This white paper focuses on the evolving nature of the family office including its structure, investment allocations, views toward emerging and established managers, as well as the challenges and concerns.
Traditional family offices generally had an operating business or sold the business. The family office was somewhere between running the operating business and taking care of the personal business for the family and usually outsourcing a small amount of money to outside managers. The traditional family office served as a way to diversity the family’s holdings.
Today, fewer family offices are run that way and more are run as diversified investment portfolios with tight risk management and savvy investment professionals.
Second generation families generally have less wealth than their parents due to the dilution effect. As a result, the focus is changing from wealth preservation to wealth accumulation. The second generation is seeking higher returns, are more opportunistic, relying more on a broader range of alternative investments and are taking a more active role in the family office than the first generation.
Family offices are increasingly involved in direct investments and co-investments. They are moving assets from hedge funds to private equity, diversified investments and defensive equity strategies. Niche investments and impact investing continue to grow in importance.
While family offices often criticize larger more well-known marquee names in private equity, venture capital and hedge funds for high fees, they still invest with them. Large manager names continue to show up in family portfolios because families are friends with the founders of these funds, or their institutional advisors recommend them.
However, family offices are comfortable with emerging managers and seed them on a case-by-case basis.
Families are concerned about the next market downturn and how to subsequently protect their capital, finding and gaining access to investment opportunities, being forced into established managers’ new funds in order to re-up investments in their existing funds, finding investment talent, high fees, transitioning wealth to the next generation, time management as well as dealing with the new tax laws in the United States.