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Single Family Offices Emerge From Shadows To Win Hottest Deals

Tom Burroughes

24 January 2020

Single family offices in the US and possibly other parts of the world are getting more open about what they do and are becoming less obsessed about staying “under the radar” as they seek to capture deal-flow and as younger wealth holders take control. 

This is the view of those involved in a new study of family offices by . The 24-page study draws on the FINTRX database of contacts with more than 2,750 family offices around the world. 

As Family Wealth Report and its sister news services will attest, American SFOs tend to be more willing to talk about their activities, attend events where journalists and product/service vendors are present, than is the case with their peers in Europe and other regions. To some extent the concern for privacy and keeping out of the media is a particular cultural force in Europe, possibly driven by governments having at times been more hostile to great wealth than is the case in the more pro-capitalist US and Canada. The US family office segment is also much older and has given practitioners more time to work out how to conduct themselves. Family offices date back to the JD Rockefeller/J P Morgan/Carnegie heyday of the late 19th century. 

“Family offices are becoming a bit more public….they are building a web presence…this is also partly a generational issue. People are now more used to sharing information and they are seeking deal-flow,” Russ D’Argento, founder and CEO at FINTRX, told FWR in a call about the report. If family offices have a low or non-existent public profile they won’t show up on the radar of interesting investment propositions, he said. 

D’Argento spoke alongside Eddie Brown, head of Schwab Advisor Family Office. Schwab has invested considerably in the family offices space in recent months, and regards the area as an important growth opportunity, Brown said. Brown also agreed about single family offices in particular getting more high-profile.

The report, which is the first in a series from the organizations, said that there are anywhere between 3,500 to 5,000 family offices around the world that have one or more employees, $100 million or more in investible assets, and about 35 per cent are single family offices and 65 per cent are multi-family offices. (It is worth noting that some estimates, from the likes of EY, aka Ernst & Young, have pegged the industry total at around 10,000; others put it somewhat smaller than that.) The FINTRX/Schwab report said that about two-thirds of family offices are North American, a quarter are in Europe and the rest in Asia and rest of the world. Non-American family offices are growing the fastest – unsurprising as these are less mature and have more headroom. (Note: This news service has an exclusive partnership with , a UK-based data and analytics firm with a strong focus on the EMEA region's single family office sector. Click here for details.)

In another geographic twist, the report notes that there is a higher incidence of MFOs in Europe than in the US (75.1 per cent vs 61.8 per cent, respectively). The study explains this difference by arguing that North America has a longer heritage of single family offices; in Europe, more single family offices have opened their doors to other SFOs to share costs and obtain more benefits.

As far as where the most family offices are located, New York is top of the US league with 20 per cent, followed by California at 15 per cent, Texas at 8 per cent, Florida at 6.2 per cent and Illinois at 5.8 per cent. New York City has 18 per cent of all such organizations, followed by Chicago (3.9 per cent) and Dallas (3.4 per cent). 

Source of wealth
One notable finding of the report is identifying where family offices made their money from in the first place, because this can also mold how they invest and act. For example, 21.3 per cent of family offices made their money from investing and financial services – the largest group. Some 19.3 per cent of FOs made money because they were built by entrepreneurs; 14.3 per cent got the money from inheritance; and 8.0 per cent were driven by real estate wealth. Other segments, in descending order, are manufacturing and industrials (5.7 per cent); technology (5.1 per cent); retail (4.0 per cent); healthcare and pharmaceuticals (3.4 per cent); oil and gas (2.9 per cent); food and beverage (2.5 per cent); media and entertainment (2.1 per cent); distribution (1.8 per cent); sports (1.6 per cent); agriculture (1.2 per cent); automotive (1.1 per cent); telecoms (1.1 per cent); and others (4.6 per cent). 

If families make their fortunes from a specific sector, FWR has noticed that the trend for “direct investing” involves FOs putting money to work in the same area where they originally became rich. (This can create issues of diversification and risk if not addressed carefully.) FINTRX’S D’Argento agreed that this was a significant area. “We’ve also seen the direct investing trend gaining speed and haven’t seen any slowdown,” he said. Reasons for the trend include a desire for more hands-on control, a desire to cut out a layer of fees and to make use of a family office’s own knowledge and experience, as well as such resources of other FOs.

Family offices also like direct investing because it means they avoid losing out through “forced liquidity events that can arise when a private equity fund or VC fund has to exit investments to comply with its time-frame targets (such as promising investors to return capital after, say, 5 years),” he said.

The study drills down into asset allocation exposures across the family offices universe. More than  three-quarters of FOs (77.6 per cent) invest in private equity; 70.2 per cent invest in hedge funds; 66.6 per cent are in long-only investments (equities, debt); 59.6 per cent are in real estate; 41.2 per cent make direct investments and 30.6 per cent invest in venture capital. North American FOs are by far the keenest on private equity: 80.9 per cent of such family offices do so.

Schwab’s Brown is bullish about the family office sector’s growth potential. “We believe family offices will continue to grow globally to meet the needs of a growing population of ultra-wealthy families. The level of sophistication of today’s investor is higher than ever before,” he said. 

“As the family office market expands, a talent war is growing. The competition to attract and retain top professionals for both single and multi-family offices has intensified,” he added.

To view the report, click here.