💵 The ~$6T family office industry


April 5, 2021

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The Hustle

As you’ll read more about in our top story today, an investor named Bill Hwang recently lost $8B of his own money over a 10-day span. That’s $9,259 a second.

Talk about a rough week at the office.

The big idea
Raining money

The ~$6T family office industry, explained

Over the past week, Wall Street has been picking through the implosion of a $10B fund called Archegos Capital Management.

A number of highly leveraged bets went sideways and the fund — run by industry vet Bill Hwang — went poof virtually overnight.

Per The Wall Street Journal, Hwang is purported to have personally lost $8B in 10 days while 2 global lenders (Credit Suisse, Nomura) are also reporting 10-figure losses.

While these numbers are big…

… the longer-term effects may send ripples through a much larger pile of money: The family office industry.

Family offices are privately held companies that manage assets for the superrich ($100m+ in investable assets) with the goal of preserving wealth over generations. The source of the funds can be from generational wealth or uber-successful entrepreneurs.

Per the Financial Times (FT), the industry’s numbers are staggering:

  • 7k+ family offices globally (up ~40% between 2017 and 2019)
  • ~$6T in assets under management across all the offices (nearly 2x the hedge fund industry)
  • $1.6B is the average family office holding

Here’s the kicker: the industry is very lightly regulated

While hedge funds, endowments, and pensions are accountable to outside money, family offices are able to stay a secretive affair.

Dan Berkovitz — a commissioner of the Commodity Futures Trading Commission (CFTC) — believes the current disclosure requirements are totally insufficient as reported by FT.

“The information required would fit on a Post-it note,” he said in a statement regarding Archegos. “And… the annual cost of the filing [is] merely $28.50.”

What will happen next?

While many family offices employ boring financial strategies to preserve wealth, Archegos — which had a peak portfolio value of $100B+ boosted by bank leverage — shows the risk.

Even though Hwang admitted to securities fraud in 2012 (and paid a $44m fine), leading investment banks were happy to have his business.

In the aftermath of the real estate crisis, the 2010 Dodd-Frank Act tightened financial regulation. Post-Archegos, the industry may see new rules for family offices, banking services, and the specific financial product used in Hwang’s trades (called total return swaps).

All of this seems totally reasonable…

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Snippets
  • So many celebs: South Korean entertainment firm HYBE,which houses supergroup BTS, struck a $1B deal to acquire Ithaca Holdings, owned by Scooter Braun (manager of Justin Bieber and Ariana Grande).
  • Fintech firm Plaid is raising new money at a $13B valuation. This comes a few months after the DOJ killed a $5.3B deal for the startup to sell to Visa. Why? Regulators said the move would be anti-competitive for the US debit card market.
  • Pinterest is in talks to acquire VSCO, a photo sharing app that is devastating for wannabe influencers (it doesn’t include likes or follower counts).
  • Waymo No-mo: John Krafcik — CEO of Alphabet’s self-driving car company, Waymo — will step down. Waymo COO Tekedra Mawakana and CTO Dmitri Dolgov will replace him as co-CEOs.
  • Huge jobs report: Stock futures are up over the weekend and US non-farm payrolls added 916k jobs in March, the most since August 2020.
  • All set: Coinbase — America’s largest cryptocurrency exchange — set its direct listing date to go public on April 14. (CEO Brian Armstrong talks to investor Garry Tan about finding product-market fit).
  • Swell! Personal records (phone #, emails) for 533m+ Facebook users have leaked online.
  • Tesla set a record for deliveries in a quarter. The EV car company moved ~185k vehicles in Q1 2021.
funding alert
Files

Why would anyone ever want to digitize this? (Source: Getty Images)

Notarize, an eNotary service, wants to be the Stripe of legal documents

Notarizing paper mortgage documents sucks bad.

Last week, Notarize, a company that digitzes the process, closed a $130m round of funding. CEO Pat Kinsel sat down with Protocol to talk about Notarize’s rise and evolution as the “last-mile solution for legal infrastructure.”

A lofty claim, but Notarize sails are full. The company:

  • Has raised $213m in total funding
  • Is used by Fortune 100s in all 50 states
  • Has seen its revenue grow 6x in the last 12 months
  • Has seen an 800% increase in processed transactions

Before 2017, notarizing a document online was a legal pipe dream

Notarization deters fraud by bringing in a 3rd-party to verify identities and signatures on documents.

After a year of lobbying state governments, Notarize facilitated the first “e-closing” in 2017 and collectively melted mortgage companies’ brains.

Today, the Notarize team is supporting a federal bill that would set a minimum standard for online notaries in all 50 states.

A stripe for documents?

Kinsel sees Notarize as the document plug-in for end-to-end transactions, allowing businesses and individuals to easily incorporate notarizations and signing into their workflow.

But competitors like DocuSign are close behind.

DocuSign announced its own online notary service just a few weeks ago, putting the company’s $38m acquisition of Texas-based Liveoak Technologies to work.

It’s a move Kinsel takes credit for forcing.

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Ad of the day
Coca-Cola ad

Souce: Coca-Cola / The Drum

An interesting 2019 Coca-Cola ad campaign used high-resolution images of the fizzy drink and challenged people to “try not to hear this.”

According to The Drum, the images create the effect of synesthesia — when 2 senses cross in the brain (in this case, sight and sound).

Coke is one of the few brands that can pull off this auditory illusion.

Created by ad agency David Miami, the ad won a gold prize at the 2019 Cannes Lions International Festival, awarded to top campaigns from advertising creatives.

Here’s another one…

Souce: Universal History Archive / Getty Images

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