The Modern Family Office is the Multi-Family Office
Category: Impact Investing
As part of a featured panel at Financial Advisor Magazine’s recent “Invest in Women” conference, Lisette Cooper highlighted why high net worth families are seeking economies of scale to get the most out of the family office structure
By Lisette Cooper, PhD, Managing Partner and CIO of Athena Capital Advisors
At Financial Advisor Magazine’s recent “Invest in Women” conference, held this spring in Dallas, I had a chance to discuss the evolution of the family office over the past 25 years. The most notable innovation is that the modern family office of today is almost exclusively becoming a multi-family office – one in which multiple families across different households and generations can pool their resources to access services and investments normally reserved for only the largest families and institutions.
The driving catalyst behind creating a family office is often a significant liquidity event, such as the sale of a business, a substantial inheritance or other windfall. This influx of capital typically prompts families to think through how to handle the full range of tasks involved in managing their wealth, from tax and administration to investment management and reporting. Conventional wisdom used to be that for families with as little as $100 million in investable assets a single-family office (SFO) was the most appropriate solution. But hiring a dedicated team is typically a multi-million dollar endeavor. Unless the single-family office (SFO) oversees a minimum of $1 billion of assets under management, the benefit of independence is quickly offset by high overhead costs. Multi-family offices (MFOs), which pool the capital of many families, are able to deliver the same level of service as an SFO, but keep costs down through economies of scale.
Consider, for instance, the attention and skillset required to access asset classes such as private equity. With over 3,500 general partners active in the market today, the due diligence required to differentiate between the top- and bottom-quartile funds can be a mammoth task best handled by highly-compensated specialists. The most attractive of these investments also often have high minimums, making access and diversification a significant challenge for all but the most well-capitalized SFO.
A multi-billion dollar MFO can typically aggregate minimum investment commitments across its entire client base to make portfolio construction and access more manageable. For example, the ability to negotiate fund terms is typically only reserved for cornerstone LPs who can write bigger checks. However, this same preferential treatment can also be achieved by savvy multi-family offices (MFOs) whose clients have pooled assets together for a larger investment and thereby more negotiating leverage. These benefits can include lower fees, direct co-investment opportunities, or side-letter agreements that spell out special considerations or reporting requirements. Those seeking to build a portfolio of impact investments, to cite one example, may want to be excused from certain making investments that go against their stated mission or investment policy statement and, at a minimum, these investors would want to have a seat on the fund’s advisory committee.
As my co-panelist, Whitney Kenter of Matter Family Office, identified at the conference, the family office structure provides far more than investment advice. There is financial stewardship that extends to governance, education and philanthropy. This is just as true for multi-family offices, which can facilitate wealth management strategies and bring to bear an educational component or a sense of shared discovery – often prompted by a trusted advisor -- to tease out and establish core values. This can create a basis for shared philanthropic endeavors or even impact investment strategies in which these values are incorporated directly into a family’s portfolio or through a sleeve that targets the causes a family deems most important.
Another benefit is the level of service that comes from an MFO’s deeper infrastructure. From the financial planning, governance and administration to business advisory and estate planning, MFOs provide the same hands-on services of an SFO, but without the excessive costs and without the “key man” risk.
It is for these reasons that the SFO is quickly ceding ground to the multi-family office. Moreover, as investors discover the level of specialization that can be delivered at scale and with care, we anticipate that the days of the single-family office could soon be numbered for all but the wealthiest families. It is telling, for example, that family offices such as Iconiq Capital, which manages capital on behalf of the Zuckerberg family and others, have adopted the MFO model. For those that truly want to get the most out of their investments – from both a financial perspective and as it relates to instilling core values across generations – the multi-family office is quickly becoming the model of choice.
An article by Financial Advisor magazine summarizing my panel and some of the other aspects covered at the conference can be found by clicking here. To read Athena's web summary on the article, click here.
Tags: Athena Capital, Athena Capital Advisors, estate plans, Financial Advisor, Impact Investing, Investment Advisor, Lisette Cooper, MFO, Multi-Family Office, philanthropy, SFO, Single Family Office, values, Wealth Advisor, Wealth Management