Subprime Mess Leads MFOs To Alter Policies
More than half of multifamily offices participating in a study by The Family Wealth Alliance say they have altered their investment policies or practices as a result of problems that began in the subprime mortgage sector and spread to other areas of the fixed-income markets.

The MFOs, which oversee $333 billion in assets, took steps that include tightening credit monitoring of securities issuers and counterparties; reducing fixed-income allocations in favor of cash; avoiding collateralized or high-yield debt; and switching to money market funds that invest only in U.S. Treasury securities. Some also began to monitor the solvency of custodian banks and broker-dealers after the sudden collapse of Bear, Stearns & Co.

“The rough waters in the financial markets have presented a major challenge to multifamily offices over the past year,” said Robert Casey, senior managing director of research for The Family Wealth Alliance and author of the report. “But it is just one of many challenges they are facing. For example, the shortage of top-drawer wealth management professionals and the competition to recruit them represent an acute problem that is disrupting the growth plans of many firms.”

Still, these MFO firms posted strong gains in 2007 in both new client relationships and total assets under advisement. MFOs had a median gain of 25% in the number of client relationships over the previous year. Assets under advisement increased by 12.1%.

Findings of The Family Wealth Alliance’s 2008 Multifamily Office Study were released at its annual MFO Forum October 1-2 in Chicago.