A Safe Harbor for Family Money
Most investment managers are in the get-rich business on behalf of their clients, but Maria Heiden is in the stay-rich business. She’s the head of investment management at the Eulenburg Family Office, headquartered in Hamburg, Germany, and her clients already have plenty of money – that’s why they need a professional office to help them manage it.
Family offices are famously discreet, so it’s not surprising Heiden says of her clientele: “There are a couple of very famous names, but we cannot tell you who they are.” What she will say is, “All of our clients have totally different backgrounds and life situations. They’re very diverse. The ages of our clients range from 20 years to 80 years, so we have grandchildren that already have some money; we have sports stars that have quite high cash flows currently; we have entrepreneurs; we have people who have sold their companies; and for sure we have ‘old money’ that has grown over several decades and passed through from one generation to the next.”
Heiden adds that this clientele also has diverse financial aspirations: Some want to grow their fortunes and some just hope to maintain it – and defy the shirt-sleeves-to-shirt-sleeves-in-three-generations curse; some want to spend money freely and others want to husband it for the future; some have very definitive investment ideas and others don’t care how the money is invested as long as they get their stipends on time. The Eulenburg Family office’s job is to make sure each of these families gets the kind of financial management they want and need.
While many multi-family offices start life as single-family office and then take on new clients, Eulenburg’s founder, John Eulenburg, was a financial planner and advisor to the merely affluent who upped the ante by creating a full-fledged family office structure in 2003. Two years ago, he was joined by Marc Pralle, and the two partners run the firm.
Eulenburg, which oversees AUM of about $2 billion for its clients, has some 30 staff members split among three offices – in Hamburg, Bremen, and Munich – and divided into three departments: “There are our relationship managers who are in direct contact with the clients taking care of the day-to-day business,” Heiden says, “then we have my department, that does all our financial planning, investing, and reporting; then we have the internal office that helps to run the company.”
There are no commingled accounts at Eulenburg. “Every client has his or her own portfolio,” Heiden says, adding, “Everything starts with the financial planning. We visualize the full wealth of the client and do proper liquidity planning. From this, we derive the strategic asset allocation. Our clients have different situations of life, different needs, and different wishes so each client needs to have its own strategic asset allocation.” From there, she says, “We use our best-in-class selection process” to find external investment managers.”
She adds that “our clients often have their own investment ideas. That arises from their background or their network, and we help evaluate these investments.” Are these ideas helpful…or a nuisance? “Well, I personally like it very much if our clients come to me and say, ‘Okay, I have this investment idea and that investment idea, and I have this friend and that friend’ because it opens up my horizon on investment ideas.” However, she adds, “It can be hard because there are a lot of friends on the golf course, and you may have to say, ‘Okay, if you look at the performance of this portfolio manager in the past, I’m not convinced.’ Integrity is very important to us. So, we are fully open and fully honest with our clients, and they appreciate that we sometimes give negative our feedback.”
In making investments, Heiden notes, “Our asset allocation is strongly dominated by real estate, and I think there are three reasons. The first reason is as people come into wealth, they first invest in their own property; if they then get more money, they invest in holiday property with this money; and then they invest in real estate overall, so property is always a big portion of their portfolios, and even for those with big holdings in property, a quarter to a third is for self-usage.”
Secondly, she says, “There are tax reasons in Germany that makes it very attractive to invest in real estate in a combination of your own money and debt capital.” And the third reason is, “I think Germans still trust the housing market much more than they trust the equity market.” There’s never been much of an equity culture in Germany, so bonds and property tend to be the investment anchors.
In looking at opportunities in German real estate, Heiden says, “one thing we see here as a big trend is buildings for childcare. We still have a huge issue – not enough places for parents to leave their kids, so this is a big investment market. And then there are infrastructure investments, especially in warehouses (for burgeoning digital retailers like Amazon) This is also a big trend.”
Heiden adds, “What we also find it very attractive for investors is to give shopping centers new uses because shopping is going digital more and more. Maybe a third of the big shopping centers in Germany already have big issues and need to close a lot of shops, and this trend will go on. So, what do to with these buildings?”
According to Heiden, “One of the big names in the German market for this is Home United. They give shopping centers very new usages by combining living, working, food, sport, and other activities on a new basis.” She adds, “We are a big fan of these concepts because we think that this is really future-orientated. If you read about how people will work and live, you see that these areas are coming together much more. Our generation used to split this – ‘This is my house, and this is my work’ – but today everything comes together much more.”
Eulenburg clients often have 70% of their assets invested in real estate, and then 10% in private equity and private debt, and the remaining 20% liquid strategies. Some clients “need to get good dividends and cash flows from this 20% bucket,” Heiden says, while some “are investing long-term and for the next generation, so they can take on more risk and therefore pick up real asset illiquidity and long-term risk premia.” But in addition, “What we do see with some of our clients is gold, especially physical gold,” she says. “People are holding it just for times of crisis.”
Just as many rich German investors cling to gold, they often cling to old ideas about the role of women in finance. Heiden says women are less prominent in finance in Germany than in many other countries. One reason is finance is not held in high regard among many Germans. Another reason is that in Germany, there are few female role models. If anything, women were more visible in the labor force in the old East Germany, where Heiden grew up. Many German women are not dedicated careerists. “I’m personally from the eastern part of Germany, and “my grandmother and my mother were both full-time working lawyers,” she says, “but in the Western part of Germany there has been a more conservative view on women staying at home and not running around for their career.”
Heiden was raised on the Wadden Seam on Strelasund, an inlet on the North Baltic Sea. (When asked, “Does this make you an “Ossi?” – the nickname given to former residents of East Germany – she says, “Yes, I’m an “Ossi.”) She earned a degree in financial mathematics from the Technical University of Braunschweig and then moved to Munich, where she did a master’s in Financial Management at the Technical University of Munich and a second master’s in Business Psychology.
During her graduate studies, she worked for Deutsche Bank in Singapore for six months, “but I found how much I missed the water, so that’s why I decided to come back to the north (of Germany) and find my first job in Hamburg.” She worked for a banking start-up, Varengold Bank, for three years and then joined Hamburg’s Barenberg, the oldest bank in Germany, in institutional asset management. In 2015, she moved to ZEB, a consulting firm focused on the financial industry, and she says, “I did the full range of consulting, including work on optimizing investment strategies.”
One of her projects involved the European Stability Mechanism, an intergovernmental body in Luxembourg which helps member countries manage financial stresses. “I learned a lot about diversity there, because there are many, many nations that work together, so you not only have diversification in terms of gender, but also age and culture,” she says.
Heiden, who came to Eulenburg at the beginning of 2021, says one factor that has guided her career is that “I’m always keen to work at the water, so the very first bank I worked at was actually in the harbor at Hamburg, and then Berenberg was located on a little lake in the middle of Hamburg – and now I’m living with a harbor view.”
She shares her apartment with her husband and two-year-old son, with a second child due in this November. Regarding her husband, she says, “We met on the job. He has a similar background – he is also head of portfolio management for a family office. But they’re focused on the liquid side, and he’s really tactically running multi-asset strategies for their clients, so they have a different portfolio management approach than we have.”
With one small child and another arriving imminently, Heiden has little opportunity for recreation, saved for her Peloton bicycle. “To go outside for sport became quite difficult because you are a babysitter after the little one goes to sleep, so the Pelton time offers an opportunity to do sport in the evening.”
Meanwhile, since earning two advanced degrees, Heiden has remained a serious student of financial ideas. Her two idols are David Swensen and Jim Rogers. She also sees merit in some passive approaches to investing. But she knows that’s not what most of the clients at a family office want: “They need active management because they sleep much better knowing that someone is watching the markets for them when the corona crisis shows up or whatever other crisis shows up. Although they know they might lose some points of performance against the passive benchmark for this, for them it is an insurance premium.” Heiden says the highly personalized approach at family offices may ultimately be supplanted by advances in artificial intelligence. So far, a game changer for sustainable alpha generation could be Artificial Intelligence, but “these modern quant strategies are still in the early stages of development.”