About Episode

Jens Bernhardt is the Founder and Managing Partner of Bernhardt Advisory, a multifamily office, an M&A service provider, and placement agent for private equity funds in Germany.  Before founding his own company, Jens was Chief Investment Strategist of the family office service provider subsidiary of Sal. Oppenheim, which at the time in 2008, was Europe’s largest independent private bank. Jens previously has been a member of the Board of Deutsche Wohnen, a property company listed in Germany’s main index, the DAX.
Before that, he was Chief Investment Officer for Germany at Zurich Insurance Group, Switzerland’s biggest insurance company. And before that, he was Chief Investment Officer at Skandia Life Insurance. And even before that, Jens was a management consultant and fund manager. Jens holds an MBA from Cambridge and a PhD from the University of Kassel.
In this episode Jens gives us an overview of the Private Wealth space. This includes similarities and differences between Family Offices, Wealth Managers, and Private Banks. As an industry veteran, Jens gets into the benefits and struggles of Family Offices.






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[00:00:04] ANNOUNCER: Welcome to The Wall Street Lab podcast, where we interview top financial professionals and deconstruct their practices to give you an insider look into the world of finance.


[00:00:23] AVH: Hello, and welcome to another episode of The Wall Street Lab podcast. Our guest today is Jens Bernhardt. Jens is the Founder and Managing Partner of Bernhardt Advisory, a multifamily office, and M&A service provider, and placement agent for private equity funds in Germany.


Before founding his own company, Jens was Chief Investment Strategist of the family office service provider subsidiary of Sal. Oppenheim, which at the time in 2008, was Europe’s largest independent private bank. Jens previously has been a member of the Board of Deutsche Wohnen, a property company listed in Germany’s main index, the DAX.


Before that, he was Chief Investment Officer for Germany at Zurich Insurance Group, Switzerland’s biggest insurance company. And before that, he was Chief Investment Officer at Skandia Life Insurance. And even before that, Jens was a management consultant and fund manager. Jens holds an MBA from Cambridge and a PhD from the University of [inaudible 00:01:22].




[00:01:25] AVH: Jens, welcome to the show.


[00:01:27] SC: Thanks, Andreas, for having me.


[00:01:29] JB: I got to admit, this is the first interview I’m having that is really talking about family offices. And while our listeners are financial professionals, let’s start with the basics. Could you tell us a bit? I mean, your CV has everything in it, fund management, management consulting. But most recently more focusing on family offices. What is a family office? And maybe with the distinction of what is the difference with private bank, or a typical wealth manager?


[00:02:00] JB: That’s a very good question. Many people had asked me the same thing. So the difference between private banking and family office is pretty straightforward. In private banking, clients tend to be the wealth owners, and the bank has a mandate to manage their wealth under the bank’s name. So it’s their job to allocate the assets and to select the proper investments.


Now, with a family office, it’s a bit different. It’s more like a reporting unit that has the ability to invest money across the board, because wealthy individuals and families used to have quite a number of banking relationships. And all these individual banks, they want to sell their products and their expertise. But there’s no unique party that has an overlook over all these different banking relationships.


So a family office, in essence, is an entity that is in charge of managing all the assets across all the different bank relationships an individual and/or a family might have. It’s the only company, so to say, that has this kind of overview. And based on this overview, it can come up with a proper asset allocation, including the selection. You would be surprised, because in many cases, you would find portfolios of wealthy families, for example, with different members, the father, the mother, the sons, the daughters. And if you add all these different portfolios up, you realize that you have too much invested in Microsoft, because all the different banks recommended Microsoft. And at the end, you end up with an overweight in Microsoft that is not acceptable anymore.


So the family office is able to capture this kind of risk mitigation issue. And in addition, it’s the only unit that can do a proper reporting across the board. So when I was in charge of Germany’s largest family office, as you pointed out, we managed about 12 billion euros for 50 families. Most of these families had 5, 10, or even more accounts with banks. And we tried to restrict the number of accounts down to five, to three maybe. And those banks were obliged by a contract, basically, to report to the family office and no longer to the wealth owner, because they tried to circumvent us. But once this happened, they were out of the game. Okay?


So the wealth owner decides, “Now, this is my family office. And this family office is in charge of my assets. And you are a bank provider, and you provide assets and expertise to my family office, but not to me individually anymore.” This is kind of a heavy burden for all these banks that got used to do business directly with the wealth owners.


[00:04:50] AVH: Why do they try the banks to circumvent the family office? And then, I guess, this ties into what’s the benefit of a family office versus directly interacting with the owners, because of family office also charges money. What do they earn their fees with?


[00:05:09] JB: If I want to answer the question properly, I have to tell you, a family office in itself is not a highly profitable business. Because it’s like, as I mentioned, a service provider. And we are talking about assets under advisory, not assets under management. So that’s the major difference there.


Now, coming back to your question, if you’re an individual. I’ll give you an example. I had one client who had sold his company to KKR. And the proceeds were in the range of 1.3 billion euros more or less overnight, all in cash. Now, the question is, what do you expect from your banking relationships? They all send you tons of prospectuses filled with information about whatever wind, energy, solar energy, all the different kinds of – They all want to sell their stuff, not just one bank, but 15 banks. So at the end, it’s an information overflow those individuals have to deal with.


Now, if you’re as wealthy as this individual, it actually would make sense to set up your own family office. And that’s, by the way, where this name came from. It was back in the 1920s of last century, I mean, 1920, and the family office was like the [inaudible 00:06:20] of the household of an estate. And over time, the guy, in most of the case, it was a man, unfortunately, they were in charge of this stables, the estate as such, the agriculture and all this kind of stuff. And then over time, the wealthy owners of those estates asked for more services, including you do all the mail for me, you do all the investments. And this is when the idea of a family office developed.


So in other words, it’s like wealthy people want to get rid of this information overflow. In most of the cases, they don’t have a financial background. So they might be good in engineering, or in this case, good in the car industry, but they’re not overnight becoming specialists in finance. So that’s the job of the family office to clarify all this. And in order to justify your own family office, according to my data, in today’s world, you would need about, let’s say, 200, 250 million euros to justify your own setup.


[00:07:25] AVH: And a little less wealthy people that only have maybe 50 million euros, they then go to what’s called a multifamily office. And they pay them basically to do the reporting, to have an overview, and probably also to be on their side, right? Because the fee structure is a bit different. You, as the asset owner, now you pay the family office directly, versus a bank that gets money from fees by providing funds where they are highly incentivized to not necessarily give you the best product out there, but the one that they earn the most.


[00:08:05] JB: You would be surprised to hear about the total expense ratio of a private bank. Because, you’re completely right. They get a kick back their fees from the product providers. In most of the cases, they are somehow linked to the bank, either it’s their own asset management unit or a close associate to the bank. So they get a decent share of this. And then on top, of course, they charge for the wealth management mandate.


If you add all up, you will easily find fees totaling two percentage points or more. In comparison, a family office is doing – That’s a good point you just made. It’s also the job of the family office to detect those outrageous fees. So in other words, it’s like data mining, because all the data, as I mentioned, ends up with a family office. And then by digging deeper, the family office can do comparisons between different banks, and products, and mandates. And you would be surprised what the bargaining power of a family office can be, because the alternative would be to lose a client, right?


So in other words, it’s like a clearing kind of center for a wealthy individual. And they take care of all the different relationships, banking relationships, as I mentioned, and they try to get the best deal out of it for the client.


[00:09:21] AVH: Now, we talked about single family office. So one individual’s 200 million Euros in assets and up. We talk about multifamily office, I guess, like 10 million to 200 million, roughly. And what is a corporate family office?


[00:09:37] JB: Well, a corporate family office, I mean, it’s a blurred picture. I think I heard this term before. Let me give you an example. And I can mention a name if you want to, because it’s public knowledge, right? You have, for example, a very successful company in Germany, which is called [inaudible 00:09:53]. It’s a car supplier, and they are very good, very successful, very wealthy over time because it’s a well-established company.


Now, I don’t know exactly when, but many years back, the family decided, “Okay, we have sufficient wealth,” so to say, “in order to justify our own family office setup.” It’s called [inaudible 00:10:12] Trust. Okay? So this is the family office. And guess what, because the family comprises quite a number of different individuals with different risk profiles, they decided, “Okay, we can actually ask for a license, although we are a single-family office, but we are dealing with different members of our family.” Quite a number of them.


So in order to be on the safe side, and in order to avoid any complaints coming up in the future, we asked the German regulator for a set of licenses. So this is a single family office that is licensed and regulated by the German regulator, because of this kind of setup. So they want to be as best as possible in terms of regulation. They all inherit the red tape that comes along with that, but they want to be on the safe side.


Now, this is now the tricky thing, because a corporate family office, in this case, the family is the owner of this still very successful and prospering company. And whatever they pay out to themselves ends up in the halls of trust. Their a single-family office. And then there’s a question, “Okay, do I need the money? Or should I keep the money in my mother company in order for investments or for other purposes to acquire another company? Or am I better off to transfer their money into my family office to do other stuff, like solar energy, or whatever?”


And keep in mind, in many cases, private banks are not very well equipped for special asset classes like art, or vintage cars, or this kind of thing, because that was the reason why I joined Oppenheim, because I was doing business in big bucks in the capital markets. But over time, it’s getting boring. And in this case, I was able to sell big castles, or to buy a vintage Ferrari, or to sell it. A completely different world. And by the way, a common part of any asset allocation of wealthy individuals and their families in today’s world.


[00:12:08] AVH: But usually, only the family offices do those kinds of allocation. Private banks don’t sell big castles in the family office, but then must have a very wide range of experts on their board. Because I think if you invest in wine, versus Picasso, versus derivatives, it’s quite a different set of expertise.


[00:12:30] JB: Yes, exactly. You’re absolutely right. I mean, just to give you an example of how the process worked, or works in general, I was talking about this billionaire who sold his company [inaudible 00:12:39]. When he realized after about a year that he was not a financial services expert, and he had lost some money in a booming market environment, he realized, “Okay, I need professional help,” right? So there was kind of a beauty contest, and we won this beauty contest. And at the end, it worked. The business process with him was pretty straightforward in the sense that we had regular meetings at his home, sitting together with a family having a nice dinner, a steak or whatever. And over dinner or lunch, we had serious debates about the strategic asset allocation.


The strategic asset allocation, as you know, is the cornerstone of anything else you do after that. So that’s key. And you really should devote sufficient time to come up with a proper and accepted strategic asset allocation. In this particular case, it was a bit tricky, because the wealth owner who had generated the money was highly risk friendly, while the other family members were kind of risk averse, because they were happy with having 1 billion. Who wouldn’t be? But they were not willing to risk on top of that. And just to sum it up, the family’s task, the primary task is to keep the current wealth after inflation and after taxes. So this is the yield you have to generate in order to justify the existence of a family office.


Now, in this case, the strategic asset allocation process took about eight months before it was finished. And then we started to fill the pieces of the pie, so to say, equities, fixed income, whatever. And in this big pie, we had also vintage cars, because he was keen on investing in those assets, but also art.


And now coming back to your question, the family office has a broad range of services. And it’s of course, not the case that you don’t want to have all those people, those specialists on board. Their overhead would be too expensive. So what we did, and I did in my company at Bernhardt Advisory, I use Sotheby’s. I had an agreement with Sotheby’s. Once there was a piece of art on the market, and the provenance had to be checked. And I was not an expert in whatever, Picasso. I just caught up Sotheby’s. A person in charge was based in Vienna. So we had a nice talk and, of course, NDAs and all this kind of stuff, nondisclosure, all over the place. And so the business is very, very straightforward in that sense. So they gave us all a helping hand on the pricing, right?


And on top, that was not my main focus. But we also had clients who had their yacht somewhere in Monaco, and it had to be cleaned up, or serviced, or whatever. Of course, we were sitting in [inaudible 00:15:19] managing money. So we were certainly not specialists in this kind of service industry. But they are specialists, and you just do it together with them on a contractual basis.


[00:15:30] AVH: Interesting. And then how was the next step, say, in the process of onboarding a new client? Or maybe let’s start a bit before that, with the beauty contest? What kind of questions? What kind of things come up in this beauty contest to the client? How does a client decide which family office to choose?


[00:15:51] JB: Well, let’s put it this way. Most of the families of very wealthy families or individuals have a legacy of specialists that can be bankers, they trust, or tax advisers, of course, or any other people maybe within the family or from business background, and they all take part in this kind of beauty contest. It’s usually a group of, let’s say, three to five people on the wealth side, so to say, including the wealth owner, or his or her representative. And then on the other side, you have those like Oppenheim and other family office that we’re trying to get the mandate, basically.


Now, why do we sit together in such a setting? It’s pretty straightforward. All people on the wealth side are lost. They have no overview. They have lost control, or they have at least the feeling of having lost control. So what they are looking for is structure. And coming back to your question, I started with the strategic asset allocation. It was actually the second step, because the first step we were working on was a family Carta. So kind of Magna Carta for a family that describes, “Okay, what’s the ultimate goal? What do we want to achieve?”


And then from that, we derive the strategic asset allocation, or at least the process for this strategic asset allocation, then comes the actual asset allocation, and the selection of particular stocks. Keep in mind, a family office has assets under advisory. So that’s the starting point. So in other words, once you have defined the strategic asset allocation and you’re in the process of filling a pie piece, then you’re usually recommend three to five alternatives. And guess what? In most of the cases, you split the amount into three or five. They just follow your advice.


But the purchase tickets assigned by the wealth owners, or his or her representatives. So because we have assets under advisory, we have not a wealth management mandate as in private banking. That’s the difference. In private banking, they wouldn’t ask an Andreas von Hirschhausen, “Please sign this ticket.” They just would do it for you. And then they will report half a year later, and you would be shocked about the fees, right? So that’s the alternative.


In family office, everything is discussed beforehand. You know what the fees will be. And then the wealth owner, as I said, or his or her representative will sign the trade ticket. That’s basically how it works, or the contract for a Picasso, right? And the fees that come along from Sotheby’s.


And by the way, I was never shy to ask for fees. Because as I mentioned, family office as such is a service provider. It’s not highly profitable. But if the clients have an issue with whatever, a piece of real estate in Spain in Marbella, and someone has to take care of it, I always let those clients know, “Hey, by the way, we will charge a fee for this. And this is the fee. We will split with a broker down there to find a buyer for your house.” The same holds for other asset classes. Why not? Because we provide a service. So in other words, you have a catalogue that comprises all the standard services, but then you have add-on services. And in those add-on services, I was never shy to charge any fee.


[00:19:07] AVH: You have to earn the money. You have to earn a living. And especially, you said before, if you help the asset owner to reduce fees to look out for banks to try to overcharge or try to charge hidden fees, try to rip you off, and probably in the end save more money than you’re actually costing, then you have a very good model. That’s like you take a part of the benefits that you reap for the investor.


Now, we’re in our previous conversation and looking through what you offered in as your family office, you also mentioned M&A service. And I read it in the intro that Bernhardt Advisory also does M&A service provider. How does M&A fit together with a family office?


So in the past, I’ve heard that family office often invest into startups, into maybe private equity funds, whatever. But in which cases to the actually buy an entire company? In a corporate family office, I kind of get it. But then I wondering why it’s not the corporate buying the assets. So if you could elaborate a bit on where does M&A come into service for family offices?


[00:20:33] JB: So let me start with the last comment with regard to corporate family offices. Why do they do this? Now, let me come back to [inaudible 00:20:40] Trust, I mentioned before. Some of the investments they do are related to their core business, which is automotive and supplier business. That would be part of the corporate world. That would be part of their business empire. But as soon as they start to buy participations and companies across the board and other industries, that would be the job of [inaudible 00:21:02] Trust, right? So that was just the last comment.


But coming back to your initial question. Why M&A? When I set up Bernhardt Advisory, I had a cofounder, who was one of the biggest shareholder in [inaudible 00:21:15]. A big company in Weinheim, which is near Frankfurt, and it’s a conglomerate. So he had this kind of very wealthy background, and he had contacts and so on. And we were sitting together in 2008, 2009 and thought, “Okay, what’s the starting point to get clients, to win clients for Bernhardt Advisory?” right?


So because in family office, you do not do a lot of advertising, or you cannot just simply wave a flag and say, “Hey, here I am. Please come and join us.” No. It’s doesn’t work this way. So we had to rely on our business relationships, his and mine. The starting point was, as I mentioned before, as soon as an individual or a family decides to sell their core business, like in the case of this gentleman who sold his company to KKR, all of a sudden, there’s cash falling from the skies. Big buckets or piles of money. And this money somehow has to be invested in, as I said, in most of the cases, those owners, previous owners of companies, did not turn into a financial services special or financial market specialists overnight. Of course, they claim to be specialists in all areas, as we all know. But then sooner or later, they will realize, “I’m actually not an expert.” So this was the starting point.


And in order to be at the right point in time to capture this kind of cash moment, let’s put it this way, we were providing M&A services on top. So in other words, we had a number of clients who, with our help, not just solely, but we played our role in the sales process of their companies, which we called M&A. Because it’s not a term that is well defined. Let’s put it this way. But we gave a helping hand. We told them, because the question, even in today’s markets is, “Okay, what do I do with the money once I have the cash?” Okay? So this is the ultimate question all the entrepreneurs out there have. What’s the alternative investment for my core business, which I still own?


And then it was our job to convey the message. There is a world out there without your company. And you’re well-advised to give it in proper hands and specialists’ hands. So we basically accompanied all these entrepreneurs in the sales process. And by doing so, we were able to capture quite a decent chunk of the money that was generated. The sales proceeds, some of the money, ended up with us. Meaning, ended up with us simply means that the money ended up in the bank accounts of the wealth owners that we were advising those accounts. Okay? Because we were their family offices.


So in other words, that was the starting point to win mandates, let’s put it this way. And once the money was there, keep in mind, if you’re an entrepreneur and you’re successful in your business, and you sell your business, and you should do so at one point in time, you remain an entrepreneur. So in other words, you keep on doing that. And in other words, you will be interested to invest in other companies once everything is settled.


So once the cash is there, of course, some of the money will be invested in equities and all the other asset classes. But a decent chunk of this money is reserved for participations and companies, because they want to bring in the expertise and they have the leverage. So that’s why M&A plays an important role in acquiring mandates and in doing business, because even family office, as I said, if you want to buy, let’s say, a stake of XYZ percentage points in a company, someone has to do it. And we would do it or provide the service as a family office provider.


[00:24:48] AVH: So it’s sounds rather similar than a typical venture capital fund, but they wouldn’t allocate directly to the fund, but they would probably allocate some money to VC funds. But also directly investing into company, but not fully buying companies. M&A, in the sense that we often talk about it in the podcast, is like actually selling, buying entire companies, or like majority stakes. But here, M&A is also helping in selling their own company, which we talked with Chris Younger, who was an investment banker who also then now focus on individuals who want to sell the company that also offers wealth management family officers afterwards, but to help them investing their money in stakes and other companies.


Now, I’m wondering, you mentioned in one part you got, as advisory services, some of the money they had. Is it common that individuals have more than one family office? Or they say, “I’m managing part of my money on my own, and you have a chunk of it.” Or is it usually the case, “I have 1.3 billion euros or dollars. You have a look at all of it.”


[00:26:02] JB: That’s a very good question. I mean, depends. There’s no clear-cut strategy on that front, let’s put it this way. But sometimes the former intrapreneurs, let’s put it this way, who got really wealthy overnight, have this attitude of don’t put everything into just one bucket, right? So they want to go through their own learning curve.


At the end of the day? You’re absolutely right. I believe most of the money ends up with just one player. But on this path to this final goal, they rather have different options, because they want to see, “Do I get along with Mr. Bernhardt, or Mr. von Hirschhausen, right? Do we have a business relationship? Or is it –” At the end of the day, it’s about human beings. You have to get along with people, you have to share a common vision, you have to have an understanding for each other.


Now, because the products are registered, so you simply buy a product, and everybody could buy the product. So it depends on how you convey the message and how good you are in your business. So in other words, this is one idea. The other idea is – And we had, as you mentioned in the outset, a special focus on VC and private equity. So we were considered to be kind of cutting edge by German standards, let’s put it this way. So we were able to capture this kind of field knowing that there were other family offices providing services in fields like real estate, or the more traditional asset classes, let’s put it this way. And that was the second alternative.


The third alternative was to have a head-on fight between different family offices or service providers, because they all get the same amount of money. And they, at the end of, let’s say, after two years, sometimes three years, the wealth owner decided, “Okay, who was the winner of this contest? And he gets all the rest.” It’s really like that. It’s like a beauty contest with real money. Okay. And you know about this early on. Everybody knows, “Okay, there are three players. They are all fighting for two-thirds, which are currently split between other players.” So that’s another strategy I realized it’s happening.


And then of course, you have – Unfortunately, I have to say, I’m not a big fan of private banking, because of the fees that are attached to that. And sorry to say it, but most of the people I know in this field tend to be kind of arrogant, because they keep the money as their own, but it’s other people’s money. And I can tell you, it really makes a difference if you’re sitting in your asset allocation committee of a private bank and you’re talking asset allocation terms about a combined amount of money of, let’s say, 1 billion, which is split over 100 families, or whether you, as a family, sit one to one at a table and have a discussion, and the wealth owner tells you, “You’re responsible for this loss, Mr. Bernhardt. Tell me why. And what do we do about it?” It’s a different story. The private banker doesn’t see it.


At the end of the day, sorry to say it, it’s like cover your ass strategy. They would say, “Well, our asset allocation committee decided to do this kind of thing,” right? So they always tried to get away with it. While family office is one to one. It’s really, really important to realize the difference between private banking and family office.


[00:29:18] AVH: I’m actually a bit glad to hear that, because for the company I founded, I look a lot at private individuals, like you and me, and it seems that rich people have the same problem, just in a different order of magnitude.


[00:29:34] JB: That’s absolutely true. I mean, and by the way, I mean, it’s no secret because it’s public knowledge. But what can happen if you have to deal with such arrogant people? You can see in the history of the bank, Oppenheim, which had to be taken over by Deutsche Bank, because some of the private clients of the bank, not the family office, they were kind of ripped apart by private bankers up to the partners of the bank. So they were playing, basically, games using the assets of their clients, necause that was where the money came from. And they made a lot of money by charging fees, then by providing leverage to those families, overpriced leverage. The interest was just too high. And I mean, it was like money printing or fee printing machine. At the end, everything looked like a bet on just a very small number of investments, and they failed. And so did the bank.


[00:30:29] AVH: Why would such a private bank then decide to do a family office? I mean, if it’s just –


[00:30:34] JB: That’s a very good question. I can’t tell you why. Because it’s a very tricky thing. I was not part of this anymore. Because I had left Oppenheimer and had set up my own company. But keep in mind, what’s happening in the, let’s say, business world? You are the owner of a company. You own the company. And you have – Certainly in Germany, you can’t avoid it. You have an account, let’s say, with Deutsche Bank, or Commerce Bank, maybe a few other banks, as I mentioned before, five to 10 banks, banking relationships.


So the first choice is I go to Sal. Oppenheim, because Sal. Oppenheim doesn’t provide any loans to companies. It’s only private banking, and asset management and this kind of thing. So by doing so, they keep their own wealth position apart from Deutsche Bank, because Deutsche Bank has a chance to look into all the books of your company, but not into your own books. Because this money is somewhere else. It’s with Oppenheim. And this is the rocket number one. Okay? You try to put money somewhere, which is properly managed by Oppenheim, but Oppenheim doesn’t have any banking relationship with your corporate business.


Then in order to guarantee a higher degree of data protection, you decide to go with a family office, which is independent of the bank, in this case. And by doing so you can do business in the same manner, but you are not linked to a private bank. Now, I asked you a question. What do you think was your reaction when it turned out that Deutsche Bank was taking over the family office I used to run?


All of the sudden everything was transparent, right? Those clients with about, as I said, 50, 100 million in private money, which was advised by the Oppenheim family office, this money was all of the sudden public knowledge to Deutsche Bank. The bank they use for corporate business and try to get away with private banking business, right? So in other words, all of the sudden, everything was transparent. So some of the clients left of course. But even today, to their benefit, Deutsche Oppenheim family office, AG, as it’s called today, is still one of the biggest family office service providers in Germany, and the German speaking world, let’s put it this way.


[00:32:47] AVH: And so I’ve worked at Deutsche Bank, funnily enough, and global markets, which is where a couple of months. You have Chinese walls, right? One part of the business is not allowed to know what the other one is doing, for example, between research analysts, and traders. Because, of course, if a research analyst changes the stock recommendations from buy to sell, and the trader knows, he can front run the whole thing. So there are Chinese walls.

Is that, in a family office, also the case? That you have mandatory by law Chinese walls? Or could, in this case, Deutsche Bank use the data from the family office and combine it with the data from the corporate bank?


[00:33:30] JB: Well, of course, it was separated. And no question about that. In the case of Oppenheim, in the family office of Oppenheim, it was actually physically separated from the bank in a different location, with different access codes, camera systems, all the kind of stuff you need in order to enter the building, or the office premises.


So in other words, yes, we had this kind of distinction, of course. And of course, we also had a restricted list of stocks we knew about from the banking side that we, as individuals, not allowed to touch upon. But that only apply to us as employees of Oppenheimer, but not for the clients, right?


So in general, I believe – Sorry to say it, but if you talk about Chinese walls, that’s always good on paper. But it’s only one lunch you got to have in order to find out about certain things, right? And actually, in today’s world, I believe you could make an awful lot of money by just digging deeper into the Twitter traffic of some people because you know what’s going to happen in the very near future. And if you take a position on this batch, kind of, you can actually make quite some money.


So in other words, you always have to differentiate between what’s the law? What are the regulations? What’s compliance on paper? And what’s the real world, right? I always try to convey the message we, as an independent family office, we are truly independent. So in other words, even the products of Oppenheim, the banking products, funds, whatever, we’re always part of a beauty contest. So we actually told, in most of the cases, our own kind of colleagues from the other side. Sorry. But your performance is just too bad. We cannot recommend it to our family office clients. It’s about independence. That’s the key thing.


[00:35:17] AVH: But, I mean, the obvious question here is, how can you, as a client, actually make sure that this is the case? Because, in the end, your holding company is the private bank, and they’re not a separate as they are. Because, at the end, the CEO of the holding company might clap your fingers, like, “Hey, we are not making enough money. You need to step up.” And then this ties into something that I really wonder, and I think I know the answer, but I’m really not sure. How many truly independent family offices are there still in Europe? Because I feel like the big ones are mostly with banking.


[00:36:01] JB: You’re absolutely right. I mean, that was the reason why I decided to leave Oppenheim, because there was always a tiny fraction of products that were kind of, let’s say, as good as the competitors. But if you have equivalent product offers, of course, the natural choice was to go for the banking offer, right? But I always made sure in my case that I informed our clients about this. Would you mind? Okay?


As I said, at the end, they signed the trade ticket, but I gave a recommendation. So part of the recommendation would have been in this particular case, “Okay, there are five funds, two of them are outstanding. One of them is from Oppenheimer. Would you mind go for this one?” As I said, usually, they would split between the number two and number one offer or recommendation.


Coming back to your question there, as we mentioned, or as we discussed before, you have single family offices. They are, of course, by definition, independent, because it’s their own money, and they can do whatever they want to it. Then you have multifamily offices. Those are mostly linked to big institutions. And then you have players like my company, Bernhardt Advisor, which is also independent. But I’m not ultra-rich, right? So but I’m trying to win clients, and I’m talking to multifamily office clients, as well as to single family offices, and they are wealth owners, right?


By the way, there’s one thing I would like to generalize a little bit. At the end of the day, the bigger the family office becomes, the more difficult it is for players like me to get an open ear from these family offices, because they tend to become more and more institutionalized over time. So in other words, at the end of the day, one has to make sure that you really know the wealth owner, because otherwise you talk to a director of a family office. And guess what? We’re coming back to the discussion we had before. What do they do?


Before they recommend a risky asset class or a product, they have their own kind of asset allocation committee, and they will shy away from doing so, and will not even report about this idea to the wealth owner. So of course, they all get mad if I call the wealth owner and tell them about this. And then the wealth owner asked the same person, “Okay, you do this once, and they will never talk to you again.”


So in other words, it becomes institutionalized. So that’s why I’m not a big fan of big multifamily offices, because they are, by definition, becoming institutions. For example, different area, but same approach. If you take a closer look at the endowment funds of Harvard, Stanford, Yale, and the like, you will realize, in the case of Harvard and Stanford and Yale is in particular, I know it for sure, about 50% of all the proceeds from sales of, let’s say, private equity funds, if there is new money to be invested, 50% of what’s coming in is not invested with the existing fund providers, but with brand new ones, because the older ones are fed already. They made their fortunes. They’re all millionaires. In some case, multimillionaires. So where’s the appetite? What’s their commitment to managing the money in a proper fashion?


While there’s a new VC fund or a small player, they’re still desperate to win, not just the asset, but to perform. And that’s what those endowment funds go for. But unfortunately, the risk profile in Germany is different, as we all know. So they try to shy away. Although there are exceptions among some German single-family offices. Some of them are quite aggressive in this field as well.


[00:39:42] AVH: Interesting. I mean, I get the idea of the endowment to like go for young ones. But, usually, from the asset allocators we spoke to often, it’s the case that they’re looking for established teams –


[00:39:54] SC: [inaudible 00:39:54] security. Yeah.


[00:39:55] AVH: Yeah. But also, in VC, especially, it matters a lot where you get your deal flow from. If you’re a small VC that started new, you don’t get a lot of deal flow. If you’re a Sequoia, Andreessen Horowitz, you get a ton of deal flow. So you kind of have to balance that out between, yes, the people are millionaires, but also get the best deal flow. So I should still invest with them. I guess there’s like the ultra-good companies that just get the best deal flow out there. And that’s why you want to allocate it into their funds. Then there’s like the middle managers, is like after the third fund, as you said, they’re already fed, and they’re like, “No. I don’t have to work so hard anymore.” They might get a bit better deal flow than brand new managers, but they’re also not so willing to do crazy bets. And then you have the new managers that work hard that probably get the least deal flow.


[00:40:50] JB: Yeah. As we all know, you’re a specialist in this field as well. But keep in mind, for example, 10 years ago, or 12 years ago, I don’t know the exact date, Permira, here in Frankfurt, or in London, was raising about 13 billion euros in capital for a new private equity fund. And back then, everybody was happy to be an investor in a Permira kind of setup. And just to give you an illustration. They only earn big money once the money is invested. So they’re looking for big deals, because, as we all know, a 50 million deal cost you as much time and effort as a 5 billion deal if you do it properly. It’s just a numbers game, kind of. But what I would like to point out is, if you earn 80-20, plus 2% management fee, we were talking about 26 million euros just in management fee for doing what? For finding proper investments.


And once, hopefully, and in most cases, it was true, Permira is an outstanding company, they were able to sell the company with whatever factor, multiplier, right? 3, 4, 5, 6 times or even more. They got 20% 80-20 split, right? So in other words, it’s a money printing machine, if the market environment is okay. And on top of that, it’s financial engineering, because they use leverage up to 70%.


So out of 30 billion euros, we are easily talking about 50 billion that need to be invested. So you can do that as the Harvard endowment fund to give money to a Permira. And most likely they will have done so, I guess. I don’t know. But is it actually the right strategy? Because where is the future growth coming from? It’s like the new players, the startups. As we all know, the Steve Jobs of this planet. I saw pictures of Steve Jobs when he had long hair. And underneath it said, “Would you have invested? right? Some people would, right? So this is the difference.


And that was, by the way, the market niche. We were trying to capture as Bernhardt Advisory, because we were – I did my PhD in private equity. So we were kind of ahead of the curve by German standards. In comparison to the Anglo-Saxon world, we were still behind because they started investing private equity, I don’t know, 20 years ago. But in the meantime, I would argue that most of the family offices, let’s say, the wealthy individuals in Germany, have caught up. There as well established in the private equity world as Anglo-Saxon investors, because they can sacrifice liquidity over yield, right? They don’t need the money. They have sufficient money. So that it can rest with whatever company VC or private equity for three, four years holding period or even longer.


[00:43:28] AVH: Now, for the last part of the interview, I want to switch gears a bit and talk about career tips, career options. And you’ve been a management consultant, a fund manager, a chief strategist, the CIO, a founder, an entrepreneur. And what is the difference in all those jobs? And maybe what did you like the most? And how could young people think about their careers into family office, into investment roles? Anything that you want to mention? Any tips that you have?


[00:44:02] JB: Well, in my case, my background is working class, right? So I grew up in a not too wealthy environment, let’s put it this way. So education is number one. And I think this is well-known. But if you can do it, well, study something, whatever, and try to learn as much by doing internships, international internships. I spend every summer, three months usually, I spend in Japan, in France. It was like a learning curve. So and by doing so you build up a network.


And then you should at least try – I mean, what I would not recommend in financial services, let’s put it this way, I would not recommend to start right away with your own startup. Because then you might – At least in the German speaking world, you might lack a certain degree of credibility, right? So in other words, if you have gained some experience, let’s say five to six, seven years max, not even more, then you should set up your own company. Because being employed, if your ultimate goal is to become rich, forget it. You will always be fine. You will do fine. You will have your own house, maybe not in the city center, but at the outskirts, because it’s getting too expensive. So don’t get me wrong. Some people are just made for that. And they love to play politics. I hated that stuff. So if you want to be, let’s put it this way, want to work in a non-asshole environment, then you really have to think about setting up your own company with friends and family or people you know, or you believe to know. And by the way, sooner or later, you will have an asphalt company. But this process is the right thing so that you study something and you have some internships while you’re studying. Then you work for five years, or 10, whatever. And if you like it, stay in your employment. Otherwise, try to do something on your own, and try to do it to set up in parallel.


So in other words, keep your job. But if you have this goal, I want to be on my own, start thinking about the business planning and what you have in mind two, three years prior to this whatever point. And then you’re on the safe side by earning huge. And by the way, you have to show your employer that you’re still fully committed. And if you’re lucky, you might even convince your employer to give you a helping hand. That was the case with me when I first set up my own consulting company in Munich. I was able to set up this company with the full support of Roland Berger, company I used to work for before. They said, “Oh, good job. Go ahead. You can rely on our resources. And here’s some money. Go for it.” So I would always recommend, the ultimate goal for me, and hopefully, for most of you listeners, is to be on your own.


[00:46:46] AVH: Yeah. I mean, like I can fully agree. As I said mentioned, I started my own company. Let’s see how it turns out, right? Hoping for the best. It’s also really, really hard work. But the thing is you learn a ton, and your learning curve is insane. And it’s just not comparable with anything you would do working in a different company. I guess with that, Jens, thank you for coming. It’s been cool to see you in person. One of the very rare interviews that I can conduct in person. And all the best. Thank you again for coming on and the great advices. It’s been really cool to dig into family offices.


[00:47:21] JB: Thank you very much, and good luck for your business.




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Published On: February 17th, 2022 /