Hartford Business Journal

22 HARTFORDBUSINESS.COM | JUNE 24, 2024 After playing a role in taking a private manufacturing company public, David R. Elliott in 2021 consolidated his investments into a family office, D.R. Elliott & Co. His daughters will be the second-generation stewards of the family office. HBJ PHOTO | STEVE LASCHEVER Family Affair Great Wealth Transfer expected to fuel surge in new family offices Establishing a legacy DRECo is based out of Elliott's South- ington home. He and his wife founded the family office in 2021 as a way to consolidate investments they've made over several decades. DRECo has about $100 million worth of investments, Elliott said, putting it on the small end of the family office spectrum. The business consists of he and his wife, Kathryn, who serves as president, along with his two daughters, who are in their 20s and who Elliott hopes will embrace their role as stewards of the family office's second generation. "The way it's set up is as an LLC that will start passing into them propor- tionately, and then it's generational," Elliott said. For now, the family office is a part- time gig for everyone, except Elliott. His older daughter, Erica, is vice president of investments and philan- thropy. His younger daughter, Kristen, is vice president and treasurer. They both have their own careers — one is a high school English teacher and the other is an occupational therapist. The family office structure gives them the ability to choose their level of involvement. "It gives my family, and hopefully the legacy, an establishment to invest," Elliott said. "And from a tax perspective, it makes a lot of sense." There are a number of tax benefits to family offices, but how and when they apply can vary, experts say. For example, structuring a family office as a business could allow for certain business expense tax deductions. Many of DRECo's investments focus on manufacturing, like its most recent stake in Fractal Water. While the company's vortex magnetic system has generated interest, Fractal has been too small to meet demand. It has just a few employees who assemble the product by hand. Elliott believes his business expertise and financial resources can make the company profitable. Under the deal, DRECo has taken a 25% equity stake in Fractal and provided it with about $250,000 in cash. Elliott also lets Fractal use space in a 77,000-square-foot Cheshire warehouse and research facility that's home to metal manufacturer Wanho Manufacturing LLC. Elliott serves as president and CEO of Wanho's North America business, and his family office is the company's third-largest shareholder. Elliott has created a mold to auto- mate production of Fractal's device. He's also working to secure patents for the technology, and expects the first inventory to be available starting Sept. 1. "We have a lot of synergies here," Elliott said. "We don't have to have a separate warehouse, we don't have to have separate freight teams and logistics." Eventually, he plans to fold Fractal's operations into Wanho, which has plants and distribution channels across the world. In addition to focusing on invest- ments in manufacturing, DRECo has By Andrew Larson alarson@hartfordbusiness.com D avid R. Elliott usually says "no" to investment opportunities. Elliott, 56, the CEO and founder of Southington-based family office D.R. Elliott & Co., rejects the vast majority of pitches — about 99%. But for the remaining 1%, he's all-in on his bets, providing hands-on support to manufacturers, in addition to much-needed financial resources. "My forte is commercializing other people's ideas," Elliott said in an interview with the Hartford Business Journal. "I've built the company by saying, 'Look, you don't have to pay me. But I want a piece of the company,'" he explained. "When I think there's an opportunity to capitalize, that's normally what I do, and it's worked several times." D.R. Elliott & Co., known as DRECo, recently invested in a fledgling Harwinton business called Fractal Water LLC, which produces a propri- etary vortex magnetic system that conditions water to make it more efficient in hydroponics, green- houses and agriculture. The company says its technology can reduce energy consumption by 10% and increase crop yields by 10% to 30%. Elliott thinks he can transform Fractal Water, currently with just a few workers and little sales, into a business with about $20 million in annual revenue and 15 employees. DRECo, which has stakes in 11 different companies, is one of many family offices in Connecticut and across the globe looking to secure their investments for the future, with the goal of maintaining generational wealth. And with an aging U.S. population, family offices, which are loosely defined as private companies created to manage the wealth and assets of an ultra-high-net-worth family, are expected to significantly grow in popularity, experts say. During the next 20 years, the largest transfer of wealth in history is expected to occur, as $84.4 trillion passes from baby boomers to the next generation, according to an estimate by market research firm Cerulli Associates. There are roughly 15,000 family offices worldwide, which control about $10 trillion in assets, according to a recent TEDx talk by Ron Diamond, chairman & CEO of Diamond Wealth Strategies. In comparison, there is only $6.5 trillion in hedge funds. "I think that there are a lot of different reasons why (family offices are) becoming more popular," said Erin Nicholls, a partner with New Haven-based law firm Wiggin and Dana's private client services department and co-chair of the family office and strategic investments group. "Obvi- ously, it's attractive to be able to pool capital for investment purposes, but also family offices can serve the goal of ethical investing, which has become mainstream recently." D.R. ELLIOTT & CO. INVESTMENT PORTFOLIO The family office led by David R. Elliott has stakes in these companies: • Fractal Water LLC • FIMO TEC/WANHO Manufacturing LLC • Ai-Tek Instruments LLC • Temptron Engineering Inc. • Square Products LLC • DelComm LLC • Cadenza Innovation • DRE Manufacturing and Scientific Consulting LLC • PDL Consulting LLC • Knotter Drive LLC • S&S Technologies LLC Erin Nicholls

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