The Cayzer Family have been exponents of the Single Family Office (SFO) concept since before the term became the subject of fashionable academic studies. Even in the immediate post-war period, executives in the secretarial department of their shipping companies included amongst their responsibilities a range of tasks that would now a days fall under the heading of wealth management.
Today, the Cayzer’s SFO is conducted through the Cayzer Trust Company Limited (CTC), a 100% Cayzer owned private investment vehicle holding the bulk of the family’s business interests. Since the family’s divestment from British & Commonwealth in 1987, CTCs most significant investments has been its near-controlling ownership position in Caledonia Investments plc, itself since 2003 a London-quoted investment trust with a current market capitalization of over £1.1 Billion.
The emphasis for the vehicle’s investment is on both capital growth and income with Cayzer-Colvin referring to it as the ‘tortoise, not the hare’ style of investing. Like many families in the same position they look for traditional, value-orientated companies with a strong focus on cash generation.
Through their investment portfolio the family access funds, direct investments in both public and private companies, as well as co-investments with other partners.
Co-Investing, in its many forms, is an important component of Caledonia’s portfolio, representing one third of its investments.
Within Caledonia , careful and controlled decisions are taken over its investments, with a focus on bottom up selection. Size of holdings on direct investments, be they private, public or in conjunction with other families, focuses on individual investments from Caledonia of £20-£50million to enable the family to take minority equity positions within the company, and a representative seated on the board. Such investments are typically held for more than five years and tend to have a holding period of 20 years and beyond, supporting the view that family offices are long-term investors. This long-term view is attractive to family businesses such as Caledonia given they, like other family businesses, think generationally with much more extended horizons and goals.
Cayzer-Colvin sees this long-term stance as a major advantage for family offices (FOs) today. Private equity companies rarely look at investments over five years and traditional private equity funds fit within a 5-10 year investment gap. This creates opportunity for FOs as they can be ‘intelligent,’ long-term money for private companies. Family offices usually know what they want –deals made are deals signed with little prevarication. This straightforward approach to investing harks back to a much more ‘gentlemanly’ approach to relationships and investments. That said, Cayzer-Colvin says the family aren’t interested in start-ups or venture capital arrangements, describing themselves as capital growth investors in established companies.
Geography and distance do not deter the Cayzers when looking at direct investments. With everything open to consideration, investments currently under review span Europe, North America, APAC and India. Even abroad the family takes a simple approach to investing, reviewing countries and developing ideas, trends and themes around them in which they could exploit and create growth opportunities.
Their long term commitment and passion is something they look for in the DNA of those firms in which they invest, taking into consideration that investments aren’t merely about the company and its financials, but also the people within the organisation. Alignment of interests and common goals are high priorities when researching firms. Caledonia has a low turnover of staff. Relationships are closer to their underlying portfolios than many other types of investors. This alignment of interests makes family offices well-placed investors, as they understand to preserve capital, you have to grow capital.
The company see themselves not merely as shareholders within these companies but as trusted partners. Relations are important, particularly with management. As such Cayzer-Colvin says they seek out companies with a similar management ethos to themselves, aiming to establish relationships that are deep and meaningful. When issues or concerns arise, Cayzer-Colvin points out this isn’t just a matter for discussion in the boardroom but can be tackled more personally. . As these investments are long-term, the family does not threaten to withdrawal at the slightest problem, instead looking to be both encouraging and play an active role with management.
This ethos and emphasis on the personal approach is equally important in the selection of co-investors. Cayzer-Colvin says they look to ensure other families, as well as a company’s management, share the same philosophy to risk and unnecessary spending.
If executed correctly there are many advantages and benefits to co-investing, according to Cayzer-Colvin. However, there are also significant economic and emotional issues to contend with before moving forward with an investment. The hardest part isn’t necessarily the actual investment opportunity; it is finding like-minded people, families that share the same philosophy both emotionally and financially. This takes ‘shoe leather’ and active family time to find and nurture these relationships. Networking is key to this process, but above all the relationship is the ‘glue ’.
When it comes to investing with other families and partners, a 50/50 split approach isn’t always the way or goal. Co-Investments are like a marriage according to Cayzer-Colvin,
‘’you don’t pop the question on the first night - this is a high risk strategy.’’ Families must have very clear lines of communication and everyone involved must have a clear understanding about what is on the table. When it comes to searching for opportunities amongst other families, ‘birds of a feather flock together’ –families with similar ethos and investment styles can be found within a small network of contacts, advisers and other associated deal makers. Investment opportunities are a two way street. Sharing is common, as is passing on references and ideas to like-minded people. The better family offices understand and know liked-minded
people, the more beneficial arrangements like co-investments can be built and enjoyed. Caledonia for example is very open with other families, making it known their interest in traditional value investing. This ensures no one is wasting time and resource.
To cement commitment from partnering families, binding contracts can be formed, pre nups akin to. However, typically co-investment is based on relationships, a ‘gentleman’s agreement’ as it were. Investments, certainly those Caledonia watch and invest in, are long term so it is important partnering families have a similar time frame in mind. Returns are expected for generations, not merely a few years.
Caledonia Investments’ view in exiting an investment is dependent on the investment itself, not on individual concerns or calls made by decision-makers. Investors should let their investments grow and mature much in the same way as fruit picking, Cayzer-Colvin says - pick the harvest too early and you may be left with a bitter tasting apple.
Finally, when selling their stakes, Caledonia aims to always leave the company in a better position than when it arrived - leaving further investment opportunities behind so future investors to reap benefit. This creates good will and kudos within the market, Cayzer-Colvin notes.
In Cayzer-Colvin’s opinion family offices should spend more time encouraging the merits and benefits of direct investments and co-investing with other families, as they represent a
very attractive way of working together.
There are many things to consider, both financially and emotionally, before ‘jumping into bed’ with another family, Cayzer-Colvin says. Alignment of interests needs to be right for all involved and trust and deep-rooted understanding needs to be established.
Commitment to co-investing and an understanding of potential illiquidity of the investment is also vital, he adds. Addressing these points comes down to the individual investment style of the family and whether or not the time horizon suits all parties involved.
The negatives aside, there are many ways in which co-investing can benefit all and not just commercially. Aside from being huge fun, Cayzer-Colvin says, another interesting benefit rarely discussed is the development of soft issues through co-investing, which can extend over generations and bind families together above and beyond their roles as investors. Sharing stories and advice around succession, family education and even work experience can add a whole secondary area of benefits for family offices to consider and embrace for generations to come, he notes
It is imperative families take an active role and interest in family office life. The future of the family relies not merely on one person, but on the direction and collaboration of the family, and with other families, through the generations, Cayzer-Colvin concludes.
