LP Profile: Stonehage Fleming

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Stonehage Fleming looks after 250 families globally. It was formed as a result of the merger of Stonehage Investment Advisors and Fleming Family & Partners in January 2015. The family office has 13 offices around the globe.

Roughly 50% of its clients are based in Europe with the rest from South Africa, North America and Asia. The European multi-family office provides a plethora of services from how to plan for succession, to advice on how to invest a family's wealth, says head of private equity Richard Clarke-Jervoise.

"In a sense, we are an outsourced family office, as we will do whatever the family itself doesn't want to do, from everything to very little," explains Clarke-Jervoise. He adds that the firm's services lean more towards fully discretionary services than solely advisory, though there is a mix between the two for many clients.

Clarke-Jervoise spends all his time on private equity in a team of four and says that of the 250 clients Stonehage Fleming has, 40-50 would like help on their private equity investing. Those clients that do wish to invest in the asset class have roughly 10-25% of their assets in private equity. Last year the family office deployed circa $100m into private equity.

"Overall, when we look at where the market is right now, we are in a high-price environment," says Clarke-Jervoise. "But we position ourselves in the mid-market and our focus is trying to get into managers who can access assets at a meaningful discount and who try to focus on growth rather than financial engineering. That is why tech is so attractive and the return is high." 

Families' ties
Previously, Stonehage Fleming had more than 100 active GP relationships, but the office recently decided to consolidate down to around 20 managers, says Clarke-Jervoise: "We took stock about five years ago and decided to increase our focus and concentrate on fewer GPs."

At present, the split is roughly 60% towards North America and the remainder in emerging markets and Europe. The family office invests in five funds per year.

Stonehage Fleming has two sources of capital, Clarke-Jervoise explains. "We have a number of families with segregated accounts, which we invest directly into funds on their behalf," he says. "But we also have other smaller accounts that are essentially amalgamated pools of capital, as often the family trust doesn't wish to appear publicly as an LP. So we pool these together and make a vehicle in a series of annual funds."

We took stock about five years ago and decided to increase our focus and concentrate on fewer GPs" – Richard Clarke-Jervoise, Stonehage Fleming

The average investment in a primary PE fund is $10-20m and, broadly speaking, Stonehage Fleming targets mid-market funds ranging from $250m in size to $5bn. The team does not shy away from venture – in fact last year the family office invested in software fund Insight Ventures. But two thirds of its allocation is in the mid-market buyout and growth equity space and technology. The remainder is what it calls "opportunistic" funds, namely secondaries and distressed debt funds.

In 2017 Stonehage Fleming made primary fund investments in Bridgepoint, Alchemy, Trive, New Mountain and Insight Ventures in the US, as well as secondaries fund Hollyport.

Stonehage Fleming is not averse to investing in first-time funds but does so only very selectively, with allocations amounting to only one or two over a three-year period. The last two were emerging manager JAB and Capital Today based in Asia.

Co-investing for meaningful input
As well as investing in primary funds, Stonehage Fleming invests in secondaries and co-investment. On the secondaries front, the family office is on the small to mid-end of the market and as a result is not as exposed to high prices. It has the luxury of deploying $10-20m tickets rather than sovereign-wealth-fund-sized tickets, so is under less pressure to deploy, according to Clarke-Jervoise.

"Our families look at co-investment as part of their wealth creation strategy and an opportunity to meaningfully improve the performance of their portfolio," says Clarke-Jervoise. "It is a different approach from institutions, for whom a key driver is the ability to reduce the fee drag on their private equity portfolio. They have an affinity with the portfolio company as a means to generating further wealth and getting potentially very outsized returns."

The family office sees an ever increasing demand to go direct. It has always been the case that families want to do so, says Clarke-Jervoise, adding that the increase may be because a growing number of businesses have been successfully exited by families, so others then want to get in.

Stonehage Fleming does two or three direct investments a year, with Fever Tree, JAB & Resolution Life being prime examples.

"You may get more LPs wanting to do a greater proportion of direct investments, but I think this will always remain a small group of people, as most are cognisant of what a formidable task it is and the work involved," says Clarke-­­Jervoise. 

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