Boston Private, a $15bn wealth manager, is seeking niche strategies to avoid muted returns from crowded trades in multi-strategy, macro and distressed, according to Emmett Maguire, managing director of manager research and selection.

Maguire told HFM that the Boston-based firm is searching for specialists in esoteric strategies such as litigation finance, shifting its asset allocation to create a stream of resilient and diversified returns.

Boston Private uses three criteria when seeking experts within niche areas. Developed by Maguire himself, a former Merrill Lynch pro who joined the firm in 2019, the process looks for a manager’s fit within the firm’s portfolio, competitive edge and continued improvement.

He added that the firm would favour a PM who has built a strategy and demonstrated that it can register “very lucrative and uncorrelated” returns.

“The first mostly hinges on how much competition is there for the same opportunities. Secondly, what is the manager doing to incentivise their investment team or mitigate cognitive bias in decision-making errors that we’re all subject to? Third, what are the feedback mechanisms in their process that allow them to figure out what they’re doing well, what they’re doing poorly and adjust accordingly?” he shared.

Founded in 1987, Boston Private has a roster of 10 to 12 hedge funds, featuring long/short equity and asset-backed securities specialists. For the 1,181 clients it manages money for, its strategic hedge allocation sits at 9%, or $1.3bn.

Maguire is the head of due diligence across all asset classes and oversees the manager selection process. He gets support on potential hires from CIO Shannon Saccocia, with the firm’s investment committee making a final decision.

“We are moving forward towards niche strategies….there are a lot of people chasing the same opportunity,” he said. “Distressed investing is experiencing this today.”

With the firm having to conduct due diligence virtually, Boston put in place new measures to navigate the process in the new normal world.

“We began sourcing references directly from managers and from our own networks,” he noted.

Maguire’s cognitive science background makes for a “unique” process, which identifies and avoids managers with a herd mentality, conformation bias and arrogant personalities.

“A good example, from many years ago; We were invested in equity long/short technology manager who had been in and out of Apple. When we asked why did you guys get back to Apple, they said ‘everyone else owns it,” he noted. “That was kind of the nail in the coffin for that particular manager, but it’s those unthoughtful decisions that get made and raise red flags for me.”

He flagged that managers in Asia currently can offer more attractive value for money than their US peers.

“Managers that I’ve spoken to are much further along with the investment evolution than many of the managers I speak to in the United States. That’s been an interesting revelation for me. They also have more attractive terms,” he said.

The firm looks for managers with at least $100 in AuM, who are open to negotiating on fees.

“Going for a new manager depends on their prior experience, what they were doing before?” he added. “ESG is not a requirement but it is becoming more important.”

Delaware-based multi-family office Axion Financial is also plotting an entry in niche strategies including asset-backed securities and managed futures, according to founder and co-managing partner Antonios Kypreos.

The 15-year-old Delaware-based multi-family office, which manages $65m for 28 families, allocates to hedge funds, private equity, venture capital and makes direct deals.

It favours managers who are invested in their own fund, with a proven track record, niche sector expertise and ability to manage a portfolio during a crisis.

“Has the fund manager proven their strategy through a crisis like 2020?” he stressed. “[This year] has shown the advantage of funds’ prudent use of leverage and conservative loan to value ratios and why being conservative has its advantages.” 

WE Family Offices, a $12.5bn Miami-based multi-family office, plans to tap US residential real estate via private real estate investment trusts. The firm, which manages money for around 80 families, already has US farm and timber land allocations through private vehicles and believes that real estate will offer an additional kicker – liquidity.

The move comes as leading wealth investors are looking to boost allocations to multifamily funds while closely monitoring commercial real estate opportunities that could be presented by the Covid-19 pandemic.

“The pandemic exacerbated the advantaged versus disadvantaged sectors. If you look at apartments that cater to white collar professionals who can work from home, that would be a good area,” Sam Duame, senior investment manager, told REFI US. “Right now, we’re looking at private REITs because of liquidity.”

The firm seeks managers with stringent underwriting standards, direct knowledge of local market conditions, strong sourcing abilities and experience managing specific property types.

The US multifamily space has so far proven resilient through the pandemic, maintaining high occupancy rates and high average rent collection. However, some localized distress is starting to materialize, according to the National Multi-Family Housing Council’s Rent Payment Tracker, which found 86.8% of apartment households made full or partial rent payments by October 13. This compares with 89.2% the previous year.

BNP Paribas Wealth Management, which manages $444bn in assets, is also betting on residential real estate while keeping a close eye on commercial opportunities, in anticipation of a more attractive entry point in the near future.

“[The crisis] positively affected residential real estate. Whereas commercial real estate is [in a] quite difficult environment. However, we expect it to quickly bounce back, not in years but in quarters,” Florent Bronès, CIO of the $444bn firm, told REFI US.

UK residential transitions, commercial opportunities

The UK market may turn into a lucrative opportunity as commercial spaces are beginning to get converted into residential hubs, particularly in metropolitan cities, according to the CIO of a large London-based single-family office. “Now, if that’s going ahead those properties would make enormous returns. We are seeing this across the UK, specifically in Birmingham, Manchester and other hubs,” he added.

The family office CIO had a less sanguine view of the commercial sector, however.  Uncertainty of office tenancies coupled with the costs of adapting buildings to meet Covid-19 requirements makes this an unexciting entry point for investors.

“Commercial real estate got a decrease of investor interest but an increase in upfront costs. Simply put, there is volatility around the future of office spaces and huge costs associated with ensuring that the buildings are Covid-19-proofed,” the CIO added.

Echoing this sentiment, Salvatore Cordaro, co-CEO of $6.4bn private markets investor Investcorp-Tages plans to keep the firm’s allocations to commercial strategies at a plateau due to what he argued is an uneven risk/reward offering.

“We’re a little bit careful with [commercial real estate] as there are risks associated with this space. It’s not an area we’re over-allocating to,” he said.

Secondary cities rising

Still, Axion Financial sees commercial opportunities in secondary cities, according to founder and co-managing partner Antonios Kypreos. The Delaware-based multi-family office , which had $38m of client assets at the end of last year, typically invests in US-based student and multi-family housing via private REITs.

“Large city corporate areas may be in difficult times ahead as corporations move towards a mixed approach of working from home and in person work arrangements. Suburban corporate real estate is one area of positive growth stemming from the pandemic,” he said.

The company favors managers who are invested in their own fund, with a proven track record, niche sector expertise and ability to manage a portfolio during a crisis.

“Has the fund manager proven their strategy through a crisis like 2020?” he stressed. “[This year] has shown the advantage of funds’ prudent use of leverage and conservative loan to value ratios and why being conservative has its advantages.”

Boston Private, a $15bn wealth manager, is seeking niche strategies to avoid muted returns from crowded trades in multi-strategy, macro and distressed, according to Emmett Maguire, managing director of manager research and selection.

Maguire told HFM that the Boston-based firm is searching for specialists in esoteric strategies such as litigation finance, shifting its asset allocation to create a stream of resilient and diversified returns.

Boston Private uses three criteria when seeking experts within niche areas. Developed by Maguire himself, a former Merrill Lynch pro who joined the firm in 2019, the process looks for a manager’s fit within the firm’s portfolio, competitive edge and continued improvement.

He added that the firm would favour a PM who has built a strategy and demonstrated that it can register “very lucrative and uncorrelated” returns.

“The first mostly hinges on how much competition is there for the same opportunities. Secondly, what is the manager doing to incentivise their investment team or mitigate cognitive bias in decision-making errors that we’re all subject to? Third, what are the feedback mechanisms in their process that allow them to figure out what they’re doing well, what they’re doing poorly and adjust accordingly?” he shared.

Founded in 1987, Boston Private has a roster of 10 to 12 hedge funds, featuring long/short equity and asset-backed securities specialists. For the 1,181 clients it manages money for, its strategic hedge allocation sits at 9%, or $1.3bn.

Maguire is the head of due diligence across all asset classes and oversees the manager selection process. He gets support on potential hires from CIO Shannon Saccocia, with the firm’s investment committee making a final decision.

“We are moving forward towards niche strategies….there are a lot of people chasing the same opportunity,” he said. “Distressed investing is experiencing this today.”

With the firm having to conduct due diligence virtually, Boston put in place new measures to navigate the process in the new normal world.

“We began sourcing references directly from managers and from our own networks,” he noted.

Maguire’s cognitive science background makes for a “unique” process, which identifies and avoids managers with a herd mentality, conformation bias and arrogant personalities.

“A good example, from many years ago; We were invested in equity long/short technology manager who had been in and out of Apple. When we asked why did you guys get back to Apple, they said ‘everyone else owns it,” he noted. “That was kind of the nail in the coffin for that particular manager, but it’s those unthoughtful decisions that get made and raise red flags for me.”

He flagged that managers in Asia currently can offer more attractive value for money than their US peers.

“Managers that I’ve spoken to are much further along with the investment evolution than many of the managers I speak to in the United States. That’s been an interesting revelation for me. They also have more attractive terms,” he said.

The firm looks for managers with at least $100 in AuM, who are open to negotiating on fees.

“Going for a new manager depends on their prior experience, what they were doing before?” he added. “ESG is not a requirement but it is becoming more important.”

Delaware-based multi-family office Axion Financial is also plotting an entry in niche strategies including asset-backed securities and managed futures, according to founder and co-managing partner Antonios Kypreos.

The 15-year-old Delaware-based multi-family office, which manages $65m for 28 families, allocates to hedge funds, private equity, venture capital and makes direct deals.

It favours managers who are invested in their own fund, with a proven track record, niche sector expertise and ability to manage a portfolio during a crisis.

“Has the fund manager proven their strategy through a crisis like 2020?” he stressed. “[This year] has shown the advantage of funds’ prudent use of leverage and conservative loan to value ratios and why being conservative has its advantages.”

WE Family Offices, a $12.5bn Miami-based multi-family office, plans to tap US residential real estate via private real estate investment trusts. The firm, which manages money for around 80 families, already has US farm and timber land allocations through private vehicles and believes that real estate will offer an additional kicker – liquidity.

The move comes as leading wealth investors are looking to boost allocations to multifamily funds while closely monitoring commercial real estate opportunities that could be presented by the Covid-19 pandemic.

“The pandemic exacerbated the advantaged versus disadvantaged sectors. If you look at apartments that cater to white collar professionals who can work from home, that would be a good area,” Sam Duame, senior investment manager, told REFI US. “Right now, we’re looking at private REITs because of liquidity.”

The firm seeks managers with stringent underwriting standards, direct knowledge of local market conditions, strong sourcing abilities and experience managing specific property types.

The US multifamily space has so far proven resilient through the pandemic, maintaining high occupancy rates and high average rent collection. However, some localized distress is starting to materialize, according to the National Multi-Family Housing Council’s Rent Payment Tracker, which found 86.8% of apartment households made full or partial rent payments by October 13. This compares with 89.2% the previous year.

BNP Paribas Wealth Management, which manages $444bn in assets, is also betting on residential real estate while keeping a close eye on commercial opportunities, in anticipation of a more attractive entry point in the near future.

“[The crisis] positively affected residential real estate. Whereas commercial real estate is [in a] quite difficult environment. However, we expect it to quickly bounce back, not in years but in quarters,” Florent Bronès, CIO of the $444bn firm, told REFI US.

UK residential transitions, commercial opportunities

The UK market may turn into a lucrative opportunity as commercial spaces are beginning to get converted into residential hubs, particularly in metropolitan cities, according to the CIO of a large London-based single-family office. “Now, if that’s going ahead those properties would make enormous returns. We are seeing this across the UK, specifically in Birmingham, Manchester and other hubs,” he added.

The family office CIO had a less sanguine view of the commercial sector, however. Uncertainty of office tenancies coupled with the costs of adapting buildings to meet Covid-19 requirements makes this an unexciting entry point for investors.

“Commercial real estate got a decrease of investor interest but an increase in upfront costs. Simply put, there is volatility around the future of office spaces and huge costs associated with ensuring that the buildings are Covid-19-proofed,” the CIO added.

Echoing this sentiment, Salvatore Cordaro, co-CEO of $6.4bn private markets investor Investcorp-Tages plans to keep the firm’s allocations to commercial strategies at a plateau due to what he argued is an uneven risk/reward offering.

“We’re a little bit careful with [commercial real estate] as there are risks associated with this space. It’s not an area we’re over-allocating to,” he said.

Secondary cities rising

Still, Axion Financial sees commercial opportunities in secondary cities, according to founder and co-managing partner Antonios Kypreos. The Delaware-based multi-family office , which had $38m of client assets at the end of last year, typically invests in US-based student and multi-family housing via private REITs.

“Large city corporate areas may be in difficult times ahead as corporations move towards a mixed approach of working from home and in person work arrangements. Suburban corporate real estate is one area of positive growth stemming from the pandemic,” he said.

The company favors managers who are invested in their own fund, with a proven track record, niche sector expertise and ability to manage a portfolio during a crisis.

“Has the fund manager proven their strategy through a crisis like 2020?” he stressed. “[This year] has shown the advantage of funds’ prudent use of leverage and conservative loan to value ratios and why being conservative has its advantages.”

Disappointed by the returns from hedge funds, many family offices are turning to smaller players and more niche strategies

11 Jan. 2017 2:41 p.m. GMT | Original article on fnlondon.com

When Antonios Kypreos started investing on behalf of his father’s estate in 2005, it didn’t have enough money to meet the minimum investment tickets that big hedge funds asked for. These days, it has the money to invest with those larger funds – but no longer the motive.

“We find a lot of times that when people get too much money to manage, the quality goes down,” said Kypreos, a partner at Axion Single Family Office. “It’s typically managers that are [managing] $1 billion and below that have the real edge. They aren’t able to take money from the pension and sovereign wealth funds.”

That lack of interest in larger funds is a sentiment felt by many executives at family offices, which manage the money of rich families, ranging in size from one man bands up to organisations with dozens of staff that manage billions of dollars in perpetuity.

Factors including disappointment with the muted returns of many hedge funds over the past two years mean some are retraining their focus on smaller managers or opting for cheaper alternatives to hedge funds. In the most recent Global Family Office report from by UBS and Campden Wealth, published in September, a third of the 242 family offices surveyed planned to reduce their hedge fund allocation. On average, the study found, family offices had cut their hedge fund allocation to 8% from 9% between 2015 and 2016.

Philip Higson, vice chairman of the global family office group at UBS, attributes this drop to the lacklustre performance of many hedge funds over recent years, particularly when compared to lower cost funds.

“People saw quite good returns without doing very much from some of their very cheap index exposure,” Higson said. “I think [family offices] were a bit unimpressed with the relatively low return profile of their hedge funds.”

However, there appears to be growing interest from family offices to invest with smaller managers and new hedge funds. Research from HFR in December found that although the total number of hedge funds is declining, smaller managers are attracting more investor capital, suggesting that “investors are becoming more comfortable and willing to allocate to innovative, emerging managers as a complement to more established holdings”.

Karim Leguel, head of client strategy for Europe, the Middle East and Africa at JP Morgan Alternative Asset Management, said that over the past year he has seen an increase in interest from ultra high net worth individuals and family offices in investing in niche hedge fund strategies, particularly firms that have assets under management of less than $500 million.

“We have seen more interest in having more exposure to newer managers and niche strategies,” Leguel said, adding that such funds can provide “a bit more alpha” at a cheaper cost and also tended to offer returns that were not correlated to wider markets. That means greater diversification than some larger hedge funds offer. “I think the benefits are not just performance,” Leguel said.

Not all family offices have the time or expertise to carry out due diligence on smaller hedge funds. UBS’s Higson said he had seen his family office clients increasingly opting to use multi-strategy managers, which allow an investor to commit to a number of smaller or emerging managers through one fund.

“We’ve had a lot of success with some of the multi-strategy managers,” Higson said. “Our clients are letting the multi-strategy fund platform manager do the homework on the up-and-coming managers… so we’ve indirectly been funding emerging managers.”
For hedge fund Devet Capital, targeting family offices and rich individuals was a natural choice when it was set up in 2015. The London-based firm collected £40 million for its macro strategy in 2016, evidence that such investors are keen on newer managers, according to co-founder Leonardo Marroni.

“Last year was a tough year for the industry as a whole in terms of overall performance and also the performance of the big names,” Marroni said. But he noted that Devet received “a lot of interest” and “some decent inflows” from family offices. “Considering how bad the year was for the industry,” he added, “it was a good result”.

Some family offices are not just committing to new managers, but are becoming their first investor in exchange for a slice of the new hedge fund firm’s management company.

Dan Farrell, New York-based chief executive of Privos Capital, said that his multi-family office was keen to seed new funds and then use its own network to help them increase assets under management.

“We are increasing our allocations to hedge funds this year despite the negative noise we all hear in the market,” Farrell said. “The best trade in today’s market for a family office looking to play in the hedge fund space is to seed an ‘old manager’ who has the guts to walk away from their established huge fund and its corporate Gulf stream and start his or her own hedge fund.”

Farrell added that consultants and larger investors were “slamming the door” on new hedge funds, creating “huge opportunities” for family offices.

Family offices may also opt to boost returns by going for cheaper products, such as alternative beta or index funds. Oliver Druce, head of capital introductions for Europe at Societe Generale, said: “If you are looking at a small family office that is very fee sensitive and has perhaps been disappointed by performance then they are going to be more attuned and looking at alternative beta or cheaper fee strategies.”

Druce added that family offices are getting savvier with how they invest in hedge funds and were regularly “reviewing and reallocating how they invest”.

Back at Axion Single Family Office, Kypreos sums up how many in family offices seem to be feeling – and where they want to put their money.

“What we have realised is that there are over 13,000 hedge funds in the US, [and] a lot of them to be honest don’t really offer much difference than say a leveraged stock market ETF,” he said. “But there are a small group of funds that are investing in more esoteric markets that are giving people access to things that are uncorrelated to the markets. That is the space we like to be in.”

Antonios Kypreos named one of Delaware’s outstanding wealth managers.

Five Star Professional is pleased to announce Antonios Kypreos, Axion Financial Group, has been chosen as one of Delaware’s Five Star Wealth Managers for 2015.

Five Star Professional partnered with Delaware Today to recognize a select group of Delaware area wealth managers who provide quality services to their clients. Antonios Kypreos is featured, along with other award winners, in a special section of the August issue.

“I am honored to be awarded this recognition as a Five Star Wealth Manager in our local community. We started our firm, Axion Financial Group, to offer a unique investment advisory solution to our own family members and a select, limited group of clients in our community. We are very happy to be recognized for the value we provide our client group.” says Antonios Kypreos of Axion Financial Group.
The Five Star Wealth Manager award program is the largest and most widely published award program in the financial services industry. The award is based on a rigorous, multifaceted research methodology, which incorporates input from peers and firm leaders along with client retention rates, industry experience and a thorough regulatory history review.

“Based on our evaluation, the wealth managers we recognize are committed to pursuing professional excellence and have a deep knowledge of their industry. They strive to provide exemplary care to the people they serve,” Dan Zdon, CEO, Five Star Professional.

About the research process:

Now entering its 12th year, Five Star Professional conducts in-depth, market-specific research in more than 45 markets across the United States to identify premium service professionals.

Wealth manager award candidates are identified through firm nominations, peer nominations and industry qualifications, and then evaluated on 10 objective eligibility and evaluation criteria, including client retention rates, client assets administered, firm review and a favorable regulatory and complaint history.

Self-nominations are not accepted, and wealth managers do not pay a fee to be considered or awarded. The award is not indicative of the wealth manager’s future investment performance. For detailed information on the Five Star Wealth Manager research methodology visit http://www.fivestarprofessional.com.

The Five Star Wealth Manager award, administered by Crescendo Business Services, LLC (dba Five Star Professional), is based on 10 objective criteria: 1. Credentialed as a registered investment adviser or a registered investment adviser representative; 2. Active as a credentialed professional in the financial services industry for a minimum of 5 years; 3. Favorable regulatory and complaint history review (unfavorable feedback may have been discovered through a check of complaints registered with a regulatory authority or complaints registered through Five Star Professional’s consumer complaint process*); 4. Fulfilled their firm review based on internal standards; 5. Accepting new clients; 6. One-year client retention rate; 7. Five-year client retention rate; 8. Non-institutional discretionary and/or non-discretionary client assets administered; 9. Number of client households served; 10. Education and professional designations.

Wealth managers do not pay a fee to be considered or awarded. Once awarded, wealth managers may purchase additional profile ad space or promotional products. The award methodology does not evaluate the quality of services provided and is not indicative of the winner’s future performance. 555 Delaware wealth managers were considered for the award; 186 (34% of candidates) were named Five Star Wealth Managers.

*To qualify as having a favorable regulatory and complaint history, the person cannot have: 1. been subject to a regulatory action that resulted in a suspended or revoked license, or payment of a fine, 2. had more than three customer complaints filed against them (settled or pending) with any regulatory authority or Five Star Professional’s consumer complaint process, 3. individually contributed to a financial settlement of a customer complaint filed with a regulatory authority, 4. filed for bankruptcy, or 5. been convicted of a felony.

Antonios “Tony” Kypreos, the founder and co-managing partner of Axion Financial Group, a Bethany Beach, Del. boutique firm, was featured in the April 2015 Edition of The Suit Magazine, where he discussed his strategy of not making any financial moves for clients that he wouldn’t make for his own family.

“Our clients like the fact that we are on the same side of the table – in the same boat as they are,” Kypreos remarks in the article. “We are typically managing our own family capital resources at the same level or perhaps even more than what our clients have. They know they are working with someone who has the exact same day-to-day and year-to-year issues.”

Read the article in full by clicking here.

The son of two Europeans, Axion Financial Group founder and co-managing partner, Antonios (Tony) Kypreos is no stranger to travel. In fact, Tony has seen so much of the world that iluv2globetrot.com has named him their Globe-Trotter of the month for April of 2015.

Read the full post here to find out how many countries & continents Tony has visited as well as what it’s like to live abroad, and where he’ll be visiting next!

 
Axion Financial Group founder and co-managing partner, Antonios (Tony) Kypreos was recently interviewed by Viet Ha Tran, Senior Associate Director of Admissions, Finance Master Programs of the IE Business School about his experiences in founding Axion.

The interview covers the motivations behind founding Axion Financial as well as the unique services provided by the financial firm that sets them apart from other investment firms. You can read the interview in its entirety here.