This interview with family office investment banker Matt Somma was conducted by Pensions & Investments, a sister publication of Crain Currency.
Matt Somma began his career at CIT Group in its M&A division in 2006. While looking for Asian investors and private equity firms, Somma began having calls with Asian and Australian family offices about investments.
This led him to ultimately cold-calling MSD Capital and setting up an introduction with their private capital and special-situations group. Over time, that led Somma to a new career at MSD Capital, the family office of Michael Dell, which served as his steppingstone to the exclusive world of family offices.
Somma honed his skills and cultivated relationships with family offices on co-investment opportunities. He became a dedicated investment banker to the industry starting in 2010 and was involved in over 90 transactions with more than 30 family offices. Notable among these was his prescient investment in Tesla and SpaceX in 2013, earning family offices substantial returns.
How did you initially enter the family office industry, and what drew you to MSD Capital's pioneering approach in direct investments across various asset classes?
I began my career in M&A investment banking and explored opportunities raising capital for a startup airline in Australia in 2006. MSD Capital's innovative approach to direct investing caught my attention, leading to discussions and eventually joining the team.
Getting into MSD Capital's door is no small feat.
I was introduced to the private equity and private debt team, I eventually interviewed with the Technology, Energy, and Convertible Bonds Group, managing a significant portion of the firm's capital. This allowed me to blend stock-picking skills with cross-capital structure investments. At the time, MSD was a true single-family office with $8B AUM and 30 employees.
What led to your departure from MSD, and how did you transition into the realm of family office investment banking?
My group spun out to start a hedge fund in 2010 called Karamaan Capital, receiving a seed investment from Michael Dell. While challenging, it opened doors to witnessing MSD's transformation into a multi-family office. My familiarity with the evolution became valuable as an investor in legacy MSD employee funds and seeing the firm switch its focus to direct investing versus public markets.
As a merchant banker from 2010 to 2012, I observed the proliferation of family offices post-financial crisis. Many former MSD colleagues were going to other family offices. I capitalized on this network, serving them as clients. Simultaneously, JP Morgan established a significant family office investment banking and trading effort.
Your role at J.P. Morgan involved covering family office clients globally. Could you share some insights into your responsibilities and experiences during that time?
I covered family office clients worldwide, generating trade ideas and co-investments for them. Mentored by leaders like Jimmy Lee and Phil DiIorio, we developed innovative solutions like Morgan Private Ventures that provided family offices access to early-stage investments, including successful ventures like Robinhood, Rent the Runway and Peloton.
You had a very bullish stance on Tesla and SpaceX early on. Can you delve into your experience with these investments and the dynamics within J.P. Morgan during that period?
Expressing my bullish views on Tesla and SpaceX was a contrarian opinion. The stock was trading at $28 and had an underweight rating by most investment banks in 2012. Despite that, we said it would be the stock of the decade and “the new Apple”. Many family offices invested and did extremely well, which led to them investing in the series B and series C rounds of SpaceX.
Family office capital is often valued for its flexibility. How does this contribute to the competitive edge against private equity?
Family office capital's value lies in flexible structuring and creative solutions tailored to founders' preferences. The ability to offer control or noncontrol structures based on what's valuable to the founder provides a significant advantage, especially when compared to traditional private equity models.
Permanent capital involves holding investments for a more extended period than typical private equity. This strategy aligns with family offices' preferences, avoiding premature exits and unnecessary tax implications. It allows family offices to nurture and grow successful investments over time.
While private equity funds dominate auctions, certain institutional family offices, numbering 15 to 20, can compete effectively. Despite fewer transactions per year, family offices' willingness to pay more for sectors or companies they genuinely care about enables them to be formidable contenders.
Why do family offices resonate with founders, and how does their approach differ from that of private equity firms in maintaining existing management teams?
Family offices lack the negative connotations often associated with private equity. Their reliance on retaining existing management teams and preserving family involvement differentiates them — as opposed to private equity firms, which might replace management teams and phase out family members.
Who are the family office investment bankers you admire?
Byron Trott (BDT Capital), Michael Lynch (J.P. Morgan) and Laura Van Peenan (William Blair) are the bankers I look up to. The four of us are the only investment bankers to work on 100-plus family office transactions. Jay Jordan (founder of Jordan Co.), Geoff Boisi and Dick Herbst were incredible mentors over the years. Jay started the PE firm Jordan Industries, a premier private equity firm, and also has his own family office I’ve covered for 10 years.
Geoff and Dick were legendary Goldman Sachs investment bankers and started Beacon Group, which was sold to Chase in 2000. They started their own family office, Roundtable Investment Partners. I have a tremendous amount of respect for them.