WATCH: Why this family office has its own fund

Blu Family Office, based in Richmond in south-west London, was formed in 2010 to manage the assets of a single family. Since then it has broadened its mandate and has started investing in private debt, including through its own fund. Founding principal and CIO Christian Armbruester and CEO Nick Rees tell us more about their approach, and provide insights into the family office perspective on the private debt asset class.

Full transcript below:

As a family office, tell us about your interest in SME lending?

We’re a multi-family office, we started about eight years ago and we invest for our families across the entire investment universe. One of the areas where we were having trouble was in the fixed income markets given the low yield environment at the time and the low interest rates so we were exploiting the private lending markets to cover our needs there and we started investing about four years ago.

How do you go about the investing process?

So one of the things we discovered very early on is that you need expertise because these are private transactions and in that regard there’s a great amount of due diligence effort involved which we had to acquire. The other thing that was a challenge for us is that we had several families that wanted to get the same exposure which necessitated us setting up a fund about three years ago to pool our investment capabilities.

How does the fund work?

Our investment philosophy is to diversify across different risks and so also in this particular investment area we didn’t necessarily just want to pick one or two strategies, we wanted to be diversified across several different types of private lending and that presented a large challenge because it is actually a very broad asset class which again is why we brought in expertise to allow us to discern across the different risks a little better.

What kinds of strategies are you exposed to within the fund?

Within the fund we, as Christian mentioned, want a broad exposure so we are agnostic geographically and sectorially as to where we have exposure but specifically we’re focused on a couple of different areas. One is smaller loans, so we think there’s a sweetspot in the private debt market that’s around the $1-2 million loan size so we specifically target that area of the market and also short-term transactional loans, so trade finance would be an example of that where we’re funding the movement of goods and services from A to B typically.

Where are you seeing opportunity at the moment?

Within the private debt markets obviously it covers a huge area. As I’ve said we focus on the short-term end of that market but I think there are opportunities across the spectrum. Obviously over the last few years we’ve seen a huge amount of money flow into the asset class and that’s something we’re a little bit wary of. It’s really at the end of the day more money chasing a finite number of returns so I think for us it’s a question of being focused and staying true to what we believe in and also I think within the private debt markets perhaps you’re not getting the yield premium you might by investing five, seven, ten years out versus what you can achieve on a one year basis. So on a one year basis we’re looking at probably 6 or 7 percent net to us. If you go out a few more years you might pick up 100 or 200 more basis points but for us that doesn’t really justify the illiquidity that you’re sacrificing in order to achieve that.