Business, EUROMONEY, Interview, Sub-Saharan Africa, United Kingdom, USA, Russia - Fri June 10, 2016

Wealth management: Mansour’s new style of family office

Mohamed Mansour’s decision to build his own business to manage his family’s wealth and staff it with seasoned investment bankers was dismissed by some. But six years after its formation, the billionaire’s brainstorm – a hybrid of family office, private equity firm and investment bank – is being praised and even emulated.

When Mohamed Mansour stepped down as Egypt’s minister of transport in 2009, he was at a loose end.The cotton-trading business his father founded in 1952 had long been transformed into one of the world’s great private firms, Mansour Group, with industrial, banking and retail operations stretching from Sweden to Siberia to Singapore.

It was highly profitable, turning over $6 billion in annual revenues. Money was not an issue for the 67-year-old billionaire or his extended family in London and Cairo – nor was it ever likely to be. What he did need,though, was a fresh challenge.

So it was that Mansour found himself boarding a flight to New York in early 2010. At first, the trip was merely an extended vacation with a pinch of business thrown in. It was a chance to enjoy the delights of a great city, cast a gimleteye over his family’s vast wealth (then preserved and managed by Citi), and meet a few choice contacts in property and finance (the group is a large owner of real estate in the US Midwest).

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Mohamed Mansour

New York’s finest soon got wind of his presence. Mansour took in the offices of Goldman Sachs chairman and CEO Lloyd Blankfein, JPMorgan Chase chairman and CEO Jamie Dimon, and David Rubenstein, co-founder of The Carlyle Group.Along with his son, Loutfy, he met with the heads of private equity groups KKR, Apollo Global Management and General Atlantic. Investors flew in from Boston and the WestCoast.

Sitting in his London offices on Grosvenor Place, a stone’s throw from Hyde Park, Mansour, a driven but humble man, tells Euromoney he is “still surprised at how much interest there was in me. I met the heads of more than 20 global financial institutions in just a few weeks. It was an eye-opening experience.”

Manuel Perez remembers the trip well. At the time, he was global chief investment officer of Citi Trust, vested with helping to manage the Mansour family’s accumulated wealth, as well as the fortunes of many of the world’s richest people. Mansour’s standing within Citi was such that Perez took several days off, guiding the businessman around the city and setting up a series of critical meetings that would change both their lives.

A defining moment came when Mansour met Chuck Feeney, an Irish-American businessman and founder of The Atlantic Philanthropies, a liberal charitable institution.”Mohamed got a sense of how these people started out in life, a sense of their roots, and how they made and managed their money,” Perez says.

“He found that a lot of these guys had cashed out after making their fortunes [in Feeney’s case, from duty-free shopping], before setting up their own private funds, which they used to manage their own money. He was pleasantly surprised to find that this was a well-trodden path. He was earning more money, through dividends pouring in from the group, than he could ever spend or use. And he’d begun to see, first, that there was a better way to manage his money and, second, that there was no reason why he shouldn’t manage it all himself.”

After departing for London, Mansour took Perez to one side. “He told me he wanted to set up his own investment firm, and that he wanted me to move to London to join him,” the Citi banker remembers. “I was born in Miami, but I spent some very happy times in London as a kid, going to school in Richmond while my father worked for an airline.I said I loved the idea.”

Devilishly tricky

For mansour, the decision was not taken easily or lightly. The seed had been planted in his mind much earlier, during interactions with his financial advisers. “Bankers would meet me and say: ‘Oh, you made 2% [on your money last year] or lost 3%’. I started thinking: ‘Why not get a team together to decide our own investments?’”

But building a family office run by family members, a group of experienced financial services professionals, or a mix of both, can be a devilishly tricky thing to do – let alone do well. It’s a process fraught with uncertainty.

Global institutions like Citi are adept at managing the fortunes of the wise and wealthy: James Holder, head of Northern Europe and Family Office at Citi Private Bank, reckons the US lender manages “more than 900 family offices globally. [They] benefit from top-of-the-range financial advice from our private, corporate and investment banking teams”, catering to families whose needs “go beyond conventional asset management”.

Casting off alone also meant transferring the family’s entire net worth – all of its accumulated liquid and illiquid assets, retained earnings and current and future dividends – to a new standalone entity incorporated in London. Mansour discussed the issue long and hard with his brothers Youssef and Yaseen. A fourth sibling, Ismail, passed away in 1996. The vote came down in favour of the new investment-focused family office. And so it was, on August 3 2010, that Man Capital was born.

The first challenge was to define the new outfit. Family offices come in all colours and flavours, ranging from the independent (managed entirely in-house) to the outsourced (run by the likes of Citi or other specialist institutions). Hybrid models take a middle path, outsourcing some operations to a wealth manager while focusing on a core set of financial services in which the family might have an historic, specialist competitive edge (derivatives, say, or trading in foreign exchange or precious metals).

In the run-up to the launch of Man Capital, Mohamed and Loutfy spent months visiting family offices in London and New York, getting a sense of what worked and what didn’t. It was fertile hunting ground. Family offices have been around in New York since the days of John Pierpont Morgan.

In its 2015 World Ultra Wealth Report, Wealth-X put the number of family offices in the United States – each of which manages assets worth upward of $250 million – at 2,260. Ernst & Young reckons the number in London has doubled since the global financial crisis, to around 1,000, managing more than $1 trillion in assets between them.

What they found was an industry with a surprising range. “We visited family offices that existed solely to be helpful when the Sheikh’s wife came to London on a shopping trip,” says Mansour.

“Others were far more regimented and structured, which was the model we were seeking to emulate.” From the start, he had a clear vision with Man Capital. The aim was to build, in his words, a “private equity-style investment bank”, where assets, often bought or built in hardscrabble markets, were nurtured and given time to grow and mature. That chimed with the wider firm’s history: Mansour Group made its money operating out of many of the world’s wilder and woollier emerging markets, including Iraq, Russia and Nigeria.

Next came titles and hiring. Mansour set himself up as chairman, with Loutfy joining from Goldman Sachs as chief executive officer. Perez, the first external hire, was made partner, having relocated his family to a townhouse near Kew Gardens.

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Manuel Perez

For the former Citi banker, the offer to join came at just the right time in his career. “I started in banking in 1992,” he says. “And I was very disappointed – a lot of us were – at the way the big banks reacted to the financial crisis. I’d spent 15 years building a nest egg and a retirement fund built on stock options, and suddenly they were worth virtually nothing.”

The rawness lingered until Mansour came along. “At Citi, I was working with a massive global platform,” Perez adds. “But while a bank might say they manage $50 billion in assets, the truth is they likely manage $5 billion, with the rest being a custodian and advisory platform.

“At Man Capital, I was helping to manage $6 billion in discretionary assets, and we were making real, active investments – building things that mattered. From within Citi, I could see the trend of many other clients moving from discretionary platforms to self-managing their assets.”

Team ethic

From then on, recruitment became tougher, the challenge being to find seasoned financial professionals with a nuanced set of talents. The aim, says Perez, was to find people with entrepreneurial skills and a team ethic.

“We looked for people with broad experience in banking, rather than deep expertise in a single sector. And we needed to imbue the new family office with the right kind of optimism. We didn’t want people who always saw the world going to hell. But neither did we want bullish types who always denied the cyclical nature of the world: that economies and share prices can go down as well as up. Once you start narrowing it down, it’s a pretty shallow pool.”

Mansour, a man accustomed to sizing people up quickly, found that while many of the firm’s new hires flew, others flopped. “Some people interview very well,” he says. “They come across as extremely presentable – just the right sort of fit. Then come delivery time, it’s just not there. Others are the exact opposite.” Still, of the first 10 hires made by Man Capital, six are still employed, a striking retention rate for what is in effect a start-up investment bank.

The firm continues to bring in fresh blood as and when it’s needed. Hesham Halbouny, a fast-talking banker in his mid 30s, is one of the more recent additions to the team. Brought in eight months ago from EFG Hermes, he swapped a job on the Middle East and North Africa-focused investment bank’s mergers and acquisitions team for a broader remit at Man Capital.

He, too, had seen enough underwhelming family offices during his time in the Gulf, “concierge services that booked a few flights for family members and passively invested a few millions dollars in some shares when a friendly banker came in to pitch”.

But he knew the Mansour family well, and felt after meeting the team – Man Capital now employs 12 full-time executives – that he wasn’t joining a ‘normal’ family office.

“When the Mansours do something, they do it right; that gave me some initial comfort. Coming here required a major shift in my mindset, but I liked the entrepreneurial nature, the process of buy-and-build rather than strip-and-sell. We are deploying and managing significant amounts of capital here. I see myself staying here a long time.”

Man Capital’s slimline structure highlights the fluidity of family offices – and the power they can wield, if the owners assemble it right. It effectively breaks down into three operating divisions. The first invests in startups. Man Capital was an early investor in a slew of big technology firms, including Facebook, Twitter, Spotify and Uber, as well as a host of smaller US and UK startups.

Sometimes the family office actively buys stock in rising tech stars; on other occasions they are pitched to by bankers or the firms themselves. Mansour remembers receiving a call from Facebook in 2011.

“I didn’t know who Mark Zuckerberg was,” he says. “He was introduced through the investment side of Facebook. A call came in, the firm was introduced to us, and we invested.” The family office sold its shares when the social media firm completed its initial public offering the following year, pocketing a tidy profit.

‘Operational oversight’

Then there’s the more prosaic part of the family office, which Halbouny refers to as “public markets”, but which might also be termed ‘operational oversight’. Man Capital doesn’t just manage the Mansour family’s past, current and future wealth.

It also runs the rule over the wider group’s strategic decision-making, poring over the direction of, say, Mantrac, the group’s heavy machinery and extraction division, which puts digging equipment to use in markets from Russia to Ghana, or its automotive division, which distributes more General Motors vehicles – delivered to markets in sub-Saharan Africa and worldwide – than anyone else.

“If a subsidiary of Mansour Group is looking at an M&A decision, or in monetising an asset, we get involved in that,” says Halbouny. “Should division X sell this marginal or strategic asset, or merge it with something else, or IPO it? If the CEO of a subsidiary says it’s time to expand into a new geography or acquire a new business, we act as an adviser, and get invested in the decision-making.”

The final – and perhaps most important – function concerns its collective ability to make long-term investment decisions. This is where the family office really comes into its own: a dozen experienced investment bankers of all stripes pooling their wisdom to determine what assets they should buy, where, when and how. This is the division that comes closest to meeting Mansour’s aim of forming a private equity-style investment firm.

In fact, the Man Capital chairman refers to family offices in general as “the new private equity”, due to their ability to invest heavily in assets without needing to set an exit date.

Man Capital’s overseers, partners and managing directors are under no pressure to pump a set amount of capital each year into new deals. Mansour reckons the family office does “one to two investments a year, each typically around $100 million to $125 million depending on our appetite in a sector, on the availability of assets and on macroeconomic conditions. Some years we invest more, if we really know a market. But we need to get the decision right, as it’s the family’s money we’re investing.”

Africa is a key focus for Halbouny, who spends much of his time securing visas for the likes of Nigeria and Kenya and shaking the rich soil out of his shoes. He expects Man Capital to invest heavily in healthcare in the years and decades to come and points to the region’s often startling lack of stitched-together infrastructure.

“Recently, I journeyed overland from Lagos toAbuja” – a 10-hour, 740-kilometre drag up the Sagamu-Benin expressway, he says. “Very few of the hospitals we visited en route had a single working dialysis or diagnostic machine. That’s a tragedy, but it gives us more opportunity to explore that kind of market. Africa isn’t five-year money.

“It’s really long money – it’s having the stomach to weather the ups-and-downs. It’s our infrastructure that we build wherever we go, it’s our knowledge of the local regulatory framework, it’s us investing directly and with our strategic partners.”

In the scale of things, man Capital has not been around long – there are family offices in the UK and US that are managed by fifth-generation scions of the original founder. But its emergence does highlight a seismic shift underway in this profitable little corner of the banking industry.

That creates a huge opportunity for families and a concomitant challenge for investment banks and wealth managers, who profit nicely from long-standing relations with the ultra-high net-worth. One private banker says the rise of the family office was “a trend that will continue. Banks cannot stop it happening. They can react – and they are, by giving ultra-high net-worth clients access to their entire spectrum of experts. Once, banks kept their private and investment banks separated; now, those two divisions are becoming cross-fertilised.”

Man Capital’s Perez sees first hand how an industry he worked in and near for almost 20 years is changing. “The private-wealth platform is evolving fast – it has to. In the past, private bankers were mostly relationship people. They had some financial knowledge, but really they were just gatekeepers. If they needed an expert on discretionary management, they’d bring the likes of me to the table.”

That world, Perez believes, is now dying. Super-wealthy clients – and this includes Man Capital, which still does a lot of business with Citi and a host of other investment banks – no longer want to get flattered over a nice lunch. They want polished investment advice from thinking, seasoned professionals.

“I want a meeting to be based on value-add, on the service the client is providing,” Perez says. “A banker who rings me up and says they have great front-row tickets for the Monaco Grand Prix – I don’t care about that. It makes no sense. Don’t court me with that stuff. I want information that I can use.”

That highlights the shifting, rising power of the family office. When Man Capital was fresh out of the box, it had to hunt for deals. Bankers and investor relation chiefs gave it a wide berth, or ignored it entirely. Over time that changed.  “We used to go after deals,” says Mansour. “After six years, the deals come to us.” Some banks tasked with setting up a family office for a key client have even started seeking out senior Man Capital executives for advice.

Own agenda

As Man Capital’s power grows, so does its ability to set its own agenda: to decide who it wants to work with – and whom it would prefer to avoid. When working on prospective deals, says Perez, the family office “needs banks to open up their balance sheets to us. In new markets, we want banks to make introductions, to introduce us to corporates, investors and decision-makers. In 2011, when the family office was still relatively young, I remember asking one very large bank for credit on a deal we were doing. They said no. Now they are knocking on our door for business, and it is our turn to say no.”

Setting up a family office – a real one, capable of making its own, considered investment decisions – is no cakewalk. They can be costly things to run. Anyone seeking to emulate the likes of the Mansours should, notes Citi Private Bank’s Holder, “bear in mind how expensive it can be to set up a family office. And that it’s not always easy to hire the kind of people who are a) intelligent enough and b) motivated enough to work in a small office when they may be used to working in a far larger, competitive and dynamic team of their peers.”

Perhaps the best reason to set up a family office is to instil or reinforce a sense of purpose and identity in the family structure. Perez talks of the benefits of “incubating wealth creation internally, of attracting good talent with the right mindset, of forming a team all pulling in the same direction.”

Mansour himself talks fervently and often of the “sense of destiny” that Man Capital brings to the table: a feeling that the family is in control of its own future. Perhaps that is his most impressive achievement since he boarded that flight to New York six years ago.

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