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Jed Finn, Chief Operating Officer for Morgan Stanley Wealth Management and Head of Corporate and Institutional Solutions
Source: Morgan Stanley

After making inroads managing money for the merely wealthy, Morgan Stanley is setting its sights on the richest of the rich — family offices with tens of billions of dollars in assets, CNBC has learned.

The bank has spent the last four years developing a suite of products geared toward family offices, the increasingly powerful investment entities set up by the world’s richest individuals and families, according to wealth management Chief Operating Officer Jed Finn.

The move is the latest sign of the arrival of the family office as a key player blurring Wall Street’s old distinctions. The firms have exploded in number in the past decade, and in their global search for yield, family offices have morphed into go-anywhere vehicles that can make wagers like hedge funds, invest in start-ups like venture capital firms and even purchase companies outright.

But their size and complexity has meant that family offices have been mostly ignored until recently, being too large for banks’ traditional wealth management channels and too small for institutional coverage, Finn said in an interview.

“They’ve fallen between the cracks of what had existed before,” he said. “It’s a $5.5+ trillion segment where nobody has significant share because there’s no single offering that really can fit the various needs of the different families.”

The push comes as Morgan Stanley, run by CEO James Gorman since 2010, aims to reach $10 trillion in client assets, more than 50% higher than the current level. Gorman has helped shape Morgan Stanley into a wealth management giant, in part through acquisitions that helped the bank target a broad spectrum of clients. The strategy has been applauded by investors, who prefer more stable sources of revenue over relatively volatile trading and investment banking.

‘Game changer’

The bank’s success in growing assets under management has led executives to seek other areas of opportunity. In 2018, Finn began asking family office clients what their biggest needs were. Managers still lean on Excel spreadsheets to keep track of holdings, manually updating figures from reams of data sources that quickly become outdated, he said.

“What they really needed was that source of truth,” Finn said. “How do you build a general ledger for a family where they can understand at any given point what their total exposure is and allow different people, different entitlements to see it? That was the challenge.”

So the bank took its fund services platform for hedge funds, which custodies and tracks values across asset classes and geographies, and adapted it for the family office, creating a clean interface showing holdings and performance.

The Morgan Stanley Family Office unit began onboarding firms onto the new platform last year and has added more than $25 billion of assets so far, the bank said. During a strong year for equities, Morgan Stanley added a record $438 billion in net new assets in 2021.

“It’s been a game changer for these families because now they can actually see where all their holdings are in real time and make decisions accordingly, which had been their biggest challenge,” he said.

New money vs. old

In January, when asked about his $10 trillion goal, Gorman cited the nascent family office business as one reason the bank has been growing assets faster than in previous years. “The reality is, wealthy people get wealthier quicker than people who are less wealthy,” Gorman said.

As the fortunes of the ultra-wealthy have grown, those with at least $250 million to invest have gravitated toward the family office model, which gives them direct control of their finances in a lightly regulated vehicle.

Since the offices don’t have to register with the Securities and Exchange Commission as advisors, estimates vary on their number and assets under management. There are at least 10,000 family offices globally, most of which were created in the last 15 years, according to accounting firm EY.

Morgan Stanley has had more success signing on the newly rich to its platform compared with old-money families who are already managed. There has been an unprecedented wave of wealth generation in the last decade as start-up founders raise money in private rounds, sell their companies or take them public.

“If you look at every IPO over the last 12 to 24 months, you will see a principal who now has more money than they’ve ever had, and usually there’s no team in place to manage it,” Finn said. “When it gets to the sixth generation [of wealth], the thing is managed already.”

Andy Saperstein, Co-President of Morgan Stanley
Source: Morgan Stanley

The bank is continuing to add capabilities to its family office dashboard, including the ability to custody private company shares. Morgan Stanley is also working on a matchmaking platform where start-ups can raise funds directly with the bank, tapping capital from family offices and other ultra-high net worth clients.

“That has become a huge source of demand from these families. They want to be shown more and different types of non-correlated investments,” Finn said.

Although U.S. and European bank rivals, including JPMorgan Chase and UBS, have been jockeying to serve family offices in recent years, Morgan Stanley believes it has a significant head start in creating a fintech-powered solution for the group, according to co-President Andy Saperstein.

“It would be very difficult for most competitors to try and create something like this,” Saperstein said. “We’re effectively providing families institutional-quality services.”

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