GDP boosted as family offices power the economy
New research suggests that every percentage point improvement in the annual return on the wealth managed by Australian family offices boosts the nation’s GDP by $5.8bn to $7.8bn.
One of the nation’s oldest and most prestigious wealth management groups has for the first time quantified the opportunities and risks for the Australian economy as an estimated $3.5 trillion of wealth is passed between generations of family businesses around the world between now and 2030.
Research conducted by the Mutual Trust group, the family office advisory house backed by Victoria’s Myer and Baillieu families, suggests that every one percentage point improvement in the annual return on the wealth managed by Australian family offices boosts the nation’s GDP by $5.8bn to $7.8bn.
The landmark three-year study, Why the Modern Family Office Matters, undertaken in conjunction the University of Adelaide, found a 1 per cent lift in returns from family enterprises employing 6.32 million Australians would create between 35,700 and 48,000 full-time jobs and generate an additional $3.1bn to $4.1bn in wages.
It also predicts the number of wealthy Australian families will increase by 28.5 per cent between 2020 an 2024, largely due to the rising value of property and the quality of their asset allocation decisions, adding a multiplier effect to the benefits.
In his first interview since taking over as chief executive of Mutual Trust in 2017, Phil Harkness said the study highlighted the critical importance of family businesses adopting the best model to help them plan, manage, transfer and perpetuate the contribution of their wealth across generations.
He said 60 per cent of intergenerational wealth transfer failures were due to a lack of communication and/or a breakdown of trust between family members, which often led to the forced break-up or sale of businesses and costly court battles.
“We have seen first-hand that when family enterprises work together purposefully, they are a powerful force. They deploy their capital to expand their businesses, employ people, build infrastructure, invest in innovation, back start-up ventures and give thoughtfully and strategically to charities,” he told The Australian.
“As their success grows, they also pay more tax which stimulates the economy. The economic multiplier effect of their pursuits and activity is considerable.”
The Mutual Trust study found the nation’s 350 largest family offices pay $294bn in wages, or 48.3 per cent of total private-sector wages each year.
It also found they play an important role in the Australian private equity and venture capital sector, providing 7 per cent of the total sector funding.
Mutual Trust said it saw a 64 per cent increase from 2021 to 2022 in early-stage investments, late expansion investments (growth capital) and buyouts from its family office clients.
But more significantly for the economy, the study says family businesses also manage between $515bn and $695bn of wealth outside their operating businesses, generating 446,000 to 600,000 new full-time jobs, $38bn to $51bn in further wages and $3.6bn to $5bn in additional tax payments (excluding personal income tax).
The study was based on interviews with family office experts in Australia and overseas, Mutual Trust senior advisers and a qualitative analysis of interviews with 27 family leaders undertaken by the University of Adelaide. The final report includes a number of real-life case studies.
“We feel really good about the fact that if these families take our advice, we are doing a good thing for the nation. We are all better off if these businesses prosper, generation after generation,” Mr Harkness said.
He revealed for the first time the “secret sauce” of the Mutual Trust wealth advisory business, known internally as “The Mutual Trust Gemstone”, that can be applied to each family situation.
“It actually is what we’ve been doing for a long time. But we have more recently codified it into that form,” he said, noting it featured five facets wealthy families are advised to focus on to achieve what matters most to them.
These facets form the family’s “purpose of wealth” which is implemented through the family’s strategic plan, helped by their family office.
The first is financial prosperity, or growing the financial capital sustainably to provide for the needs of the current and future generations of the family.
The second is entrepreneurship, meaning the family’s ability to use its wealth to perpetuate an entrepreneurial spirit by sustaining its operating business and supporting other entrepreneurs by providing capital and talent.
The third is family unity and harmony by strengthening family relationships, values and trust, building communication, problem-solving and the ability to undertake roles and responsibilities using each person’s strengths while valuing their differences.
The fourth is learning, engagement and fulfilment, or enabling individual family members to pursue their personal aspirations and passions through education and other opportunities. The fifth is community impact: the University of Adelaide study found family business contribute around $1bn each year to educational support and poverty alleviation for those most disadvantaged, as well as scientific research, technological advancements, arts and health-oriented philanthropic activities.
“I think what we have (with the Mutual Trust Gemstone) is really interesting. I think we’ve got a lot better in recent years at describing what we do and we feel as if we’re now in a position to tell people about it,” Mr Harkness said.
“It is very modern, very contemporary and is a good contribution to the narrative around this topic and is important for the good of the nation.”
Mutual Trust was established in 1921 by William Lawrence Baillieu, also known as “WL’’ – the man credited with laying the foundations for the Baillieu family dynasty – and his four brothers to manage the wealth of the Baillieu family.
The Myer Family Company, the nation’s most recognisable multi-family office, started offering its wealth-management services to other wealthy families in 1991.
In June 2017 it merged to create a $3bn wealth management and intergenerational advisory powerhouse, although sceptics at the time described the deal as a Mutual Trust takeover.
Myer Family Investments emerged with 35 per cent of the enlarged Mutual Trust and became its biggest single shareholder. It now appoints three directors to the board, including Myer family members Sid and Rupert Myer and former Packer family company CEO Peter Yates.
Mr Harkness, who previously led the strategy practice for Oceania and Asia-Pacific at Ernst and Young, took over as CEO as part of the merger.
In 2021 he engineered a major restructure of the wealth arm of the business, which saw a significant change in personnel, including the exit of then chief investment officer Graeme Bibby.
While he declined to provide Mutual Trust’s current funds under management, he claimed it had grown 77 per cent since the merger.
He said the Myer and Baillieu families were still heavily involved in the business.
“There are two Myers on the board and there are two Baillieus on the board. They are big clients. That ethos is loud and clear. It comes through in our values,” he said.
Mutual Trust has often been described by its new breed of nimble boutique competitors and larger institutional rivals as “old world”, a characterisation Mr Harkness acknowledged was “historically correct”.
He said the firm remained conservative in its approach to investing and was “rock solid” on governance.
“But the average age of the staff here would now be 32 and 56 per cent of our employees are women, including 43 per cent in the management group,” he said.
“We are also one of only 125 companies in the country that has a citation as an employer of choice for gender equality from the Workplace Gender Equality agency. It is only contemporary organisations that can achieve that.”
Several years ago the firm introduced a program dedicated to educating its female clients about investments. It is called Merlyn’s Circle, named after Dame Merlyn Myer, a philanthropist known for her charitable work who also introduced child care for staff of the Myer retail chain.
“Our women investment employees run the courses. So they’re listening to very high quality female investment advisory people,” Mr Harkness said.
“We do also have some men that come along and they are very welcome. But they are typically men that have just never been taught about investing.”
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