The programme to set definitions of what a family office is has been launched by a members' club group for the sector. Its founder and CEO said there has been an "epidemic of false representation in the family office space." A challenge is that data on the total number of such entities, which can be structured in different ways, varies widely.

A private members club for family offices and investors has launched a vetting programme to squeeze out “fake” family offices from the sector at a time when it has grown rapidly worldwide.

AYU has launched the AYU Approved Family Office (AFO) Programme, it said in a statement yesterday. 

The initiative “addresses a growing issue of misrepresentation, ensuring that only verified family offices gain access to AYU’s network while providing them with a certified badge to demonstrate they are a genuine family office to the broader industry,” AYU said.

The AYU organisation was founded (2017) by its CEO Gus Morison (pictured); it brings together hedge funds, family offices, and alternative investment professionals through a digital platform and curated networking events. On his LinkedIn page, Morison vented his frustration about organisations which call themselves family offices when they’re not.

“There’s an epidemic of false representation in the family office space. All genuine family offices know about this elephant in the room, so many funds and founders too," he wrote. "Too many people call themselves a family office when they are not, hiding behind `privacy’ to obfuscate their actual role and intentions so they can get in the room or round the table with genuine wealth holders." 

Exact figures on the number of family offices operating worldwide vary considerably, with as many as 10,000 according to some definitions, while some observers suggest the number is somewhat less. Meanwhile, according to Deloitte, there are an estimated 8,030 single-family offices in the world today, up from roughly 6,130 in 2019. This number is projected to grow to more than 10,720 by 2030, a remarkable 75 per cent increase. 

The sector is hot: the number of family offices has surged in places such as Singapore, and jurisdictions such as the United Arab Emirates have been pushing their credentials as hubs. In Singapore, however, the trend has encouraged local regulators to tighten controls.

Fakes and the real deal
AYU said it has recognised the need to address the rise of “fake family offices” seeking to exploit exclusive access to high value investors and events. 

“This programme will raise the bar across the industry and help create a benchmark of transparency and integrity in wealth management,” Morison said in the AYU statement. The initiative will give certified family offices the ability to display an official stamp of verification, helping them to stand out. 

The test
To ensure only “credible” family offices join the AYU network, the group said eligible organisations must manage wealth on behalf of one or more ultra-high net worth individuals or families, with assets under management of above $50 million. They must also define their structure whether as a single-family office, a multi-family entity, or a family office offering external services, and demonstrate a commitment to ethical use of AYU’s platform.

AYU said there is no cost or obligation in seeking or gaining AFO status. In time, AYU will offer open access to a search function allowing anyone in the world to check if an individual is an approved AYU approved family office.

(Morison has, since 2013, been running the Hedgebrunch, an alternative investment network in the UK and abroad.)

(Editor’s comment: To qualify as a “family office,” the entity must not simply manage money for a family, but there ought to be an actual “office” structure that handles payments and receipts, a constitution or some framework holding a family together and some locus of decision-making. As such, some of the most important aspects of FOs are to do with governance, bill payment, trust and estate planning, etc. It is important for definitions to be kept tight, particularly as this sector is proliferating; inevitably, growth could cause dilution of the concept unless the line is held. I can recall when, 25 years ago, every investment firm seemed to be called a “hedge fund.” Definitions matter – particularly when regulators are watching and looking for new supposed dragons to slay.)