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Smaller Single Family Offices Struggling - Study

Charles Paikert

Family Wealth Report

18 May 2010

Single family offices, especially those with less than $100 million in assets, may be at an “inflection point,” according to Robert Casey, senior managing director for research at The Family Wealth Alliance, and author of the association’s second annual Single-Family Office Study.

“The smaller ones are having trouble,” Casey told Family Wealth Report, “they’re facing increased costs, challenges with investments and human capital and they will be forced to register as investment advisors under the financial reform bill. All these factors have forced them to rethink what they’re doing and where they’re going.”

He also pointed to findings in the report that a number of SFOs may combine operations with other family offices, seek alliances with multi-family offices, or find a new provider and cease operations.

“I do not believe we will be able to continue as a single-family office," said one chief executive who participated in the study.

The study found that single-family offices were particularly concerned about their ability to manage their investments in-house and that more firms than ever are outsourcing their chief investment officer function, and looking for ways to achieve more reliable and less volatile investment returns.

Four in ten of the family offices surveyed said they employ an external CIO, up from three in ten in last year's study. And two-thirds of family offices with $500 million or less in assets now employ external CIOs, typically an investment consulting firm given responsibility to manage some or all of the family office's assets.

“There’s always been an element of do-it-yourself investing at single family offices,” Casey said. “They’ve been eating their own cooking and it hasn’t tasted so good for the last few years.”

When asked if they had sufficient expertise in-house to evaluate investment vehicles and strategies, one-third said they do not, up from 20 per cent last year.

Smaller family offices were even less confident in their capabilities. More than half of SFOs with assets in the $100 million to $500 million range believe they do not have sufficient investment expertise in-house, as did two-thirds of family offices with assets less than $100 million.

The study, which included 35 firms, with average assets under supervision of $605 million and aggregate client rosters that include more than 1,000 family members, found significant concern about the long-term viability of single-family offices. Overall, 58.8 per cent of participants said they were somewhat concerned or very concerned about the sustainability of their family offices in the years ahead.

That number rose to 83.4 per cent among family offices with less than $100 million in assets.

According to the Single Family Office Study, participating firms saw their assets fall 9.0 per cent last year.

Not surprisingly, firms said investments were their biggest challenge, along with family cohesion and governance.

Firms participating in the study had assets ranging from $51 million to $2.1 billion. Family Wealth Alliance estimated there are about 2,500 single-family offices in the US.