Family offices are appearing in the news more and more often. Savvy investors and businesses need to pay attention.
What is a family office?
Family offices are full-service private wealth management firms that serve just one family or a small number of ultra-high-net-worth families. These firms offer basic financial services, as well as customized concierge services, advanced planning services, charitable giving advice, and other customized offerings. While single-family offices serve just one family, multi-family offices serve a small group to benefit from economies of scale. Ernest & Young estimates that the threshold for starting or joining a family office is generally at least $200M of wealth under management.
How many family offices exist in the United States?
Because they often operate quietly, using unbranded offices and avoiding other marketing, it is often difficult to confirm how many family offices exist. In 2019, the Family Office Exchange estimated that there may be 10,000 single family offices in the United States. Ernest & Young’s research agrees, estimating at least 10,000 single family offices in existence globally, with at least half of these set up in the last 15 years.
Family office trends to watch
- Family offices are arguably the fastest-growing investment vehicles in the world today, as families with substantial wealth are increasingly seeing the virtue of using this management method. Family offices provide privacy and confidentiality, a beneficial governance and management structure, alignment of interest and goals, and also the potential for higher returns.
- Family offices are a driving force in the rise of Impact Investing. Family offices saw a 4.2 percentage point increase in impact investment participation in 2017, according to the UBS Global Family Office Report 2018. This means that one-third of family offices surveyed are now making impact investments, and more than half said that they would increase their impact investing allocations in the next year.
- More and more family offices are investing directly in businesses. Our team has noticed that more and more families are looking for ways to avoid paying management fees and performance charges. Families with experience in specific industries may also have an interest in applying their skills to new businesses, which can make direct investments appealing.
As mentioned above, family offices are relatively quiet and have minimal marketing channels, as compared to traditional private equity firms… so they are often not top of mind when a business owner is considering an exit strategy. But they should be. Given the long-term approach that many family offices take when making direct investments, family offices can provide a great partnership opportunity for business owners and should not be overlooked.
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