From a small northwestern observatory…

Finance and economics generally focused on real estate

NYC Family Office Club

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I had the very real pleasure of attending the Family Office summit in New York City last Friday.  The meeting drew together about 400 individuals, give or take, who are involved in various aspects of management or advice to family offices.   Greenfield was, of course, the one of the leading real estate advisory providers there.

For the uninitiated, a Family Office is more-or-less what it sounds like.  A family views its financial and other holdings as something to be managed for the benefit of the entire multi-generation family.  A very, very rough division might categorized those families with a billion dollars of net worth or more, families with $100 million to a billion, and families with aggregate net worth below $100 million.  For the first category, the family office is usually a separate business enterprise managing just that family.  It may directly employ one or more attorneys, accountants, and investment advisors, or at the lower end of the scale perhaps just one or two professional managers with other professionals on retainer.  The family office manager ensures that the assets are well invested and well managed, that the taxes and other bills get paid on time, and that the family estate is managed.

In the middle category, a professional manager may oversee several families, or in some cases a management team may oversee a dozen or more families.  The suite of services is somewhat less (estate management and day-to-day bill paying may not be on the table).  At the lower end, for families with $50 to $100 million in investable net worth, there are trust companies that manage the money and make sure the tax accountant gets everything needed.

It goes without saying that above a certain level, every wealthy family has some sort of family office.  To quantify this, the wealthiest 0.1% (that is, one tenth of one percent) of American families have an average net worth of $200 million.  Ahem… That’s 125,000 families.  It perhaps goes without saying that these families are shown the best investments, receive the best legal, accounting, and advisory services, and expect mind-boggling results.

Now, you’d think that the lessons learned from these uber-wealthy families and their advisors would have little to do with the average American family, but indeed that’s far from the truth.  Amazingly enough, the lessons learned here are applicable to every family in America, indeed the world.  I’ll summarize just a few.

  1. The family matters more than the money.  Indeed, the wealthy families I’ve spoken with manage their money carefully and purposefully to knit together the family across generations.  Even so, only 30% of earned wealth hangs around past the third generation.  Why?  The biggest single issue was family disputes.
  2. There is an extraordinary global industry of lawyers and others devoted to family reputational management.  Managing a family’s reputation is paramount.
  3. Most wealth families expect their investment advisors to preserve wealth.  They already know how to make money, they just don’t want their advisors to lose it.  That said, they don’t like blind pools, they want to be in control of private equity investments (but are open to partnering with other families or “sidecar” arrangements) and prefer private equity to public.
  4. Wealthy families and their investment managers are rarely open to an investment “pitch”.  They want to get to know an investment manager first, and may not be open to an investment until the third or fourth idea.

There were a lot of other details, and I’ll leave those for another time.

Written by johnkilpatrick

March 29, 2018 at 2:18 pm

Posted in Economy, Finance

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