Business

Family Offices of the Ultra-Rich Shed Privacy With Activist Bets

(Bloomberg Businessweek) -- The Children’s Place has been a ­mainstay of US malls for decades, with its powder-­blue logo hanging over more than 500 storefronts. Its wardrobe staples for babies, toddlers and tweens are quintessentially American, featuring myriad items emblazoned with the Stars and Stripes or messages such as “Strong Like Mama,” “I Got an A in Recess” and “All-American Boy.”

But these days, management and ownership would be better described as “not American.” Mithaq Capital, the family office of a dynasty tied to Saudi Arabia’s second-largest bank, took an activist stake in the struggling kids’ retailer in February. Mithaq, which owns 53% of the company, has installed its own leadership team and injected new funds. “Rest assured that we are going to roll up our sleeves,” Turki Saleh Al-Rajhi, a scion who serves as chairman of the Children’s Place Inc., wrote in a May shareholder letter. Neither the company nor the fund responded to requests for comment.

The pairing highlights a shift at family offices—firms that typically serve a single investor or megarich family. These funds have long wielded influence commensurate with their billions of available cash, but they’re increasingly taking on activist roles—acquiring positions to force change—at listed companies such as the Children’s Place. So as regular folks wade into equity markets, they risk investing in companies where a family office holds sway. Although the numbers are small, it’s a growing trend, says Christina Wing, an adviser to billionaire families. In the past year, family offices have taken at least a half‑dozen activist stakes globally, according to data compiled by Bloomberg. “These type of investors are kind of flying under the radar,” Wing says. “There are more of them than we think.”

In August, Tarsadia, the family office of US real estate magnate Tushar Patel, called on Covid test maker Cue Health Inc. to begin a strategic review and realign costs after a slump in its share price. Symetryx Corp., which manages money for Barry Shiff, co-founder of Israeli audio company Noveto, in September urged the board of biotechnology firm Neubase Therapeutics Inc. to pay a special dividend after it bought a 20% stake. And the fund of Mark Gottfredson, the founder of Bain & Co.’s Dallas operation, is now in a $3.2 billion duel for Vista Outdoor Inc.’s ammunition business.

In Japan, where activist investors are often derided as “asset strippers,” Yamauchi No. 10 Family Office—a fund for descendants of the founder of gaming giant Nintendo Co.—attempted a hostile takeover of Toyo Construction Co., which builds shipping container terminals. Yamauchi installed directors on Toyo’s board and submitted proposals aimed at boosting results, but it withdrew its offer in December after failing to win support.

Nonetheless, the investment has been a win, as Toyo’s shares have risen by more than half since Yamauchi made its offer in 2022. The firm, which manages more than 100 billion yen ($622 million), eschews the label of activist investor. But family representative Banjo Yamauchi says, “Our belief is that value creation is the source of returns, so our approach is to flexibly change our strategy.”

There’s been a boom in such firms worldwide over the past two decades as the wealthy accumulate vast fortunes in tech, finance and real estate. A recent UBS Group AG survey of more than 300 of them found they manage $1.3 billion on average, with the bulk of their money going into stocks in wealthier countries.

But even as they build up operations on the scale of institutional money managers, most family offices shun the spotlight. Some forgo even basics such as a website, and staff typically must sign contracts barring them from talking about their work. While they’ve long plowed their billions into real estate, closely held companies and private equity funds, such deals are usually private and garner scant publicity. By taking on companies with publicly traded shares, the new generation of activists is engaging on a level that will require greater transparency as they seek opportunities where their entrepreneurial background and outsize fortunes might yield outsize profits.

Activist family offices sometimes target sectors in which their owners have expertise. Although the Al-Rajhis still control a stake worth almost $2 billion in Al-Rajhi Bank, one root of the family fortune is in sales of men’s clothing. That’s not necessarily a bad thing for an activist’s target. “Some companies want these family offices,” says William Sinclair, who heads the US family office practice at JPMorgan Chase & Co., as they can bolster management by deepening the knowledge base in addition to bringing piles of cash.

But their deep pools of assets allow family offices to implement rapid change when they turn activist—which can amp up conflicts with management. Although Mithaq’s website says “No investment will be made in an unfriendly manner,” at the Children’s Place the Al-Rajhis quickly appointed a new chief executive officer, parting ways with former CEO Jane Elfers and brand President Maegan Markee, both 14-year company veterans. And while more than 40% of shares are still publicly traded, Al-Rajhi has said the company will no longer conduct quarterly earnings calls or provide guidance. Shares have fallen by more than half since Mithaq took over, even as the family has provided $169 million in financing, including a $79 million unsecured, interest-free loan.

In his May shareholder letter, Al-Rajhi professed to adhere to the investing principles of Warren Buffett, saying Mithaq is in it for the long haul. “Like marriage, ownership of a business is a long-term commitment,” he wrote. At the same time, he cautioned investors, there may be hiccups along the way. “We have no master plan,” he wrote. But “we will always seek to be opportunistic.”

©2024 Bloomberg L.P.