The post-pandemic wealth boom has sparked an explosion in family offices, sparking a new gold rush among Wall Street firms, private equity funds and investment advisers to manage the fortunes of the world’s richest families. Family offices now manage more than $6 trillion in wealth, which by some estimates exceeds the roughly $4 trillion managed by hedge funds. They quickly became a powerful force in financial markets, mergers and acquisitions, cryptography and real estate, competing with many sovereign wealth funds, foundations and large corporations. As global wealth continues to grow, especially in Asia, experts say family offices will take on an even bigger role in the investment arena. “The size of the wealth is enormous,” said Andrew Cohen, executive chairman of JPMorgan Private Bank. According to Forbes, the wealth of the world’s billionaires grew by about $5 trillion to nearly $14 trillion between the low in March 2020 and the spring of 2022. While recent losses in the stock market, crypto, and other asset classes have eroded some of those gains, the wealthy (especially in the US) are still sitting on mountains of capital generated by fiscal and monetary stimulus. In the U.S., the top 1% of Americans alone added $11 trillion to their wealth since the start of 2020, bringing the total to $45 trillion in the first quarter, according to the Federal Reserve. Family offices typically serve investors with net worth of $100 million or more, although a growing number manage billions or even tens of billions in assets. They are secretive in nature, and most are not required by national financial regulators to disclose their positions or assets. Campden Research estimates there were more than 7,000 family offices worldwide in 2019, managing nearly $6 trillion, and industry experts say the number is likely to have only grown since then. Accounting consultancy EY estimates that more than 10,000 family offices around the world manage the wealth of a single family, at least half of which started this century. Families want more control As wealth grows, the shift to family offices is also driven by a change in how the wealthiest families manage their wealth. They want more control and less dependence on traditional wealth management firms and high fees, mediocre performance and product promotion. With more wealth being passed down to the next generation, younger investors also want more engagement and value-driven investing. And today’s global rich, many of whom built the multinational companies they sold, require a similarly expansive approach to their personal investments. Many billionaire hedge fund managers, who want less regulation or freedom from investor benchmarks and outside demands, are also moving to family offices. John Paulson and Leon Cooperman, for example, have become family offices in recent years. “Perhaps 35 years ago, the goal was financial security and maintaining prosperity. This is not the case today. Now it’s about finding opportunities.” Family Office Exchange Founder Sarah Hamilton “The investment world has become more sophisticated, so more families are responding to that sophistication,” Cohen said. “And we’re in this transformative time where multi-generational wealth is being passed on.” Of course, family offices have been around for centuries, most notably managing the fortunes of John D. Rockefeller and J.K. P. Morgan. Most still act as the “concierge” of a wealthy family, from arranging travel and managing the jet and car fleet to paying bills and managing property. They also typically deal with tax, estate planning, and next-generation inheritance issues. However, today’s larger family offices operate more like full-service global investment firms. They trade stocks, fixed income, currency, crypto and commodities. They buy residential and commercial real estate and land around the world. They invest in private equity and venture capital funds and increasingly make their own acquisitions and startup deals. The growth has turned family offices into a fast-growing sector for Wall Street banks and wealth management firms. Goldman Sachs, JPMorgan, Bank of America, Citigroup, Credit Suisse, UBS and Deutsche Bank are staffing their family offices and expanding their offerings. Their goal is to win more family office businesses by providing access to the same services and expertise as other institutional clients – from trading and lending to private equity, due diligence, technology and hedging. “You could have a family in the shipping business with 100 ships,” JPMorgan’s Cohen said. “They may need financing, currency and commodity hedging. Or you may have a family that sold a pharmaceutical business and want to replicate that profit and are looking for growth opportunities. So you can have multiple asset classes in different geographies for multiple generations.” Morgan Stanley’s Family Office unit, which is also expanding, began migrating family offices to a new asset-tracking platform last year and has added more than $25 billion in assets so far. “They think more like institutions than like families,” said Daniel DiBiazio, head of Morgan Stanley’s family office. “We believe that these ‘individuals’ are more deserving of a business-to-business relationship.” More family offices are also venturing out on their own to buy private companies, take partial stakes, and create startups. According to a report by UBS, which surveyed its family office clients, family offices hold about a third of their portfolios in equities, 11% in fixed income and about 10% in cash, which have remained fairly stable. According to the report, the share of family offices in direct capital and direct investment jumped from 16% in 2019 to 21% in 2021. The rest is in real estate and other assets. More than half of offices plan to increase their direct equity investment over the next five years—the largest share of any investment segment. Buying and financing companies directly means that family offices are now competing with venture capital firms and private equity firms for deals. MSD Partners, the investment firm that grew out of Michael Dell’s family office, recently hired Goldman veteran Greg Lemkov as CEO and last year acquired a 50% stake in the West Monroe digital consulting firm. The deal follows MSD Capital’s acquisition of Ring Container Technologies, a plastic container manufacturer, in 2017. BDP Capital Partners, founded by prominent banker Byron Trott, has committed about $30 billion to 41 companies, mostly run by families and founders – with most of the investment coming from business owners and family offices. Along with better returns, direct investment rewards family offices for longer. Corporate founders who have sold their businesses and opened a family office often want to stay active in the areas they know best and use their expertise to help open new success stories. “This new wave of first-generation liquidity from founders is driven by the potential to do it again and again,” said Sarah Hamilton, founder of Family Office Exchange. “They want to share their knowledge in different fields and have a real impact. Perhaps 35 years ago, the goal was financial security and maintaining prosperity. This is not the case today. Now it’s about finding opportunities.” Countries also compete for family offices. Singapore recently established a Family Office Development Group to guide and coordinate initiatives to attract more family offices. There is no capital gains tax in Singapore and family offices can apply for tax exemption on their income. The Wealth Management Institute has launched the Global Family Office Circle in Singapore to attract more family offices. According to GFO Circle, the number of family offices in Singapore has more than doubled since 2019. Recent additions include the family office of Nicky and Jonathan Oppenheimer of Diamond Dynasty, which recently announced the opening of an outpost in Singapore. Google co-founder Sergey Brin and British vacuum magnate James Dyson also opened family offices in Singapore. The growth of family offices, however, has also increased the demands for increased regulation. Because single-family offices serve only one family, they do not need to register with the SEC as investment advisers. Even family offices that serve more than one family often receive an exemption from the SEC to keep their filings confidential. Last year’s multibillion-dollar collapse of Archegos Capital Management, run by former hedge fund manager Bill Hwang, sparked renewed calls for more disclosure and restrictions. Representative Alexandria Ocasio-Cortez, R-N.Y., has introduced a bill that would require family offices to register with the SEC as investment advisers unless they control less than $750 million. “The Archegos implosion destroyed any rationale for exempting family offices from regulation and transparency,” said Dennis Kelleher, CEO of the nonprofit advocacy group Better Markets. Kelleher said Archegos has refuted the two main arguments for exempting family offices — that they do not pose a systemic risk and that they do not harm ordinary investors because they only invest in one family. Kelleher said the fact that Archegos inflated its portfolio from $1.5 billion to $35 billion and caused huge losses in several public stocks underscores the need for SEC regulation. However, so far the family office lobby is successfully fighting the new rules. They argue that the regulation will not prevent Archegos’ losses, which were misled by its brokerage firms. Meanwhile, experts say that as financial markets become more volatile and stocks fall, family offices have the flexibility, speed, balance and patience to continue to thrive even in a recession. “We’re talking about investors with time horizons of 100 to 200 years,” Hamilton said.
