How family offices are responding to the SVB and Signature collapses
It was a family office that rang the alarm bell two months ago about Silicon Valley Bank, which had worked hard in recent years add more family offices to its client roster.
SVB had gone “hog wild” with its securities portfolio, wrote short seller William Martin in a January Twitter thread. Martin left the hedge fund world to launch his family office, Raging Capital Ventures, in 2021. Today, he is seen as the prophet who foresaw the banking-sector volatility of the past week.
Now, with SVB out of business, family offices are deciding what to do amid larger concerns about the stability of regional and midsize banks generally — and reassessing best practices in light of the turmoil.
SVB was unusual in having more than 90% of its accounts above the $250,0000 FDIC insurance limit and had a substantial client base in the ultra-high-net-worth world. The bank’s SVB Wealth division managed more than $14.4 billion for more than 3,000 clients, according to regulatory filings. Its SVB Investment Services division managed $1.3 billion for high-net-worth individuals.
The contagion from SVB hit Signature Bank over the weekend, as it, too, was taken over by regulators. While the federal government stepped in to guarantee deposits and offer an emergency lending facility to stop the contagion from spreading further, that bank’s collapse only fueled more concern about the sector.
Seth Weissman, managing partner at the real estate firm Urban Standard Capital, said that as the SVB and Signature news broke, he received a number of inquiries from worried families. "They want to know where we keep our deposits and our exposure," he said.
Weissman's firm made an effort to be "proactive about communicating" and sent messages explaining how Urban Standard "purposely manages our accounts across multiple banks" to avoid ever having liquidity issues, he said. The real estate industry has generally been less concerned than the tech space about whether their funds are secure, Weissman said.
That’s a lesson that the multifamily office Running Point Capital is sharing with its clients. “You want, if possible, more than one key banking relationship so that you have more than one source for lines of credit,” said Michael Ashley Schulman, Running Point’s chief investment officer. “I don’t see this current malaise as teaching new lessons so much as it reiterates lessons learned from the past.”
Schulman also said that over the past year, he has been advising clients to move out of cash and into short-term Treasuries, with rates generating returns in excess of 4%.
Family-office heir John Catsimatidis Jr. said he knows “quite a few” families that bank with Signature, and he doesn’t see signs of panic “because of government action.” In his conversations with families, Catsimatidis said, “Most are staying put for now.”
But separate from the issue of the security of deposits, Weissman said, real estate investors have been alarmed about their scheduled deals. "I've had tons of calls from borrowers set to close in the next 30 to 60 days," he said, "and their lender is a regional bank, and they're not sure that the loan is going to show up at the table."
That led Weissman to launch a product in just the past few days. Urban Standard Capital is offering to do due diligence on deals and be ready to be the lender in case the bank loan an investor lined up falls through — as a sort of backstop or insurance.
He gave the example of one investor who's set to close on a $12 million deal and has already put down a $2 million deposit. Weissman is offering that investor a fee of 1% of the loan to be available as the lender "if the bank doesn't show up to the closing table." For that new product, Weissman said, "We've got about seven or eight takers" who see the fee as "better than losing a seven-figure deposit."
Catsimatidis said he has been making a similar offer in venture capital, providing “access to working capital” to companies affected by the SVB collapse. Although conversations are ongoing with multiple companies, he hasn’t had any takers yet.
“Thankfully, for most of the ones I spoke to, either their lead VC stood up, or they think they’ll have adequate access to their cash,” Catsimatidis said.
Even with the federal government's lending to backstop deposits, many companies and ultra-high-net-worth individuals and families are moving to larger banks. As one family-office member put it, "I think J.P. Morgan, Bank of America and various trust companies with very conservative balance sheets is where many trust their capital will be safe, from what I'm hearing."
But for as many challenges as regional banks face, their core customers aren't eager to abandon them anytime soon.
"We've had a great relationship with a lot of regional banks, including Signature," Weissman said, though "there's a credibility challenge that they need to address in order to have depositors keep deposits there."
Weissman sees regional banks as the only institutions able and willing to work with small businesses on their needs and providing critical lending facilities to those businesses.
"A collapse of the regional banking market," he said, "would be terrible for the economy."
— With reporting by Marcus Baram