Understanding International Family Offices as an alternative source of investment capital
The role of the family office has often been misunderstood, even though the concept has been around (in a variety of forms) for hundreds of years. Still today, as this industry controls billions of dollars in assets under management, there are many intelligent, experienced finance professionals who cannot offer a complete definition of what a family office is exactly.
Today, the family office industry is expanding at an impressive pace, with new family offices opening every month and assets continuing to grow every year. The family office wealth management industry is larger and growing faster than ever before. Family offices are thriving and the ways that ultra-high net worth families shape our world economy and communities is evidenced all around us by their operation of franchises, apartment buildings, operating businesses, and capital infusions.
Family offices are an important source of capital for small and medium sized businesses and investments which fuel much of the global economy, an especially important factor giving the risk of economic slowdowns all around the world. Family offices provide much-needed capital to businesses and investment funds.
At last estimate, there are more than 3,000 family offices in the U.S. with another 1,000 in Europe and even more in Asia, Latin America and other areas of the world.
In places like Singapore, Paulo London, Hong Kong, investment professionals are seeing the increase in wealth and wondering how to best serve those wealthy families and they are settling on a logical solution: the family office.
Family offices are also much more visible in the public’s eye as of late. With high-profile celebrities, successful business professionals and other people of note turning to the family office model for their wealth management, the family office is
becoming more and more well-known to even non-investment and financial professionals. Celebrities like Oprah Winfrey, business executives like Donald Trump, and entrepreneurs such as Paul Allen, all choosing to launch a family office to manage their wealth, it’s no wonder we’ve seen such a huge increase in global family office assets under management and a higher demand for family office-like solutions around the world.
Family offices are also much more visible in the public’s eye as of late. With high-profile celebrities, successful business professionals and other people of note turning to the family office model for their wealth management, the family office is becoming more and more well-known to even non-investment and financial professionals. Celebrities like Oprah Winfrey, business executives like Donald Trump, and entrepreneurs such as Paul Allen, all choosing to launch a family office to manage their wealth, it’s no wonder we’ve seen such a huge increase in global family office assets under management and a higher demand for family office-like solutions around the world.
So, now that you understand how important family offices are to business, investment funds and the world at large, you may be asking, what is a family office?
A family office is 360 degree financial and wealth management firm and personal CFO for the ultra-affluent, often providing investment, charitable giving, budgeting, insurance, taxation, and multi-generational guidance to an individual or family. The most direct way of understanding the purpose of a family office is to think of a very robust and comprehensive wealth management solution which looks at every financial aspect of an ultra-wealthy person’s or family’s life.
A Single Family Office is a full balance sheet 360 degree ultra-affluent wealth management firm and CFO solution for a single individual or family. They could be defined as “entities established by wealthy families to manage their wealth, plan for their families’ financial future, and provide other services to family members. Single family offices generally serve families with at least $100 million or more of investable assets. Industry observers have estimated that there are 2,500 to 3,000 single family offices managing more than $1.2 trillion in assets.”
You may be more familiar with the multi-family office (sometimes abbreviated as MFO) which has gained a lot of attention in the wealth management world as more and more traditional wealth management firms and private banks convert into a multi-family office. A multi-family office is a full balance sheet 360 degree ultra-affluent wealth management and CFO solution for multiple individuals and families.
Traditional wealth management firms advise on your investments and sometimes they can help you make insurance related or budgeting related decisions.
Most wealth management firms are not specialists in taxation or charitable giving, or even multi-generational wealth management. Family offices can provide all of these solutions and more under one house so that several diverse experts can speak with each other and create a cohesive plan for preserving and/or growing the wealth of the ultra-high net worth client.
In both the single and multi-family office, what is really being offered is a full balance sheet financial management solution to ultra-high net worth individuals and families. It is hard to nail down a single template for a family office as every family office is a reflection of its clients’ needs and desires.
So, while one family office client might require an accountant to deal with complex financial transactions, business operations and global tax compliance; another, may simply want to supplement his or her current accounting system with advice on certain laws or issues, but otherwise has little use for a family office accounting solution.
Another family office client may want to hire a family office that specializes in selecting and investing in alternative fund managers and portfolio management services; while another family office client prefers more traditional investments such as bonds, stocks and mutual funds. A multi-family office will often adapt to fit the needs of its clients or those clients it hopes to attract by specializing in certain services or offering a suite of different services that a prospective client may or may not need.
This adaptation to fit the client is part of what makes a family office so attractive to clients because they can get everything they need done through their family office, eliminating the headaches and worries in selecting various service providers and firms in order to manage the client’s wealth and day-to-day needs.
A family office can provide its client(s) with a multitude of services and often cut down on inefficiencies among several services. For instance, a family office that invests its clients’ money and takes care of their taxes will already be conscious of tax efficiencies when considering various investments and will not have to coordinate with an outside accountant to understand what the impact on the client’s taxes will be if the investment is made. This is just one example of how family offices can make life easier for their clients while providing a range of important services
An extract from Richard Wilsons paper
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