- December 14, 2016
- Posted by: Vincent Sarullo
- Category: Careers, Family Office, Fund Administration, Management, Marketing, New Funds, Productivity, Raising Capital
Wealthy families set up private offices (Single or Multi-Family Office) to manage their personal affairs, including paying their personal bills, property management, travel arrangements, and most significantly, their investments. As an emerging manager, it is possible to find yourself involved in negotiating private jet contracts, art and antique purchases and sales at Sotheby’s and Christie’s, and building investment programs to fund the future operations of the charities and a family dynasty. The challenge is, which type of family office do you choose?
Larger families led by a single patriarchal or matriarchal figure will most likely have their own dedicated family office (single family office, or SFO). SFO’s, generally speaking, manage the financial and personal affairs of one wealthy family. While smaller, yet quite wealthy families that need assistance may seek out a group that provides the necessary support and services. These groups can grow out of a single family office that grew to a point where they decided to offer their staff’s expertise to other family members and friends and now have a separate business from it. Or they can spring from financial advisors, accountants and attorneys that were servicing wealthy families that morphed their business into a family office solution. The latter is what we refer to as a multifamily office (MFO). MFO’s are “an extension of the current ubiquitous wealth management model; a business that helps firms engage in fewer, deeper and more lasting relationships with affluent clients that are based on customized solutions, specialized expertise and responsive service,” according to Russ Alan Prince’s article “What is a Family Office?“.
The two groups have some similarities in the way they operate, but can be quite distinct in their approach to investing, especially in the alternative asset space. The one overall similarity between the two is that family offices invest for capital preservation and appreciation, taking a long-term horizon view. They want to provide for the generations that follow. As institutional as they may become, they still have an “asset side of the balance sheet” mentality with investing.
SFOs typically have a patriarchal or matriarchal leader who invests on intuition and personal connection to the manager or strategy. They are very involved with each significant investment decision, and personality plays a key role in their decision making process. MFOs tend to have more of an institutional mindset when it comes to investing. Since they are looking for investment opportunities that could fit the needs of one or many families and they need to protect their own business, they tend to be more methodical about the research and due diligence process than the SFO. MFOs not only have to worry about making the wrong investment selection and losing the families’ money, but also worry about losing their clients and business because they made the wrong recommendation.
Both family office setups can be a great opportunity for the emerging manager. SFOs are a better bet for the smaller manager, since they tend to be more open to working with start-ups. Many of the family heads tend to have built their wealth from a single business and truly appreciate the entrepreneurial spirit of a new manager.