of money.
As much of Cobblestones business is with leading families in their respective countries he is contractually restricted in making any mention of names by telephone or on his website. □
www.cobbleadvisers.com/
Sunday, 2 December 2007
Wealth management American styley
Following on from the Citywealth Top 100 Americas list I spent some time in the USA over the quiet August weeks (2006), just pinging around meeting the professionals who had been recommended. Although many US names will be familiar to you – the likes of Karen Troy at RBC, Susan Harrington at Sidley Austin and Josh Rubenstein at Katten Muchin Rosenman, there may be others out of New York City who aren’t so familiar.
From our list of known wealth and private client friends, I am delighted to say that all received compliments wherever I travelled. Warren Whitaker, Josh Rubenstein, Gideon Rothschild, Ivan Sacks and Joe Field were all highly thought of and praised.
What was most interesting in contrast to London was a freedom – much less tradition - and clients from very different backgrounds. And although many accountants, CPA's or lawyers (or attorneys) were operating within one or several states - rather than internationally - they were all sitting on big honey pots of client money. Even Kansas was a hot spot for one entrepreneurial accountant (Don Harris – he manages £225/$450 million client monies – which is a small part of his business – counselling and planning is a greater part) who was regularly flying there from Dallas after a one off referral. He said it seemed to open local flood gates and his seminars were booked months ahead. We decided that they didn’t get as many visitors as they should in Kansas.
Susan Harrington at Sidley Austin (who travels to London frequently) is dealing for the most part with the wealth in South America and tipped me off about the Dominican Republic, which is apparently bursting at the seams with super wealthy clients – many of whom she advises.
RBC in New York reported that their client base was half US citizen and the rest non US as opposed to their Los Angeles branch which was considered more domestic wealth. RBC, NY are targeting the super wealthy and keen to seek out wealth advisers with international clients of net worth c$500m. They say South America is indeed a hot spot and substantial growth is being seen but this tends to get dealt with by their Miami operation. Problems of kidnapping are still rife in the region. Karen Troy’s top tips for excellent advisers were Jack Brister an accountant in New York City but we aren’t sure of his abode at the moment and Marco Blanco (attorney) Curtis Mallet-Prevost, NYC also received high praise.
Bill Knox (William) of Regent Atlantic Capital in Chatham, New Jersey had just got back from a trip to Italy (where he’s building a holiday home) and had been to see his new grand daughter in Switzerland. I’d liken New Jersey to the stockbroker belt in the burbs of Britain – lush greenery and manicured gardens – rather Sevenoaks or Kew in feel – very beautiful. Bill was very specific in saying that he only deals with clients of between $2-25million. Although he added that he manages $1.3billion of client monies and has a 99% client retention record of several years. He says his clients are New Jersey folk but many may have moved to other states or countries but have left their wealth with him to guard and grow.
Despite much information saying that the Americans invest domestically he insists a substantial proportion of all his clients wealth is invested internationally. He runs a model that mixes Global Large Cap, Hedge Funds, International Bonds, Real Estate (cutting back on Real Estate this year) and International Small Cap – amongst other investments in a tried and tested model that has outperformed indices consistently. He particularly likes Paine Webber, Smith Barney and MLIM funds and for international real estate uses a Morgan Stanley offering. Regent Atlantic Capital is furiously independent, buying in all expertise they need. They aggregate monies to help clients reach entry levels for funds of funds. The one exception is their own hedge fund “Regent Atlantic Absolute” mainly because they were offered expertise that was too good to turn away. You can contact Bill (who is really sensible, very bright and has good international knowledge of world politics on www.regentatlantic.com). It’s a two hour train ride to Chatham but is worth the trip.
Don Harris, of Beaird Harris & Co in Dallas said he is seeing a real upwards swing in philanthropy for clients with monies between £5-10million. He was very interested in the psychology of wealth and felt that advisers were keen to diagnose but often not prepared to delve into areas that might involve hopes and dreams or a soft side of planning. His one striking argument is that many people don’t know how much money they need or want or how much will be enough, if they did they would plan better and consider larger philanthropy or charitable projects. He was also investigating the negative ramifications of being rich – the children left with no purpose in life after inheriting huge sums. He impresses on those making plans that it is very important to involve children in processes because they are often not interested in parents goals nor in having huge amounts of money left to them.
Rounding off my trip I spent some time over a glass of wine with Michael Graham who was a delightful chap and also with Pamela Woodburn who has now left RBC for Jersey in the Channel Islands to get married but was in San Francisco. She kindly treated me to a swanky meal whilst there. □
Profiles
Donald B Harris
Beaird Harris & CoIs a wealth innovator, with a keen mind. Dallas based he recently co-wrote a book on wealth counselling “Getting to the heart of the matter.” His clients are enrolled in an intensive period of counselling in which a plan for life-goals and philanthropy are tied together. He says that they never rush the initial stage of comprehensive questioning which may take three months for the client to complete. Interviewing at home, he says its important that high net worth clients consider carefully all they’ve talked about. He says: Its imperative that families get a chance to really talk about their issues, then agree a forward strategy together, in order for plans to remain solidly intact.
There are 9,000 certified planners in the US.
Ed Copley, Akin Gump, Dallas. He works with many Indian high net worth clients, travels to London frequently and is a real Dallas gentleman. Ed Copley at Akin Gump, Dallas manages the estate of Wendy and Emery Reeves. The couple gave a furniture collection to the Dallas Museum of Art – as long the museum replicated the original setting of their home. It is jaw dropping with 15th century furniture and Picasso and Matisse paintings littered everywhere.
Michael Graham, of The Graham Law Firm, Dallas
Michael Graham is charming and his office resides in a small area of Dallas which is compared to Rodeo Drive in California. His office is nestled in a complex of boutique international designer and swanky eateries. He is keenly interested in technology and works more with high net worths that are running businesses these days. Michael has been featured as a “best lawyer in America” and is a fellow of ACTEC. His wife undertakes considerable charity work in China. This is his software: Interactive Legal System Estate planning software which is and Interactive Legal System – for experienced estate planners USA - offers a full complement of forms -- wills, revocable trusts, irrevocable trusts, strategic planning memos, powers of attorney, and more. While Federal in scope, state specific content is provided for all states (except Louisiana). The integrated "content help" is in a class by itself. From solo practitioners to large firms, WTP meets the demands of the most experienced estate planners
www.thegrahamlawfirm.com
http://www.ilsdocs.com/
Jonathan G. Blattmachr, Milbank
I didn’t get to meet Jonathan but Michael Graham says of him: “he is one of the greatest speakers I know, he can fill a room all by himself.” He is a member of the Alaska, California and New York Bars.
Observations and general information picked up on the trip
The Americans love Italy and talk about it constantly – doesn’t matter where you are or who you are talking to. Most have visited regularly – skipping the UK altogether. I asked one adviser what the affinity was. He said “at the very least the Italians seem to like us.”
Everyone in America is pointing at Texas for voting George W Bush in but the Texans deny this vigorously.
Atlanta has a 60% black population which is extremely affluent. Atlanta to the North is considered more internationally sophisticated than Georgia at its South.
Dallas is oil and technology wealth. Locals say that the wealthy wear jeans whilst their advisers wear suits. Don't forget the famous historic Alamo battle.
Vegas – super luxury, non gaming hotels are now taking a grip like the Christian LaCroix. The real estate market is extending away from the strip.
New Jersey is called the Garden State. North New Jersey is blue blood, traditional wealth and is extremely affluent. Conversely South New Jersey is considered below the poverty line.
Although there is a general phrase that ‘lots of Americans don’t have passports’ this does not apply to the business community who travel far and wide regularly – no matter where based.
Atlanta is nicknamed Hotlanta – it averages about 100 degrees a day and is
rarely cool. Bobby Brown and Whitney Houston are the Atlanta area's most notorious famous couple. The couple are often seen living it up at Atlanta's posh ‘The Palm’ restaurant. Jane Fonda, Elton John and Julia Roberts all have homes in Atlanta. The home of Coke - as my friend Joanna Forshee said "you wont find Pepsi here!"
My next trip to the USA is for LegalTech, New York in Feb 2008
See my tech blog here
http://wwwcitytechmagcom.blogspot.com/
And my tech publishing and events company here
www.citytechmag.com
Read about my Citywealth Los Angeles wealth management event at the Hotel Bel Air.
Citywealth has a weekly wealth newsletter that goes out around the world for £500 + vat/$1000. It advises about people in the industry and their clients each week.
