Buy in haste and regret at your leisure
How the family office plays a critical role in the superyacht market by ensuring that costly mistakes do not occur.
It is often reported how the superyacht industry is growing in size and complexity, both in terms of the assets themselves and the regulatory & legal hurdles, which poses an interesting challenge for those who wish to own a superyacht. A market that was already as mysterious as it was alluring now has myriad more considerations and nuances to factor. Ahead of the Prestel & Partner Family Office Forum in London (20-21 June) we explore how the role of the family office can help mitigate the chances of a principal making a costly error.
“The issue that I experienced when I was a lawyer was that by the time superyacht clients came to me the crisis had already arisen and we were often in firefighting mode. Or, if it wasn’t a crisis, they were well on their way towards building or buying a superyacht without having taken that step back to think: Is this the right thing to do? Does this make sense? Have we thought about all the costs? Frequently, buyers will be enticed into the into the space and they get really excited without considering the reality of the situation,” starts John Leonida, Consulting Superyacht Industry Advisor at LP Squared and former Senior Equity Partner at Clyde & Co. “One thing I always used to say to my clients, and I still say them today now I am an industry consultant, is to step back, stop, and think about it.”
Leonida is not advocating for a halt or slowdown of the sales process, rather he is encouraging buyers to start asking the questions that could have a significant impact on their ownership experience down the line. Have you considered how you’re going to use the yacht? Have you considered how you are going to deal with crew? How are you going to approach maintenance? Who’s going to look after your interests on a day-to-day basis? What are the taxation implications of this project? How should a potential superyacht be owned and structured?
“The process can become a whirlwind, in part precipitated by the excitement surrounding the acquisition and partially because it is couched in terms of leisure and pleasure. Most other leisure acquisitions are instantaneous and there is little by way of consequences for these purchases. Even if the acquisition is something as large as a luxury apartment, there are other parties who share responsibility for the asset because it is in the context of a larger building. But superyachts are very complex pieces of maritime engineering that are visited upon by a multitude of legislation, regulations, fiscal policy and so on – all of which require serious contemplation,” continues Leonida.
“I well recall a case several years ago that ended up in the High Court when an individual, who was so enamoured by a superyacht that they thought they knew well, that they completed the acquisition in four days. They lived to regret that decision. Buy in haste and regret at your leisure.”
It is for the reasons stated above that family offices have an increasingly important role to play within the superyacht market. For all intents and purposes, family offices must act as the voice of reason for the individual or family they represent. It is true that most family offices or multifamily offices will not have the necessary knowledge in house to account for the complexities of the superyacht market. Their role, therefore, is to ensure that the principal in question is receiving the right kind of advice from individuals or businesses with the correct types of knowledge and that have no further vested interest other than what they get paid for their time.
“The right consultant should be able to stress test the decisions of the client by providing unbiased advice or sourcing appropriate experts to do the same. All too rarely are the decisions of principals questioned; both family offices and consultants have a part to play here. This is why over the last year, for example, we have asked for objective valuation advice from VesselsValue before the client engages the brokerage community. In that way, principals can begin the process furnished with some information on what realistic pricing looks like, as opposed going into it with no information at all – which applies to both buying and selling. It’s about having enough information to allow the family office to guide the owner as to decisions that they make about their superyachting experience,” explains Leonida.
One of the stark differences between buying and operating a superyacht versus commercial tonnage is that the stakeholders in the commercial world are experts in possession of all the necessary knowledge and experience to make informed decisions, supported by a clearly defined professional network. Whereas, in the world of superyachts, the stakeholders at the top of the ownership pyramid, i.e. the UBOs and their family offices, know less about the market than the third parties that exist to support them. This imbalance can, at times, lead to UBOs taking on poor advice whether that is in relation to a transaction, taxation liabilities, operational costs, ownership structures, crewing, and all manner of other nuanced considerations. Having the right advisers and data, therefore, can foreshorten potential pitfalls and filter out white noise and irrelevant advice.
“Data and consultancy shift the balance of power, making practices in the superyacht industry more transparent. If a client is ill informed it engenders a certain degree of distrust, which is certainly not helped by some the yachting market’s more archaic practices and processes. In most circumstances, actors within the market are operating fairly, but having the necessary data and advice to hand allows family offices to protect the interests of their principal more acutely and potentially avoid costly errors of judgement. If your family is in the superyacht space, or would like to be in the superyacht space, there is a constant process of education. Having a professional on retainer for whenever you have the odd question can be extremely useful. Various professionals can provide this function, but it really boils down to who the family trusts,” says Leonida.
Buying and operating a superyacht is complex and good decision making can be made all the more challenging without objective and accurate advice. The thrill of the purchase, at times, must walk hand in hand with a practical view of the acquisition. Increasingly it is the role of the family office to ensure that the individual or family in question enjoys the process of buying and operating their superyacht, whilst assuming some responsibility for building an owner’s team that will safeguard the family from potentially costly error.