Walk around the headquarters of Silvercrest Asset Management Group, and you’ll feel like a little piece of Thomas Jefferson’s Monticello landed atop a New York skyscraper.
Antique maps of Virginia decorate the four-floor office suite on Manhattan’s Sixth Avenue, as do paintings of bird dogs on the hunt. A portrait of Archibald Stuart, a pal of the third U.S. president and an ancestor of late Silvercrest co-founder G. Moffett Cochran V, looms over the lobby.
The decor suggests stability and longevity, two things wealthy families look for in a money manager. After all, people hire family offices not to get rich, but to stay that way, with smart investments and savvy tax advice. “We’re trying to build a business that will last a very long time,” says CEO Richard Hough III, whose team, in addition to the core job of managing money, does everything from preparing taxes and running payroll for household personnel to consulting on art acquisitions and booking yachts. There’s no minimum net worth for clients, but Silvercrest likes to work with families that have at least $20 million.
Demand is good. Silvercrest has seen new assets—not from acquisitions or market appreciation—grow for eight straight quarters. That’s a challenge in an industry where someone may want cash at any time to, say, buy an island. “It’s a very lumpy business,” Hough says.
Amid that streak, Silvercrest became the second-fastest-growing firm, as measured by year-over-year increase in assets under advisement, in Bloomberg Markets’ annual ranking of the richest family offices. (The ranking includes only multifamily offices; single-family offices keep lower profiles and are exceedingly difficult to evaluate.)
CV Advisors, a Miami firm less than one-third the size of Silvercrest in terms of assets, has topped the list of the fastest growing for three years in a row. CV grew 32% to $4.6 billion in the 12 months ended in the first quarter of 2015, while Silvercrest’s family office assets grew 21% to $15.7 billion. Altogether, Silvercrest manages $19 billion for almost 500 wealthy clans and, more recently, 56 institutions, including the California State Teachers’ Retirement System, which allocated $150 million to Silvercrest in 2012.
Silvercrest is an unusual firm. It’s the only multifamily office in the Bloomberg Markets ranking that is publicly traded. It’s also one of the few that manage money in-house, picking specific stocks and bonds, in addition to shipping money out to the hedge funds that other family offices rely on to a greater degree.
Silvercrest offers clients six equity portfolios and three fixed-income ones. One of the best is its Small Cap Value Composite, a stock portfolio that, through June 30, returned 11.4% a year—before some fees—since its inception on April 1, 2002, compared with 8.2% for the Russell 2000 Value Index and 6.6% for the Standard & Poor’s 500 index.
As a public company, Silvercrest must disclose things that other firms keep secret, such as the fees it charges. Some of the highest fees come from stock portfolios it manages in-house: 1% of total assets for the first $10 million of a client’s money and 0.6% on any amount beyond that, according to filings with the U.S. Securities and Exchange Commission. For a mere 0.01 percent of total assets, Silvercrest will keep an eye on funds held in another investment company’s hedge fund or private equity pool. (Of course, those other investment companies charge fees as well.) Filings show that Silvercrest got 95.6% of its $36 million in revenue in the first half of 2015 from minding money.
Just 4.4% came from the posh services that distinguish Silvercrest from regular money managers. But that small slice is key, says Steven Schwartz, an analyst at Raymond James Financial, which helped Silvercrest go public. Silvercrest has retained an annual average of 98% of its clients since the end of 2006, Hough says, in part because people like the perks. “They aren’t making any money on family office services,” Schwartz says, “but they pay for themselves. That’s the part of the business that makes the assets so sticky.” He rates the stock outperform.
Keeping assets is easier than getting them, Hough says, because there are so many private bankers and investment advisors hunting for wealthy clients. Most won’t invest without a personal recommendation, and those can be serendipitous. “This is a referral business,” Hough says, “and it’s one of the most competitive ones you can be in.”
As a public company, Silvercrest faces extra pressure to gather assets. Sometimes—like now—even eight quarters of gains aren’t enough to attract investors. Since peaking at $18.51 on June 10, 2014, the shares had fallen 41% to $10.94 as of October 8. A graph showing the share price from the initial public offering in June 2013 to October is shaped like the blue, peaked chevron in the Silvercrest logo: up steadily, then down. Schwartz says investors are worried that a declining stock market will shrink client portfolios—and Silvercrest’s fees.
Silvercrest was founded in 2002 by Cochran, Martin Jaffe, and a group of their co-workers from the asset management unit of Donaldson, Lufkin & Jenrette. They hoped to distinguish their firm by offering high-quality in-house money management and access to outside funds. On top of that, they added white-glove services of all kinds—bill paying, partnership accounting and other odd jobs the wealthy like to outsource and forget.
They sought to keep some of DLJ’s style, too. Much of the furniture, and even the carpet, came from the firm, at nice prices, after 2000, when DLJ disappeared inside Credit Suisse Group in a takeover.
Later, Silvercrest caught the eye of Microsoft co-founder Paul Allen, owner of one of the world’s biggest single-family offices, Vulcan Inc. Vulcan took a 38% stake in Silvercrest in mid-2007.
Global finance collapsed in 2008, and the fortunes held by wealthy families shriveled along with it. Worse yet for Silvercrest, Cochran had learned that cancer originating in his pancreas had moved to his liver. He kept it at bay with experimental treatments and remained CEO. The Silvercrest team worked hard to keep investors from dumping everything at fire-sale prices during the crash. Managers stopped making calls for new business and devoted all of their time to calming their existing clients.
By 2013, markets had stabilized enough for Silvercrest to sell shares to the public. Why make that move when none of your competitors has? The biggest reason, says Hough, is to solve a compensation problem. Money managers like Cochran and Jaffe bolt from big banks and start boutiques so they can own the store, not just work there. But when partners leave the business, they expect to cash out. Going public allowed Silvercrest to use something other than its valuable cash flow to buy partners’ shares—and one of Silvercrest’s biggest investors, Vulcan, was ready to cash out. So, on June 27, 2013, the firm sold 4.8 million shares at $11 each.
Sadly, another entity had a sudden reason to sell. Cochran, who had fought his cancer for 10 years, died in November 2013. His estate sold 900,000 shares into the market soon after; it still owns about a million shares, worth $11 million. Hough took over as CEO after Cochran died. Jaffe remains a senior advisor to the firm and the third-largest shareholder.
Despite the stock’s slump, an IPO was the right move, Hough says. It helped Silvercrest stay independent, something that was important to Cochran. “It was his dream to build an enduring firm,” he says.
How We Crunched the Numbers. Our ranking is based on data compiled by Bloomberg from information self-reported by multifamily offices. The list was assembled through research by the Bloomberg Rankings team via a survey of more than 1,000 firms worldwide, using a database of contacts obtained from Key Biscayne, Florida–based FamilyOffices.com. We received responses from 98 firms.
We requested data as of the end of the first quarter of 2015; some data is for year-end 2014. Change in year-over-year assets under advisement was calculated using the data supplied by the firms. Single-family offices are excluded. Family offices that are part of private banks are included if the bank has a unit that offers direct and comprehensive investment and noninvestment services to high-net-worth families.
Figures for AUA include only assets managed by the family office unit of the bank. For nonbank family offices, AUA includes wealth directly managed by the offices and funds outsourced to money management firms. Money managed for private foundations is included. Money managed for pension funds is excluded. Insurance policies and trusts on which advice is provided are included.
The ranked firms provide both investment and noninvestment services. The latter may include family meetings, financial education, art consulting, estate planning, family governance, foundation management, business consulting, property management, travel arrangement and shopping assistance.
