market anomaly

The term family office can refer to a family controlled investment group, and also the two major terms: single family office (SFO) or multi-family office (MFO). The distinction is important since, despite the similar names, they provide significantly different services. This article refers principally to single family offices, which are the predominant forms of family offices today. An SFO is a private company that manages investments and trusts for a single family.[1] The company’s financial capital is the family’s own wealth, often accumulated over many family generations. Traditional family offices provide personal services such as managing household staff and making travel arrangements. Other services typically handled by the traditional family office include property management, day-to-day accounting and payroll activities, and management of legal affairs. Family offices often provide family management services, which includes family governance, financial and investment education, philanthropy coordination, and succession planning.[2] A family office can cost over $1 million a year to operate, so the family’s net worth usually exceeds $100 million. Recently, some family offices have accepted non-family members.[3]

More recently the term “family office” or multi family office is used to refer primarily to financial services for relatively wealthy families.[4]

History:

According to the New York Times the Rockefellers first pioneered family offices in the late 19th century. Family offices started gaining popularity in the 1980s, and since 2005, as the ranks of the super-rich grew to record proportions family offices swelled proportionately.[5]

Traditional and modern usage:

A traditional single family office is a business run by and for a single family. Its sole function is to centralize the management of a significant family fortune. Typically, these organizations employ staff to manage investments, taxes, philanthropic activities, trusts, and legal matters. The purpose of the family office is to effectively transfer established wealth across generations. The family office invests the family’s money, manages all of the family’s assets, and disburses payments to family members as required.

The Family Office Council, the membership group for single family offices, defines a single family office as “An SFO is a private organisation that manages the investments for a single wealthy family. The assets are the family’s own wealth, often accumulated over many family generations. In addition to investment management some Family Offices provide personal services such as managing household staff and making travel arrangements.

Other services typically handled by the traditional Family Office include property management, day-to-day accounting and payroll activities, and management of legal affairs. Family Offices often provide family management services, which includes family governance, financial and investment education, philanthropy coordination, and succession planning.”[6]

The office itself either is, or operates just like, a corporation (often, a limited liability company, or LLC), with a president, CFO, CIO, etc. and a support staff. The officers are compensated per their arrangement with the family, usually with overrides based on the profits or capital gains generated by the office. Often, family offices are built around core assets that are professionally managed. As profits are created, assets are deployed into investments. In addition, a more aggressive and well-capitalized office may be engaged in private equity and venture capital opportunities, as well as sponsoring hedge funds and owning large amounts of commercial real estate. Many family offices turn to hedge funds for alignment of interest based on risk and return assessment goals. Some family offices remain passive and just allocate funds to outside managers. [7]

 

https://en.wikipedia.org/wiki/Family_office

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