Over the last thirty years or so, family offices have become the preeminent financial model for ultra-wealthy individuals. This accumulation of capital has resulted in the family office becoming a leading player within the private capital markets. As household debt reaches record highs, it is evident that personal finances pose a huge challenge for most people. For high-net-worth families and individuals, the old saying 'more money, more problems' rings true, as managing large pools of capital and navigating the tax system generally exceed the capabilities of a single person or family. To assist with these tasks, families hire specialized financial experts known as single family offices and multifamily offices. Besides a spike in family offices all over the world, we have also discovered that many wealthy families, entrepreneurs and startups are increasingly turning to family offices as a means to attract and mobilize capital. Family offices are steadily establishing themselves as powerful investors. Here are seven reasons why family offices should be considered when raising capital for your business.
1. Business Savvy
In essence, family offices are made up of qualified professionals who offer a variety of wealth management services to families and individuals around the globe. Family offices typically have a minimum AUM (assets under management) of $50M+ and can shift funds more easily than large asset pools, such as pension funds. Most family offices utilize a broader range of investment opportunities and take a long-term approach when allocating capital. Family offices take an active role in asset management, employing their own expertise and strategically building relationships with trusted advisors. Most often, family offices will seek out one another to pool capital, share ideas, resources, and experiences.
2. Trust & Commitment
A successful family office relies on trust and commitment. As a result of their unique standards, individuals seeking family office investment must elevate their approach to ensure effective engagement. Connecting to the genuine passions, interests, and goals allows potential GP's to form a relationship and generate a level of trust.
3. Simplified Due Diligence Processes
In addition to facilitating the investment process, family offices are free from institutional mandates, intermediaries, and other standard due diligence procedures. Many wealthy individuals choose a family office model as a way to maintain direct control over their investment portfolios rather than allocating to private equity fund managers who charge high fees for little direct control.
4. Tailor-Made Structure
As opposed to traditional wealth management firms, family offices provide opulent families with an outsourced solution for managing their fortunes. Their structures are specifically designed to fit the needs of the family. The internal operations of a family office typically include private lawyers, fund managers, tax and trust specialists, senior bankers, real estate professionals, and executive assistants.
5. Increased Industry Exposure
Often, family offices take a more hands-on approach to investing in order to generate higher returns over time. As a result of diversifying into higher-yielding assets, such as real estate, industries across the board continue to attract family office capital due to their diversity and mass appeal. What’s more, a family office with sticky capital and high levels of sophistication will often invest in emerging markets such as healthcare or biotechnology.
6. Socially Responsible/Innovative Mindset
As a means of capital growth, family offices constantly reevaluate traditional approaches to investing. Investing in ESG (environmental, social, and governance) is not only socially responsible, but also fiscally advantageous. Sustainable investments are primarily made in education, housing, community development and agriculture. We expect that this trend will continue as family offices are taken over by the younger generation.
7. Privacy & Confidentiality
Family offices have existed for hundreds of years, but are still an unknown entity to many. They typically remain hidden to protect the privacy of their clients. The wealthy make every effort to live a 'normal' life, without the scrutiny of media outlets, journalists, etc. With that said, there has been a noticeable shift in the transparency of these wealth vehicles. Families offices are slowly emerging from the shadows as more investors turn to the space for financing, ultimately allowing for high quality deal flow.