Stocks and real-estate face the end of a nearly 20-year bull run and many family investors are poorly prepared for the “tough times ahead,” said Candice Beaumont, chairman of the Salsano Group family office. Beaumont, who oversees more than $1.5 billion in assets from Miami, said surging interest rates are setting the stage for a prolonged correction in stocks, office real-estate and sectors of private equity. “The worst is yet to come,” Beaumont said. “I think this is the beginning of a new paradigm and the beginning of a cycle where we’re in a multi-year contraction.” Like many family offices, Beaumont said she is holding “significant” amounts of cash to prepare for possible distressed sales — especially in real-estate. She said Panama-based Salsano Group has recently begun receiving calls from real-estate owners in the U.S. hoping to unload office or residential buildings at discount prices. “A number of big legacy families with trophy assets, particularly in New York City, have been approaching us” to sell, she said. “They want to do it very quickly but they’re not in distress yet. But we think over the next few years, this trend will proliferate and there will be much more opportunity. We want to have dry powder to be able to execute.” Family offices, like many large investors, are struggling to navigate the new financial landscape of higher interest rates. Salsano Group, which has investments in Latin America, the U.S. and Europe, was founded by Italian-born entrepreneur Sandro Salsano. Beaumont, a veteran of Lazard Freres (M & A) and Argonaut Capital (private equity), said many large investors have continued investing heavily in real-estate and other assets without closely analyzing the risk-adjusted returns in the new rate environment. “I see people buying multi-[family] real-estate for a 4% return while you can get 4% or better cash, risk-free without any leverage,” she said. “We think the market has been a bit slow to catch on.” Salsano holds a diverse portfolio of cash, treasuries, hedge funds, public equities and other investments. Yet its main focus is private equity, where it’s achieved a 35% internal rate of return, Beaumont said. The group’s biggest project is a new free trade zone in Panama, which it’s developing with co-investments from sovereign wealth funds. “Panama is a very strategic area that unites the Atlantic and Pacific oceans, and a logistical hub for the U.S. dollar economy,” she said. “It’s really a nexus of growth.” Beaumont also said Salsano is scouting for bargains in Europe, where equity prices have fallen to attractive levels for take-private deals. She said she’s looking at a potential acquisition of a company in Europe that trades at a steep discount to its U.S. peers. “It’s a $100 million company in Europe and if it was in the United States it would already be valued at $2 billion,” she said. “Sometimes there is a huge arbitrage to where things trade in Europe, especially on some of these small European stages.” Beaumont, who serves on a number of family office councils and advisory boards and once was a world-ranked tennis pro, said the number one priority for family offices in the current environment is to be diversified, especially for new tech millionaires and billionaires. “A lot of young families stay in tech wealth,” she said. “They know the tech sector very well, so they concentrate a lot on one sector. But I think it’s very important to have asset diversification. There is a famous allocation chart that shows what sectors outperformed every year in the past, and every year it’s a different segment — one year it’s tech, one year it’s commodities, one year it’s distressed debt. It’s totally different every year. That’s the best example of why family offices need diversification.”
