1. What do family offices do?
They’re firms that serve a single family with so much wealth that its members require their own money managers, accountants, estate planners, lawyers and other specialists to manage it all. Families usually need at least $500 million to set up a full-service office with an investment staff. Many employ dozens of professionals to pick investments, file taxes, pay the bills, oversee philanthropic missions and manage assets like yachts and vacation homes. Multi-family offices, which serve more than one family, are accessible at lower levels of wealth.
2. Who has them?
The super-rich. Rockefeller set up one of the earliest modern versions in the late 1800s, and they’ve traditionally been used by the business magnates behind major companies such as Walmart, Johnson & Johnson, Ikea and LVMH. As the number of mega-millionaires and billionaires has exploded, the use of family offices has spread to Silicon Valley entrepreneurs, private equity stars, Russian oligarchs, Middle Eastern oil families and newly minted tycoons in Asia. There are more than 10,000 single-family offices globally, at least half of which were started within the past two decades, according to EY.
3. How have they evolved?
They’re becoming more professional, with the largest offices operating like sophisticated investment firms. They strike out solo, or team up to buy and sell businesses, finance startups and acquire real estate. That way a family can exert tighter control over its money, cherry pick investments, minimize fees and even give the kids a board seat. Financial firms are feeling the pressure, and looking to woo family offices as clients.
4. How much money do they manage?
An estimate by researcher Campden Wealth put the figure at $4 trillion globally, larger than the entire hedge fund industry. But it’s hard to say for sure. Families tightly guard the extent of their wealth and very few public records are available to track their assets. Single-family offices are generally exempt from registering as investment advisers with the U.S. Securities and Exchange Commission, and therefore don’t have to disclose their owners, executives or how much money they manage. Financial centers including Singapore, Hong Kong and Dubai allow them substantial freedom and secrecy, too. Many family offices chose obscure names to operate out of the public eye. Google co-founder Sergey Brin’s family office, Bayshore Global Management, gets its name from the location of the search engine’s headquarters. Charles and David Koch named theirs after the year their grandfather emigrated to America: 1888.
5. Who oversees them?
No one, really. The demise of Archegos Capital Management, a hedge fund by nature but a family office in name, is likely to have regulators looking more closely. The investment company run by Bill Hwang imploded after taking highly leveraged multi-billion dollar bets on U.S.-listed stocks. One argument is that the relatively loose oversight of family offices made it easier for Hwang to build such enormous and risky positions without ringing alarm bells. As it is, government authorities do take a keen interest in the outcome of estate and tax planning. After all, just as much money can be made through savvy planning for what happens when a patriarch or matriarch dies as choosing the right hedge fund while they’re still alive. Charitable giving and accompanying tax deductions also come under the taxman’s purview.
6. What else can family offices do?
Almost anything. They can manage historical archives, art collections and personal staff, such as chefs or nannies. They can oversee family members’ travel and vacation plans, privacy and security. Cybersecurity has become just as important as physical safety — think of the racy selfies taken by Amazon.com Inc. founder Jeff Bezos that became tabloid fodder. Family offices can also help secure the best advice for getting offspring into selective U.S. colleges.
7. Who works for them?
They attract talent from big banks, asset managers, private equity firms and endowments. For example, George Soros’s $25 billion family office hired Dawn Fitzpatrick, who led the O’Connor hedge fund unit at UBS Group AG’s money-management arm, as its chief investment officer in 2017. After running Goldman Sachs Group Inc.’s investment bank, Gregg Lemkau in 2021 joined an investment firm that grew out of the family office of Michael Dell, founder of Dell Technologies Inc. Top business schools in the U.S., including those at the University of Pennsylvania and the University of Chicago, have courses tailored to producing professionals that cater to family-office needs.
8. What are multi-family offices?
Rather than serving just one family’s needs, they cater to multiple wealthy individuals or families who lack the money, expertise or desire to form their own offices. Because they provide advice on more than one family’s money, they are typically subject to financial services regulations. In the U.S., for example, they have to file disclosures with the SEC, just like hedge funds or private equity firms.
©2021 Bloomberg L.P.