FA Magazine May 2023 - Page 36


Treat A Family Office Like A Business

If you have a family office , you want to do more than simply get better investment returns .
By Liza Truax

FAMILY OFFICES , A ONCE SHROUDED AND sleepy corner of the investment world , have emerged as formidable participants in global capital markets . The number of family offices globally grew by 38 % from 2017 to 2019 and today they collectively control $ 6 trillion in assets , according to Campden Wealth , a membership organization . In 2021 , family office-backed deals accounted for 10 % of the entire deals market , according to PwC . That ’ s an unprecedented level .

That said , the term “ family office ” describes a very heterogeneous set of organizations — ranging from an overworked accountant and a harried assistant booking private jets , to venture funds , to fully operational asset managers . Some of this dispersion is by design , but mostly it ’ s because family offices tend to be “ built ” around what already exists ( teams , assets ) rather than “ designed ” from best practices as conventional businesses would be .
The families these offices are built around often have an intense desire for privacy , so the teams running the offices are often in the dark about the best practices used by their peers and they end up working in a vacuum . This lack of shared learning can lead to vastly different outcomes : from the multigeneration success of the Rockefellers to the financial-marketroiling downfall of Archegos Capital Management , the office of investor Bill Hwang .
Family offices have a unique potential to earn returns and effect positive change in society . They benefit from having multi-generational time horizons and a concentrated set of stakeholders , as well as a combination of financial and social capital from the owners . The advantages let the organizations fund projects that would be untenable for other institutions . For example , three of the most notable companies in the race to privatize space travel — SpaceX , Blue Origin and Virgin Galactic — were initially funded by family offices . And Bill Gates ’ s organization Breakthrough Energy , which aims to fund innovations that will lead to net zero emissions by 2050 , was started by a select group of private investors .
It ’ s important to reduce the chaos and improve the efficiency in this space if family offices want to do more than provide investment returns . But where does this transformation start ?
The key is to start treating family offices as businesses rather than extensions of an individual or family . The teams running the offices need to use the same care that created the wealth in the first place when they set the strategy , design operations and measure success . It is important that founders , families and their teams take time to think through these factors both at the outset and at critical inflection points if the true potential of each individual family office and the industry is to be realized .