Privacy, safety and security have always been of utmost importance for people of extreme wealth. Given their net worth, they cannot afford to play defense when it comes to the safety of their families. Many family offices recognize this need and take it seriously — often working with private security companies, staffing agencies and the like to hire people in and around their homes. This week, Marcus Baram explores what it means to prioritize safety for today’s family office and speaks to the industry’s leading experts about best practices and how crucial due diligence really is.
We also bring to you interesting news hailing from the private equity sector. According to a newly released Preqin study, private equity fundraising is down 35% for the second quarter of this year. Venture capital is following suit on a downward trajectory, raising a total of $26.1 billion in the second quarter — a drop from $34.9 billion in the first quarter and $61.6 billion in the quarter that ended in June of last year.
As always, we appreciate any comments, ideas and insights that would make this newsletter more useful. I look forward to growing this family office community with your help. Please email me at [email protected].
HANDPICKED: Background checks and beyond are nonnegotiable for new hires at family offices
By MARCUS BARAM
The candidate for a job as the new senior vice president of sales at a large multi-family office had been divorced for beating his partner. The potential new hire who claimed to have worked for Hillary Clinton said the former secretary of state wasn’t available to give a reference. The prospective nanny for the children of a family office member had had a restraining order filed against her by an ex-boyfriend, who accused her of harassment.
These experiences highlight for family offices the importance of thoroughly interviewing job candidates and doing background checks when necessary. These job seekers’ flawed histories were all uncovered by investigative firms hired by family offices to do due diligence on candidates for positions that would have put them in close contact with ultra-high-net-worth families, where they would have access to the families' financial dealings and some of their most intimate secrets.
It’s a crucial process for many companies, and even more so for family offices that tend to have small staffs.
“It’s so key for family offices to do the proper due diligence when hiring,” said Brian Willingham, whose Katonah, New York-based firm, the Diligentia Group, exposed the nanny candidate after her vicious comments on social media about her parents “raised a yellow flag” and prompted further research into her background.
“Part of the fraud triangle," Willingham said, "is having opportunity [the two others are pressure and rationalization], and a small family office is perfect for potential fraud.”
The reason that family offices come to Teresa Leigh Home + Family Office is that “they’re looking for a deeper dive, to really understand who that job candidate is,” Leigh said. Family offices are “so intimate both on the intelligence level and in terms of interfacing with clients and friends and family of clients — it’s a very different world for even longtime corporate employees to step into.”
But such due diligence needs to be handled delicately, requiring a balance of healthy skepticism and personal courtesy.
Recently, it was revealed that a security firm vetting job candidates for Bill Gates' family office asked women sexually explicit questions about pornography and their sexual histories.
“That’s unprofessional and illegal,” said Paul Viollis, CEO of Viollis Group International, which performs background checks and security assessments for affluent people and families.
To serve a family office or the UHNW community, Viollis said: “You must understand their culture. Every family has its own needs and risk levels — you have to know that before you do a background search. What info do they need, and what do they want?”
Background checks include basics such as criminal records — “to make sure they’re not a convicted sex offender or charged with murdering someone,” Willingham said — as well as financial history. “If you’re hiring a CFO, and they owe the federal government a million dollars, that would be something very relevant because they’re managing your money.”
In addition, a social media analysis and interviews with the appropriate people — finding people who may know the applicant but not necessarily someone the person put down as a reference — can provide a sense of the job candidate's personal life and “whether or not it fits with the values of the company.”
When Leigh looks at potential candidates, she uses a minimum of 16 references and asks for eight personal and eight professional to really get a sense of them and uncover flaws.
And when it comes to interviewing the candidate, it’s all about the questions and closely watching their reactions.
“We’re looking for the tell — the sudden shift in conversation when a particular topic is raised; they’re avoiding talking about something,” Leigh said.
Other things to look out for in interviews: How do they explain gaps in their resume? Are they gossipy about former clients or bosses?
“If you have the right interviewer, I will take that over any polygraph,” Viollis said. “It’s all about the way you ask. I can ask you a question that is leading, that can get me whatever I want.”
Report: Private equity fundraising down 35% in Q2
By ARLEEN JACOBIUS
Private equity funds worldwide had a difficult time on the fundraising trail in the second quarter, raising a combined $106.7 billion, down from $164.4 billion in the prior quarter and also down from $165.3 billion in the year-earlier quarter, according to a just-released report from the investment data provider Preqin.
The majority of the funds still in the market trying to raise capital in the second quarter were either buyout or growth capital, with 1,150 buyout funds seeking to raise an aggregate $722.2 billion in capital and 1,202 growth funds aiming to raise a combined $314 billion.
Venture capital funds’ worldwide fundraising also continued a downward trajectory, raising a total of $26.1 billion in the second quarter, a drop from $34.9 billion in the first quarter and $61.6 billion in the quarter that ended June 30, 2022.
Of the 6,230 venture capital funds in the market seeking to raise a total of $451.9 billion in the second quarter, 2% of the number of funds and 28% of the aggregate capital targeted were for funds trying to raise the largest funds of $1 billion or more. The largest share of the venture capital funds in the market were for small funds of $100 million or less, representing 62% of the fund in the market in the second quarter, and 15% of the aggregate capital targeted were for funds aiming to raise.
Private debt funds raised a combined $71.2 billion in the second quarter, up from $38.6 billion in the first quarter but down from $80.2 billion raised in the second quarter of 2022, which was a record fundraising quarter for the asset class.
There were 1,032 private debt funds in the market in the second quarter trying to raise a combined $420 billion. Most were direct lending funds, representing 52.7% of the funds (544 funds) and 60% of the aggregate capital targeted ($251.5 billion).
Real estate funds worldwide had some fundraising success in the second quarter, raising a combined $57 billion in the second quarter, more than double the $22.7 billion raised in the first quarter and an increase from $44.4 billion raised in the year-earlier quarter.
The number and amount of real estate funds closed was but a sliver of the 2,183 real estate funds in the market in the second quarter aiming to raise a total of $577.8 billion in capital. Only three natural resources funds closed in the second quarter with a combined $1.9 billion, up in terms of capital raised from $1.1 billion raised by six funds in the first quarter and $1.6 billion raised by 10 funds in the year-earlier quarter.
From Pensions & Investments, a sibling publication of Crain Currency
LOOSE CHANGE
Lamborghini celebrates 60th birthday with scenic drive through Colorado: The legendary automaker debuted in the U.S. its all-terrain Huracán Sterrato during the three-day event, which included Lambo Chairman and CEO Stephan Winkelmann.
Tupac Shakur's self-designed ring becomes most valuable hip-hop artifact sold at auction: The piece, worn during Tupac's final public appearance at the MTV Video Music Awards in 1996, set off a fierce bidding battle and achieved more than triple its $300,000 high estimate.
Hamptons luxury bidding wars hit record high even as prices sag: Nearly 31% of luxury deals that closed in the period came after multiple offers, topping the previous high of 27% set a year ago, according to appraiser Miller Samuel Inc. and the brokerage Douglas Elliman Real Estate.
Help us with a story: We are working on a story about the anatomy of a club deal/co-investment and seeking family offices to share their experiences. If you have any comments on the topic, reach out to [email protected].