Family offices are private firms of various structures, sizes and responsibilities which manage the wealth, investments, trusts and just about every aspect of one or more family businesses with net turnovers of more than $100 million a year. Richard Steele, senior conference producer at Campden Wealth, gives a beginner’s guide to a rapidly growing sector in the financial world.
So you’ve never heard of a family office? That’s quite understandable, for many, single family offices (SFO) and multi-family offices (MFO) are just not on the radar.
However, it is worth learning more about these deliberately discreet, usually expensive, but powerful entities which are growing in popularity in the global ultra-wealthy family business community.
A total of 5,300 SFOs are in operation around the world, according to the latest Global Family Office Report by Campden Wealth, in partnership with UBS. That figure was conservative in comparison with the minimum of 10,000 single family offices said to be in business according to the 2016 EY Family Office Guide. Wealth adviser Family Office Exchange believed there are 6,000 FOs in the United States alone.
As controllers of $4 trillion of capital for some of the richest families on the planet, the significance of family offices should be appreciated.
Family offices represent families and are diverse in structure and purpose, which is why they are so interesting. From investments to family member schooling and foundations, FOs will often do in-house what many people would access from external providers. Members of the family will often be closely involved, but again it depends on the set up of a particular family office. Common purposes are to protect and steward the family and its wealth. This will typically involve managing a portfolio of investments as well as running several administrative functions for a family.
There is no official definition of a family office, but there are broadly three camps:
· A single family office (SFO) will look after the interest of one family, although this may sweep up several family members or branches.
· A private multi-family office (PMFO) will look after the interests of two or more families, but will not be looking to grow that number commercially–although perhaps organically.
· A commercial multi-family office (CMFO) will be looking to represent multiple families and grow that number. They may offer family office services such as insurance, transition advice, philanthropy, executive travel as well as investment opportunities.
Certain characteristics become evident when working with a large number of family offices. PMFOs are private and this is an important part of the way they operate. Some really dynamic and intelligent people work in the FO space. Getting to meet them if you are not in the industry can be quite difficult though.
Investments will often be over a longer time span than other investors, such as venture capital. This can make FOs attractive to entrepreneurs in particular. Investments and philanthropy can be themed around family interests or family concerns. Family offices may wish to work with other families to do deals and learn from other families at events.
As well as characteristics, there are several issues FOs work on. These include family dynamics–a family office can help bring a family together, but there may also be succession issues as well as competition for influence and roles.
Outsourcing–what FOs do in-house and when do they access specialist advice (even to get a second opinion) or to meet a complex issue? Security–how can a FO mitigate risks including physical and cyber threats? Benchmarking/return–how can a FO be sure it is performing and fulfilling its key functions? Should it be benchmarking against a private bank perhaps? Talent–how are the best staff retained, remunerated and trusted?
There is also the question of family office regulation, the wealth needed to run a family office and an increase in FOs setting up outside of traditional western countries, for example in India and Singapore.
Stay with CampdenFB as we chart the fortunes of family offices and family businesses.