Speaking to a couple of larger family offices recently, the topic of investing for other’s came up. They were either looking at taking on outside money or have decided to give it back.
There are some specific skill sets present in the family office space, usually in direct investments (companies, property etc) or asset management (portfolio construction, manager selection etc). And it’s this internal skill set that can be looked at by other family offices or individuals as a resource they would like to tap into.
Whilst the idea of taking outside investors seems attractive (increased ticket sizes, co-investments, potential transaction fee/MER), there is also the added complexity of managing other people money. When they call themselves a multi-family office, they have often become a wealth manager, and the risk and compliance burden start.
For any families looking at this option, some things to consider:
Alignment of Interests and Investment Philosophy
Ensure that the investment objectives, risk tolerance, and overall philosophy of the new investors align with yours. Having investor conversations is difficult at the best of times, let alone when you don’t agree on major aspects such as investment horizon and return expectations.
Regulations and Compliance
Regulations and Compliance
Bringing in outside investors may subject the family office to increased regulatory oversight and compliance requirements. You need to be prepared to handle these additional responsibilities and the associated costs.
Operational Infrastructure and Capacity
If you think it’s hard managing the reporting of one family, accurate and timely detail for several can be extremely difficult – especially if you don’t have the right infrastructure. This cannot be done on Excel or any platform that doesn’t have an adviser version of the software.
You also need to assess whether staff can handle the increased workload and complexity that comes with managing outside money, or if they need to invest in additional resources or outsourcing certain functions (particularly operational staff).
Confidentiality and Control
Family offices are often established for privacy and control – two things that can be affected by taking on “clients” as they may need to disclose more information about their investments, strategies, and financials to external investors.
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