Wills and Trusts: A Brief Overview

Is the Financial Crisis Over? A Survey of Our Economy, and Our Prospects
Tuesday, December 4, 2012 (8:30 am – 10:30 am)
Yale Office of Development, 157 Church Street, 8th Floor, New Haven, CT

Understanding how prospects are reacting to these financially challenging times is essential to engaging them and earning their support. This session will examine the current economic landscape and help address ways to anticipate the needs of your organization’s constituents. Speaker Richard Horne will share insights regarding the economic climate to help strengthen your research, inform your communications and inspire your development strategies.

Members: $85/Non-Members: $125. Light refreshments are included.


RING: Large Research Shops
Thursday, December 6, 2012 (3:00 pm – 4:30 pm)
Harvard University, 124 Mt. Auburn Street, Room 603B, Cambridge, MA

This roundtable discussion will be geared towards research professionals conducting business in large advancement organizations with many staff members and/or considerable budgets. Barbara Moore and Sarah Fernandez will facilitate this gathering and give attendees the opportunity to freely discuss the best strategies for large shop success. Some of the topics covered will include the most useful resources, staff recruitment and retention, organizational structure and the integration of data analytics. This discussion will be suitable for members of research teams with at least 5 researchers or a development staff of 50 employees or more.

Members: Free/Non-Members: $25.

RING: The Financial Services Industry
Friday, December 7, 2012 (3:00 pm - 4:30 pm)
Combined Jewish Philanthropies, 126 High Street, 9th Floor, Boston, MA

Do you have questions about the Venture Capital, Private Equity, Hedge Fund and Investment Banking industries? Join Anne Brownlee of Harvard Medical School and Roslyn Clarke of Harvard University for this discussion on financial services. Topics likely to be discussed include: job titles, where to find information, how to figure out what a firm/fund does and how to describe to work of a fund or firm. This networking opportunity will be suitable for anyone interested in learning more about these high profile industries.

Members: Free/Non-Members: $25.

Researching Funds in Europe.pdf

Lessons Learned from Researching Prospects in the Finance Industry

In September, Boston University announced the start of its first capital campaign, setting its sights on raising $1 billion dollars over the next seven years.  It is a substantial amount, and the fundraising staff and researchers are largely focused on prospects capable of making 7-figure gifts, because most of the campaign dollars will come from donors at the principle level. These millionaires are scattered all over the United States and the world, and they are in careers that cover the entire spectrum of professions.  Over time, we have found that a significant portion of these prospects work in private equity, finance, and venture capital in the United States.

Given BU Research’s specialized way of qualifying prospects at such a high level, we face several challenges.   As with most research shops, BU’s research team has a specific way of valuing prospects and assigning capacity ratings.  Per office policy, in order to qualify prospects at the principle gift level, Research must identify hard assets at a minimum of $100 million (for “A” rated prospects) or $20 million (for “B” rated prospects).  We assume these prospects are able to give 5% of these figures, $5 million or $1 million, respectively.  Because it is difficult to locate those with a minimum of $20 million in hard assets, finding prospects rated at the “A” and “B” levels is no easy task.  We know that many donors capable of making such gifts are employed in finance; however, this industry presents several challenges to researchers, which include the following: assessing how the company is doing financially, and/or how much money it manages; accounting for overhead in some way; and predicting how a top partner or founder might benefit financially from the company’s success. Furthermore, because we are not finance industry experts, we have had to learn how these firms operate before making any wealth estimations.

Because the finance industry is difficult to research and assess, it has often been a roadblock in terms of estimating a prospect’s net worth.  When researching prospects in this industry, we first determine the company’s function, distinguishing between venture capital, private equity, and hedge funds.  Venture capital firms are different from private equity and hedge fund organizations, as they primarily finance new business ventures, whereas hedge funds are aggressively managed portfolios of investments.  Private equity consists of investors and funds that make investments directly into private companies, conducting buyouts of public companies.  Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies or make acquisitions.  These firms differ from hedge funds and venture capital in terms of liquidity and structure, as they take investment money from large institutions and borrow additional cash so they can buy or invest in public and private companies.

Once we have a sense of the company, we look for financials (usually assets under management) and examine our prospect’s role in the organization.  Is he a managing partner? How many partners are there? Is he a co-founder or founder? How long has he served with this company? Usually we are researching founders, co-founders, or managing partners.

In the venture capital industry, we have learned that top managers split 1% of profits. Hedge fund managers have generally followed the “2 and 20 rule,” or performance based compensation. The rule involves taking 2% (a management fee) of total assets under management, and dividing by the number of partners, and taking 20% of the current year returns (as additional profit) and dividing by number of managing partners.  However, finding current year returns, or any additional profit for a hedge fund can be difficult.  Usually, we are able to find assets under management (AUM) on the company website. However, one thing we have learned is that this figure is often the cumulative total of assets managed by the firm since inception, meaning our resulting figures would be inflated.  Unless we can find out about a recent fund or investment, we have often omitted the 20% calculation to be more conservative.

In some instances, we have been unable to locate any financial information or AUM figures for a prospect’s business, but our gut instincts have told us this particular prospect is probably worth several million. In reaction to this, our director has sought out several online resources to help us fill in the gaps.  Overall, Wealth-X has proven to be the most helpful, providing background and financial information on high net worth individuals and ultra-high net worth individuals. The researchers employed by Wealth-X have often worked in the industries in question, so they have the professional experience to back their research and analysis.  They also provide dossiers, including a brief bio and breakdown of estimated finances, as well as an explanation of their methodology for the net worth figure.  While the source has been helpful to get a ballpark figure, we have nonetheless had to use caution with its estimated figures.  Oftentimes, Wealth-X compounds salary and stock options as part of the overall net worth figure, which is problematic because it can inflate an individual’s net worth.   However, Wealth-X has provided a more specific formula for individuals working in private equity. This formula gives us another option, in addition to what we already know:

[4.17 x (3% of AUM)]/ number of partners

Wealth-X describes 4.17 as being a private equity industry multiple.  We take 3% of the assets under management, multiply that figure by 4.17, and divide by the number of partners. Ultimately, we had another formula to apply to firms that were exclusively involved in the private equity.

Along the way, we have learned that these formulas do not apply to every case.  Essentially, we have to treat each situation individually.  In one instance, for example, I came across a prospect working for a private equity firm that engaged in some venture capital activities, but primarily managed funds.  This firm was a wholly owned, independently operated investment subsidiary of a much larger, well-known brokerage firm listed on the public stock exchange. Our prospect was a top manager in the subsidiary company, which stated on its website that it had $7 billion in assets under management.  Applying any formula or multiple resulted in a net worth in excess of $100 million for our prospect, which seemed too high.  I asked my director to send the name to Wealth-X, and after we received their analysis, we discovered several things. Because the prospect was working for a company that was a subsidiary of a public company, much of his wealth was salary and bonus, as opposed to ownership percentage.  Wealth-X provided a logical comparison by showing us the net worth of a top shareholder of the public (parent) company; this top executive’s resulting figure was substantially lower than the number I had found for our prospect.  So, in this process, we discovered that because the prospect’s company was a subsidiary of a much larger parent company, he did not have an ownership stake (in either).

 

Overall, we have learned a lot about the finance industry.  This field is volatile and unpredictable, and a firm could flourish one year and struggle the next.  It is very difficult to predict and account for all factors involved in running a firm. After much debate, we have decided to use formulas when we can, but we also rely on instincts, and take into account Wealth-X analyses when appropriate.  Sometimes, we simply have to make our best educated guess.