Generally speaking, finance is about wealth utilization. This means bringing in many clients and using cash, debt, and other instruments to grow that wealth. In popular indices, hot tech companies, booming private equities, and even just regular equities we see people in the magnitude of thousands or millions coming together to invest. The Walton family had asked neighbors and friends to help funding at the inception of Walmart. What if a single family, like the present day Walton’s, accumulates wealth to such a massive amount that a firm is needed to manage the wealth of ultra-high net worth investors? We get a family office. The Walton’s operate under Walton Enterprise LLC, but other whales are known within the financial community; Icahn, Soros Fund Management (starting as a hedge fund), Marcuard, and Matter. Although HSBC as a company manages the most by numbers, as McNeill, Ph.D. University of California, Berkeley has noted is just shy of $150 billion.
There are plenty of benefits to setting up a family office given the multitude of resources. In fact Ascent offers such as a wide array of services that they keep historians and scientists at all times to research genetic vulnerabilities of the family. Other benefits are financial planning, which can be burdensome when the amounts are nine digits and above, budgeting, and governance.
JPMorgan and the World Economic Forum have surveyed respondents (75% worth a minimum of $1 billion) to examine the inner workings of these offices. Their data suggests strong correlations between different offices from Zurich to Los Angeles. Their first data points suggest their focus and the discrepancy between the actual family members and the executive of the office. We see that the biggest spread is with wealth advisory, which is taken primarily by the executive. Additionally, we see that both groups are interested in managing financial assets of the family, and the family members are more interested in concierge and lifestyle services (as is expected). Social impact investing and philanthropy only make 15% and 11% of the family member and the office executive’s focus, the least of all the categories. How they invest may be the most valuable piece of finding JPM produced, showing that the financial elite aim to invest heavily in private equity & real estate. Direct active trading accounts for only 1% of a sole strategy being used. Outsourcing was also rare, although I suspect that will increase.
Different family offices differ in size. Most are generally a small amount of employees, we’re not talking 10,000 employees, but rather 1-15. The family office executive is generally rigorously headhunted for, and are usually extremely qualified private bankers or top senior directors at bulge bracket banks, especially at UBS. We see differences in family offices covering one household, versus two-five, and six and more. Generally speaking the greater the number of households the great diversity in services offered. There is an exception to this, that being concierge and lifestyle actually goes down. The biggest increases in services in correlation with the households covered is legal which jumps from 20% to 64% (disputes over family matters may be exasperating this number, as well as the general help of legal counsel for larger families).