What is a Family Office?
Let's start with the basics. The true definition of a family office is defined as a group that provides a family (or multiple families) with a multitude of personal and wealth management services. Like any vertical dealing with the ultra wealthy, every family office is unique in set-up and structure, with each requiring a different combination of services. This makes defining the murky world of family offices incredibly challenging and cloudy. We will clarify and take a deeper dive below...
Difference Between Institutions & Family Offices
Family offices are a unique breed. When it comes to putting capital to work, these private wealth vehicles tend to be incredibly opportunistic and nimble. In comparison, their institutional counterparts often have specific investment mandates and size & track record benchmarks needed prior to pulling the trigger on an investment. The average institutional investors (labor unions, banks, insurance companies, pensions, etc.) require longer and more protracted due diligence cycles as opposed to family offices, which generally have significantly greater thresholds for longer investment hold times. This difference makes family office investors an incredibly attractive pool of capital for both funds and private deals alike. We will unpack further when exploring the increased direct investment trend in the family office landscape, as both play a vital role in the AUM makeup of an array of investment opportunities.
Single Family Offices vs Multi Family Offices
Family offices are split in two core buckets: single family offices (SFO) and multi family offices (MFO). In a general sense, single family offices are private groups that manage the financial and personal affairs of one high net-worth family or individual. A well structured single family office will oversee a myriad of additional items such as insurance needs, tax planning, fiduciary responsibilities, trusts, aviation, real estate holdings, etc. Typically the minimum amount of assets needed to create a financial focused single family office is $50 million or greater.
Multi-family offices are private organizations comprised of qualified and well-respected professionals with extensive experience in providing a range of wealth management services to numerous unrelated high net-worth families and individuals. Much of the core MFO structure is already in place for new families to leverage and plug into, so we often see these wealth vehicles market their services to new affluent families as they seek to attract more clients. In fact, you will often find many family offices that started as SFOs and, over a period of time, morphed into MFOs.
History of Family Offices
When the term family office arises, I bet it doesn't evoke the ideas of stewards and their kings. In accordance with the EY Family Office Guide, the concept of private wealth management first emerged in the sixth century, when a king's appointed steward was held responsible for managing royal wealth, thereby establishing the concept of stewardship that is among us today. How we categorize family offices today started to take shape in the late 19th century with the founding of the House of Morgan in 1838 (pictured to the right after its remodel in 1914). In 1882, the Rockefeller's (an American industrial, political and banking family that owns one of the world's largest fortunes) founded their own family office, which is still in business to this day, having expanded to provide services to other affluent families. In essence, this development brought forth the rapid expansion of family offices - first emerging in the US, and then elsewhere.
The Modern Family Office
Today's family offices are far more sophisticated and forward facing than ever before as they can no longer afford to be inconspicuous. The single and multi family office world is rapidly becoming an important source of capital for private companies, either as a funding source or in a complementary partnership with other private wealth investors, venture capitalists and institutional capital providers. Family offices seek to put capital to work and find deal flow - often in more nascent and emerging industries, such as in cannabis or blockchain. Until now, you would rarely uncover full public dossiers of information. This is mainly because the previous family office model was meant to preserve the wealth for future generations, whereas the present-day model is increasingly about putting money to work in the wealth owner’s lifetime.
Uncovering Commonalities to Drive Better Outreach
Technological advances and progressive growth in the family office space makes finding commonalities significantly easier. Comprehensive family office data and research platforms such as FINTRX make it possible to discover unique similarities that drive stronger outreach processes. You can do this manually within your own network or leverage our one-stop solution with an offering like FINTRX Affinity. Designed with AI to humanize your outreach - FINTRX Affinity delivers custom conversation starters, actionable insights on your best path to connect, and meaningful intel on your shared commonalities across 10,900+ family office decision makers. Using our savvy algorithms, FINTRX auto-updates your Affinity Score every night at midnight, thereby generating the most optimal matches for your outreach purposes on a daily basis.
Follow & Attend Family Office Conferences & Events
Conferences are a reality in the business world. Regardless of your profession, level of experience or the industry in which you work, networking events provide invaluable opportunities to enhance your career and personal growth. Given the traditional furtive nature of the private wealth environment, it makes attending events all the more valuable to the asset raising professional. But in order to walk away with golden nuggets of knowledge and promising new family office connections, you must know how to make the most of these opportunities.
Conferences boast an interactive engagement model that allows for productive networking opportunities and meaningful discussions with those in the private wealth space. Once you decide to attend, your success relies on a great plan for before, during and after the event. Being prepared, professional and proactive helps to ensure new connections that last - and remember, the mindset you choose prior to the event impacts your performance and overall results. For more information on upcoming family office conferences, visit the FINTRX Events page, where we provide key information on private capital market events all over the world - as well as its asset class focus, date(s), location and a link to the event webpage.
Why is Origin of Wealth Important?
Family offices, specifically single family offices, are much more likely to allocate capital to industries for which they made their wealth. This seems natural enough. If you can understand "it", you are far more likely to peel off capital. This can be increasingly valuable for funds and private companies seeking a seed investor. If you can target capital that can wrap their arms around your proposition and truly understand what you're doing, your hit rate will greatly rise; Human nature it's finest.
Family Office Investment Tendencies
Family offices are opportunistic by nature. You will not find specific mandates in the family office world. Their goal is to compound capital and find unique opportunities to put money to work. The result - increased opportunity for those seeking capital. The modern family office is often less concerned with track record length, assets under management thresholds, etc. Due diligence is of course comprehensive - as it should be - but the amount of red tape is substantially less than you would find in the large institutional markets.
You will also find an increasing trend in family offices making direct investments into private companies and deals. The reasons for this are mainly - more control, less fees, and their ability to provide patient capital. There is great value here for the family office as well as the funded entity. This macro direct investing trend continues to gain steam and does not appear to be stopping anytime soon.
In a recent report by iCapital, 66% of 157 single family offices surveyed in 2016 and 2017 have plans to increase their direct investment activity. Our Buy-Side product at FINTRX, which focuses specifically on family offices making direct investments, has seen the largest of this direct capital allocated to the technology industry.
Global Family Office Expansion
What was once a niche industry focused mainly in the United States has now gone global. An increase in private wealth has continued to expand the creation of new family offices in areas that were essentially void of family offices in the past. Asia for example has seen a rising number of family offices over the past few years, with many predicted to be on the horizon in the coming years as generational wealth continues to change hands.
Family Office AUM Size
Assets under management (AUM) is the total value of all the assets managed by a family office. If a single family office, this applies to an individual or one family. If a multi family, the capital is spread across a number of ultra high net worth families. The true minimum AUM threshold to be considered a family office is cloudy. Some say $10 million, others prefer $20 million. At FINTRX, we use $50 million. However, a majority fall above 100 million.
Family Offices & Impact Investing
Impact investing has experienced immense growth in the last decade, outperforming the benchmark for eight out of the last 10 years, according to the MSCI ESG Leaders Index. Utilizing FINTRX, our family office data and research platform, which covers hundreds of families active in ESG/impact investments, we've shared five family offices making impact investments across an array of industries, sectors, and asset classes. In an effort to address social and environmental issues around the world, impact investors aids mission-driven companies - whose innovations spur change - accelerate economic growth for the coming generations.
What Makes ESG & Impact Investing Attractive to Family Offices?
Impact investors make investments into companies, organizations, and/or funds with the intent of generating valuable social or environmental impact alongside a financial return. Investing with high standards to maximize financial performance and public benefit, impact investors aim for a financial return while also making a positive impact on the communities in which we live. These investments are immensely attractive to the family office ecosystem as they put forth the agenda of investing in a responsible manner, in addition to producing a strong ROI.
The family office landscape is a forever moving target, though its continued expansion and growth remains steady. The allure and genuine interest in family office capital is not going away, as the benefits of securing an allocation from family office capital pools are vast. We advise you to taker a deeper dive into this highly sought after and often misunderstood space.