Family Offices Assess Options

Terry Flanagan

Ultra-high net worth families may have a lot more zeroes in their bank statements, but that doesn’t necessarily make them financially savvy. The basic role of the family office remains unchanged: to execute the family’s strategy to help them capture opportunity, including the use of options.

“One of the strengths of the advisory business is understanding the need for proactivity,” Steve Braverman, CEO of Pathstone Family Office, which manages $3 billion, said at last week’s Thought Leadership Forum sponsored by the New York Stock Exchange and the Options Industry Council. “Our industry in family offices is built on knowing what others don’t know. This means understanding questions, concerns, and concentrated risk, both in the portfolio and in a family office. Our role as family office is to find a way to not impress with a high level of financial engineering but deal with them with a level of respect and education.”

Eric Cott, director of OIC Advisor Education, has conducted annual advisor forums along with the NYSE over the past three years with attendance increasing each year.

“The three aspects that are important to family offices in terms of equity options are similar to what was echoed by panelist Steve Braverman: keep it simple, education is critical and that like retail clients, MFO’s and SFO’s are concerned about capital preservation,” Cott said.

“Therefore hedging strategies, not just income producing strategies (such as covered call writing) are worthwhile for this group,” Cott said. Also, “large multi-family offices can have large concentrated low basis stock positions with generational gifting a priority, so these clients tend to worry about the value of the asset,” he added.

Believing the best decisions are based on accurate, up-to-date, and complete information, Braverman said he meets regularly with clients to understand their evolving needs and situation. “We focus on a small, select group of families and maintain a very high ratio of employees to client families to sustain strong connections,” he said.

There are 30,000 families in the US with over $30 million in net worth, Braverman noted. “A family office such as ours is a multifamily office,” he said. “Families are coming together to recognize economies of scale. They are thinking multi-generationally. The consuming wealth generation understands they’ll have more capital than they need in their lifetime.”

Options, either directly or via options ETFs, play a critical role in wealth management for ultra-high net worth individuals and families. “A lot of basic options strategies employed by high net worth individuals also apply to cento-millionaires,” Braverman said. “They are not desirous of highly complex financial instruments.”

Braverman told of a CEO of one public company who was worried about the potential fallout from writing an option on a single company. “I told this CEO, ‘We can find non-inclusionary ETFs with good options flow and solve the problem,’” Braverman said. “Or if a client is concerned about the impact of rising interest rates, let us talk about what can be done in a portfolio to mitigate that. It comes back to the effective use of options.”

Angelo Robles, CEO of the Family Office Association, said that options provide tremendous opportunities for protecting and hedging a portfolio, and that families are moving to bring investment talent in-house. “Most single family offices are allocators, but there’s a growing trend to hire exceptional investment banking talent and get back to the family roots of making direct deals,” he said. “The opportunity is definitely there for both single and multi-family offices to provide more education on options and hedging in general.”

Featured image via Dollar Photo Club

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